Engineering
sustainable growth
Annual Report 2018
S
p
i
r
a
x
-
S
a
r
c
o
E
n
g
i
n
e
e
r
i
n
g
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
Engineering sustainable growth
Spirax-Sarco Engineering plc is a multi-national
industrial engineering group, with expertise in
the control and management of steam, electrical
thermal energy solutions, peristaltic pumping
and associated fluid path technologies.
Further reading
Values and culture
Our revised Values shape our
Company culture and provide the
foundation upon which we work.
See pages 5 and 59
Strategy update
Our Group Chief Executive
reviews 2018 progress by strategic
theme, including an update on the
integration of our 2017 acquisitions.
See pages 20–25
Business model
Our core activities, competitive
strengths and stakeholder value
creation are explained in
our business model.
See pages 12–15
“ Direct sales play a pivotal
role in Spirax Sarco’s success,
uniquely positioning us to
meet customer needs.”
Prashant Singh
Sales Engineer,
Spirax Sarco
Our Company purpose is to create sustainable
value for all our stakeholders, by helping the
users of our products and services to:
• increase operational efficiency,
• reduce environmental impacts,
• improve product quality,
• provide safer working environments, and
• achieve regulatory compliance.
During 2018 we maintained a rigorous focus
on implementing our strategy for organic
growth, reviewed and refreshed our Values,
and embedded our new businesses,
Gestra and Chromalox, into the Group.
These businesses, which were acquired in 2017,
have further increased our diversity in terms of
products, operations, markets, customers and
employees, additionally strengthening the Group
as a whole.
Our diverse Group, customer-focused business
model, Values, Company purpose and strategy
for organic growth serve as a robust and
sustainable growth platform for the exciting
growth and investment opportunities that lie
in our path.
For more information visit
www.spiraxsarcoengineering.com
A snapshot of 2018
for the year ended 31st December 2018
• Revenue growth of 15%, organic sales growth of 7%
• Adjusted operating margin of 23.0%, down 60 bps;
organic margin up 120 bps to 25.2%
• Strong organic sales growth in Steam Specialties and Watson-Marlow
• Gestra and Chromalox performing well
• Net debt of £235.8 million as at 31st December 2018, 0.8x EBITDA
• Full Year dividend increased by 14%
2018 key figures
Revenue £m
Return on capital employed %
KPI
2018
2017
2016
2015
2014
1,153.3
998.7
Organic
growth %
7
6
4
2
4
KPI
2018
2017
2016
2015
2014
757.4
667.2
678.3
54.9
52.9
47.9
44.1
44.3
Adjusted operating profit £m
H&S accidents with over 7 days
of lost time per 1,000 employees
KPI
2018
2017
2016
2015
2014
Margin %
KPI
264.9
23.0
2018
235.5
23.6
2017
180.6
23.8
2016
152.4
153.0
22.8
2015
22.5
2014
Adjusted*
Revenue
Adjusted operating profit*
Adjusted operating profit margin*
Adjusted profit before taxation*
Adjusted basic earnings per share*
Dividend per share
Cash conversion**
Statutory
Revenue
Operating profit
Operating profit margin
Profit before taxation
Basic earnings per share
2018
23.0%
2017
£1,153.3m £998.7m
£264.9m £235.5m
23.6%
£254.6m £229.1m
220.5p
87.5p
86%
250.0p
100.0p
91%
2018
2017
£1,153.3m £998.7m
£299.1m £198.9m
25.9%
£288.8m £192.5m
214.4p
303.1p
Reported
+15%
+50%
19.9% +600 bps
+50%
+41%
3.5
3.0
3.4
3.3
Reported
+15%
+12%
-60 bps
+11%
+13%
+14%
5.4
Organic†
+7%
+12%
+120 bps
Contents
1
2
4
6
8
10
Strategic Report
Summary of results
Chair’s Statement
Our Group at a glance
The industries we serve
Investment case
Group Chief Executive’s
Statement
12
Our business model
16
Realising our purpose
20
Our strategy
26
Key Performance Indicators
Risk management
28
Group Chief Executive’s Review 34
of Operations
Our performance at a glance
Steam Specialties
Steam Specialties: EMEA
Steam Specialties: Asia Pacific
Steam Specialties: Americas
Chromalox
Watson-Marlow
Financial Review
Sustainability Report
36
38
40
42
44
46
48
50
55
Governance Report
Our governance
Chair’s introduction
Board leadership and
Company purpose
Board of Directors
Division of responsibilities
Composition, succession
and evaluation
Audit, risk and internal control
Remuneration
Regulatory disclosures
Statement of Directors’
Responsibilities
66
68
70
72
74
78
82
90
120
123
134
125
132
Financial Statements
Independent Auditors’ Report
Consolidated Statement of
Financial Position
Consolidated Income Statement 133
Consolidated Statement of
134
Comprehensive Income
Consolidated Statement
of Changes in Equity
Consolidated Statement of
Cash Flows
Notes to the Consolidated
Financial Statements
Company Statement of
Financial Position
Company Statement of
Changes in Equity
Notes to the Company
Financial Statements
136
137
179
180
181
Corporate Information
Consolidated financial summary 188
189
Our global operations
194
Officers and advisers
* All profit measures exclude certain items which totalled £34.2 million for the year ended 31st December 2018, as set out and
explained in the Financial Review and in Note 2.
** Cash conversion measures the percentage of adjusted cash from operations to adjusted operating profit as explained in the
Financial Review and in Note 2.
† Organic percentage growth measures are at constant currency and exclude contributions from acquisitions and disposals.
1
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Chair’s Statement
A year of sustainable growth
In 2018, an important internal
milestone was reached as the
Group’s sales exceeded £1 billion
for the first time in our history.”
Jamie Pike
Chair
Key points in this section:
• £1,153.3 million sales; 7% organic increase*
• £264.9 million adjusted operating profit; 12%
organic increase*
• Incremental impact of acquisitions added 12% to
sales and 6% to adjusted operating profit
• Total Ordinary dividend increased 14% to 100.0p
per share
* Unless otherwise stated, all profit measures exclude certain items, as set out and
explained in the Financial Review and in Note 2. Organic measures are at constant
currency and exclude contributions from acquisitions and disposals.
Basic earnings per share* p
KPI
2018
2017
2016
2015
2014
* Based on adjusted operating profit.
Dividend per share p
2018
2017
2016
2015
2014
Special dividend
2
250.0
220.5
171.5
142.6
140.4
100.0
87.5
76.0
69.0
64.5
120.0
Introduction
Following the retirement of Bill Whiteley in May, I was delighted to
take on the role of Chair of Spirax-Sarco Engineering plc. This is
a remarkable company, with a strong record of growth and I look
forward to being part of its further progress over the coming years.
During 2018, a number of events occurred that reflect the respect that
our shareholders and others have for the Company. In November,
our Spirax Sarco sales and manufacturing company in China won
the prestigious “British Company of the Year Award” at a ceremony in
Beijing, hosted by the British Chamber of Commerce in China. In early
December, for the third consecutive year, the Group was voted top of
its sector (Engineering and Machinery) in the “Britain’s Most Admired
Companies Awards” and, effective from 24th December 2018, the
Group entered the FTSE 100 Index.
In addition to these external recognitions, an important internal
milestone was reached as the Group’s sales exceeded £1 billion for
the first time in our history. Strong organic growth, combined with the
incremental benefit of the acquisitions made in 2017, contributed to
this significant result.
Financial highlights
Sales for the year were £1,153.3 million, an organic increase of
over 7%; exceeding global industrial production growth of 3.3%1.
Currency movements became a headwind in 2018, reducing sales
on translation by 2%. The incremental impact of acquisitions made
in 2017 increased sales by 12%, while the divestment of HygroMatik,
on 30th November 2018, had a small impact on sales. As a result,
reported sales were 15% higher than 2017. Our Watson-Marlow Fluid
Technology business had another strong year, with organic sales
up 9%. The Steam Specialties business also performed well with
organic sales up almost 7% and gains in all segments. Gestra, which
is reported within the Steam Specialties business, performed ahead
of our expectations for sales growth, delivering a 10% increase in
sales on a full year basis. Chromalox, which is reported as a separate
business, delivered year-on-year sales growth of 9%.
On an organic basis, Group adjusted operating profit increased
by over 12% to £264.9 million. Watson-Marlow delivered organic
adjusted operating profit growth of 11% while the Steam Specialties
business was up 12%. Translation and transaction currency
movements reduced adjusted operating profit by 4%, while the
incremental impact of acquisitions added 6%. Total adjusted
operating profit was up 12%.
The Group adjusted operating margin fell by 60 bps, to 23.0%, due
to currency impacts and the full-year dilutionary effect of the 2017
acquisitions. Excluding the effects of acquisitions and currency, the
adjusted operating margin increased by 120 bps to 25.2%, aided by
the growth in profits in Argentina as a result of the peso’s devaluation.
The Group adjusted pre-tax profit was £254.6 million, 11% ahead.
Adjusted basic earnings per share was 13% ahead at 250.0 pence
(2017: 220.5 pence).
The pre-tax profit on a statutory basis was £288.8 million
(2017: £192.5 million) and includes certain items explained in
Note 2. The statutory basic earnings per share was 303.1 pence
(2017: 214.4 pence).
1 Source for industrial production growth figures: Oxford Economics, World Economic
Prospects Monthly, February 2019.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Cash and dividends
Cash generation was robust throughout the year, with good cash
conversion of 91% (2017: 86%). On 30th November we disposed
of HygroMatik GmbH for a total cash consideration of €59.0 million
(£52.3 million) on a debt-free, cash-free basis. At 31st December
2018 we had a net debt balance of £235.8 million, a net debt to
EBITDA ratio of 0.8 times, compared with net debt of £373.6 million
at 31st December 2017.
The interim dividend for 2018, paid on 9th November 2018, was
raised by 14% to 29.0 pence per share (2017: 25.5 pence per share).
The Board is recommending an increase in the final dividend of 15%
to 71.0 pence per share (2017: 62.0 pence). Subject to approval of
the final dividend by shareholders at the AGM on 15th May 2019, the
total Ordinary dividend for the year will be 100.0 pence per share, an
increase of 14% over the 87.5 pence per share for the prior year.
Corporate governance
Bill Whiteley retired at the conclusion of the Annual General Meeting
(AGM) on 15th May 2018, having served as a Director for 16 years
and as Chair for nine of those years. On behalf of the Board and
shareholders, I would like to thank Bill for his significant contribution to
the Group’s success during his tenure on the Board.
I took over as Chair at the close of the 2018 AGM, having joined the
Board in 2014 as Senior Independent Director. In compliance with
the UK Corporate Governance Code, following my appointment
as Chair, I resigned as a member of the Audit and Remuneration
Committees, and was appointed Chair of the Nomination Committee.
I also stepped down as Chairman of Ibstock plc, to ensure that I have
sufficient capacity to fulfil my duties at Spirax Sarco.
As a consequence of my appointment, Clive Watson was appointed
Senior Independent Director, while maintaining his role as Chair of the
Audit Committee.
On 6th March 2018, Peter France joined the Board. From 2008 to
July 2017, Peter was Chief Executive at Rotork plc and brought with
him a wealth of experience and expertise, enabling him to make
an immediate contribution to the workings of the Board. Peter is a
member of the Audit, Remuneration and Nomination Committees.
On 5th March 2019, Caroline Johnstone joined the Board.
Caroline is a chartered accountant and was a partner in
PricewaterhouseCoopers (PwC) until 2009. She is currently
an Independent Non-Executive Director and Chair of the Audit
Committee of Synthomer plc and Shepherd Group Ltd, a private
company which owns Portakabin Limited. Caroline is a member of
the Audit, Remuneration and Nomination Committees.
Employees
On behalf of the Board, I would like to thank all our employees
throughout the world for their individual and collective contributions
that have enabled us to deliver another strong set of results in 2018.
Summary and outlook
Global industrial production growth rates, which are a good indicator
of our market conditions, slowed throughout the year resulting in
growth of 3.3% in 2018 compared with 3.6% in 2017.
There is a higher degree of uncertainty regarding industrial production
growth rates in 2019, with the latest indications suggesting that global
growth will be lower than seen in 2018, at around 2.6%. We will
continue to focus on implementing our strategy which enhances
our ability to outperform our markets and self-generate growth.
Recent acquisitions have also expanded the platform for future
organic growth as we invest in strengthening the direct sales models
of those businesses and broadening their global presence.
Sterling strengthened modestly during the year against most of
the currencies in which we trade. The currency outlook for 2019 is
particularly uncertain, with Brexit negotiations continuing to cause
volatility. If current exchange rates were to prevail for the remainder
of the year there would be no material impact of translation and
transaction on sales and operating profit for the full year, compared
with the full year 2018. Movements in exchange rates are often
volatile and unpredictable, therefore the actual impact could be
significantly different.
Given the forecasted slowdown of industrial production growth in
2019, we anticipate organic sales growth for the Group to moderate,
off a base adjusted for the divestment of HygroMatik and the
devaluation-driven uplift in Argentina. We expect Watson-Marlow
to continue to outperform the Group average with mid-to-high
single-digit organic sales growth as its key Pharmaceutical and
Biotechnology markets remain robust.
We anticipate that the Group adjusted operating profit margin in
2019 will be at a similar level to 2018 despite the absence of the
higher margin HygroMatik and the devaluation-driven profit boost
from Argentina.
Assuming no significant deterioration in trading conditions, the Board
expects to make further progress in 2019.
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.
• The Annual Report for 2018, 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.
• The Directors have a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they fall
due over the three-year period to 31st December 2021. For the full
Viability Statement, see page 89.
• The Annual Report contains the information required for
compliance with the Companies, Partnerships and Groups
(and Non-Financial Reporting) Regulations 2016, see page 56.
• The Strategic Report was approved by the Board on
6th March 2019.
Signed by:
Jamie Pike
Chair
on behalf of the Board of Directors
6th March 2019
3
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our Group at a glance
A world-leading industrial engineering Group
Thermal Energy Management
Industrial and commercial
steam systems
Electrical process
heating and temperature
management solutions
Niche peristaltic
pumps and associated
fluid path technologies
F i r s t f o r S t e a m S o l u t i o n s
EMEA Asia Pacific Americas
F l u i d Te c h n o l o g y G r o u p
See pages 38-45
See pages 46-47
See pages 48-49
Segmental reporting
Our segmental reporting is consistent
with how we present management
information to the Board. A detailed
segmental breakdown is provided in
Note 3 of the Consolidated Financial
Statements on pages 146 to 148.
A performance review by operating
segment is set out on pages 38 to 49.
2018
EMEA*
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate expenses
Total
Revenue
£m
344.4
232.7
156.4
733.5
154.6
265.2
Change
Reported
+13%
+7%
+3%
+9%
Organic
+4%
+7%
+12%
+7%
+7%
+9%
1,153.3
+15%
+7%
Adjusted
operating
profit £m
Change
Reported
Organic
69.3
63.9
36.9
170.1
22.8
84.8
(12.8)
264.9
+5%
+12%
+17%
+10%
-1%
+13%
+40%
+12%
+6%
+11%
+12%
+12%
* Europe, Middle East and Africa.
Revenue by segment %
Adjusted operating profit by segment* %
64%
30%
23%
20%
13%
14%
Steam Specialties
EMEA
Asia Pacific
Americas
Chromalox
Watson-Marlow
61%
25%
23%
31%
13%
8%
Steam Specialties
EMEA
Asia Pacific
Americas
Chromalox
Watson-Marlow
* Before corporate expenses of £12.8 million.
4
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Global operations*
Map key
Operating units
Sales offices
Distributors
* Global operations at time of
publication, March 2019.
A diverse and expanding Group with
presence in all key industries and markets
We operate in both mature and emerging economies and
in almost all industrial sectors, with 122 operating units in 47
countries and a direct sales presence in 62 countries. In 2018
we further expanded our direct sales coverage and added five
operating units to our Group. Our geographic and sector diversity
is a competitive strength.
Further reading
Details of the industries we serve and our geographical expansion in 2018.
See pages 6-7 and 22
Our values
During 2018 we reviewed, revised and communicated our Values
to our enlarged Group. These values provide the foundation upon
which we make decisions, drive innovation and manage our global
operations. They define our culture and expected behaviour,
and make us more competitive in the marketplace and a better
company to work for.
See pages 59 and 69
Our diverse business
7,500+ people
1,600+ sales and service engineers
122 operating units**
62 countries with a direct sales presence
1,500 core product lines
100,000+ direct buying customers‡
** Operating units are business units that invoice locally.
‡ Actively purchasing in the last 24 months.
“ Our positive Company culture, which
is shaped by our Values, is a core
component of the Group’s success.”
Claire Johnson
Group Human Resources Manager
5
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
The industries we serve
We apply our expertise in engineering
products and solutions across a
diverse range of sectors and end users.
Pharmaceutical
& Biotechnology
16%
of Group
revenue
Oil & Gas
7%
of Group
revenue
Chemical
7%
of Group
revenue
Food
17%
of Group
revenue
Beverage
3%
of Group
revenue
OEM Machinery
14%
of Group
revenue
Food
Steam is used for blanching, cooking, baking, packaging,
cleaning and sterilising. Electric heating elements are used
in commercial food equipment. Pumps are used to meter
ingredients, deliver food to process lines and handle
process waste.
Beverage
Steam is essential for brewing and distilling processes.
It is used to protect product quality and flavour, and
ensure compliance with industry standards. Pumps are
used to transfer fruit, juice, concentrates, yeast and
other additives.
Pharmaceutical & Biotechnology
Clean steam reduces the risk of product and process
contamination; electrical heating is used in a wide range
of process heating applications; our peristaltic pumps,
valves and single-use components enable precise flow
control and fluid isolation.
OEM Machinery
Original Equipment Manufacturers (OEMs) are companies
that build and supply machines for use in industry.
Our activities with OEMs vary from simple product supply
to advising on machine performance improvements and
process plant design.
Oil & Gas
Electrical heating products increase fluid viscosity, deliver
freeze protection and help separate natural gas, crude oil
and water during extraction. Our steam products enable
optimum steam system performance and reduce energy
use during oil and gas production.
Chemical
Steam and electricity are widely used as an energy
source in chemical production and product processing,
while our pumps are used to safely and accurately
transfer and dose critical chemical components.
Healthcare
Steam is used in hospitals and clinics for space heating,
hot water production, humidification and sterilisation.
Pumps and associated equipment are used in the
manufacture of products for the Healthcare industry.
Power Generation
Electrical heat technologies are widely used to optimise
power generation. Steam turbines transfer chemical
energy in fuel into electrical energy and steam is used to
distribute and re-use waste heat formed during the power
generation process.
6
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Water &
Wastewater
3%
of Group
revenue
Healthcare
4%
of Group
revenue
Buildings
4%
of Group
revenue
Power
Generation
4%
of Group
revenue
Pulp & Paper
2%
of Group
revenue
Mining & Precious
Metal Processing
3%
of Group
revenue
Buildings
Steam is used to provide space heating, humidification
and hot water in public and private buildings, while our
electrical products are used for hot water and heat
generation, snow melting, gutter and roof de-icing, and
frost-heave prevention.
Mining & Precious Metal Processing
Peristaltic pumps reduce water, energy and chemical use
and increase productivity while moving and processing
abrasive ores and slurries. Electrical heating is used for
temperature maintenance and space heating for workers.
Water & Wastewater
Peristaltic pumps are used to dose chemicals during
water treatment processes and to transfer viscous and
abrasive slurries. Electrical heating solutions provide
freeze protection, temperature maintenance and space
heating in water treatment plants.
Pulp & Paper
Our steam, electric and pump products facilitate
the accurate control of critical processes, such as
washing, bleaching, dyeing, drying and finishing, in the
manufacture of paper and a wide range of domestic and
industrial tissues.
Core product expertise
Steam
Specialties
F i r s t f o r S t e a m S o l u t i o n s
Industrial and commercial steam systems, including
condensate management, controls and thermal
energy management products and solutions
Typical uses: heating and curing, cleaning and
sterilising, hot water generation, space heating
and humidification
Characteristics of steam: high energy content,
easy to control, environmentally safe, clean and sterile
Typical customer benefits: improved process
efficiency, product quality and safety; reduced
waste; lower CO2 emissions, energy and water use;
less maintenance downtime; and compliance with
industry standards
Electrical thermal
energy solutions
Electrical process heating and temperature
management solutions, including industrial
heaters and systems, heat tracing and a range of
component technologies
Typical uses: electrical heating for industrial
processes, freeze protection and component heating
for industrial heaters and systems
Characteristics of electrical solutions: easy to
incorporate, install and maintain, high temperatures,
controllable, no emissions at point of use
Typical customer benefits: more efficient industrial
processes through improved thermal energy
management and control systems
Peristaltic pumping &
associated fluid path
technologies
F l u i d Te c h n o l o g y G r o u p
Peristaltic and niche pumps and associated fluid path
technologies, including pumps, tubing, specialty filling
systems and products for single-use applications
Typical uses: fluid transfer in a wide range of pumping
applications from those requiring sterility and accuracy
to high volume pumping of corrosive materials
Characteristics of peristaltic pumps: fluid is
contained within a tube: a sterile tube makes a sterile
pump, and abrasive or corrosive fluids cannot damage
the pump; gentle and highly accurate pumping;
low maintenance
Typical customer benefits: more accurate, reliable
and efficient fluid transfer
7
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Investment case
Significant income from maintenance and operations expenditure
1
85%*
of Group revenue is generated from annual maintenance
and operational (opex) budgets, rather than from capital
(capex) budgets.
Why is this important?
Capex budgets are more likely to be cut during periods of
slower growth or recession. Therefore, the high proportion of
revenue deriving from opex budgets gives us resilience during
economic downturns. Additionally, through our direct sales
approach, we are able to self-generate business by providing
bespoke engineered solutions, typically with better margins.
50%
15%
e x
g e t s
p
c a
b u d
opex bu d g
e ts
35%
* Based on internal estimates.
Maintenance and repair sales
that maintain existing systems,
supported by the end users’ opex
budgets, with a typical invoice value
of around £1k
Small project sales that improve
existing systems, supported by
the end users’ opex budgets, with a
typical invoice value of £10k-£50k
Large project sales that build
new systems, supported by the end
users’ capex budgets, with a typical
invoice value of over £100k
Serving less cyclical industries
2
50%*
of Group revenue is derived from defensive, less
cyclical end markets, including: Food & Beverage,
Pharmaceutical & Biotechnology, Healthcare and
Water & Wastewater.
Why is this important?
Not only do we derive revenue from a diverse range
of industry sectors, we also have an excellent balance
between higher-growth end markets and those that are
more defensive and resilient.
1%
1%
2%
14%
3%
3%
4%
4%
4%
Food
Beverage
Pharmaceutical & Biotechnology
17%
3%
16%
OEM Machinery
Oil & Gas
Chemical
Healthcare
Power Generation
Buildings
14%
7%
7%
Mining & Precious Metal Processing
Water & Wastewater
Pulp & Paper
Rubber & Plastic
Textiles
Other
*
Based in internal estimates. Where there is little visibility of end user industry sector (primarily in sales via distributors), sales have been allocated across industries on a pro-rata basis.
In 2018 these “unknown” sales accounted for 22% of total revenue. OEM sales to identifiable industries have been allocated to those industries. Sales to OEM customers accounted
for 20% of Group revenue in 2018.
Targeting self-generated growth
3
35%*
of revenue is derived from self-generated opportunities.
This reflects our overall strategic objective to deliver
self-generated growth to outperform our markets.
We achieve this by staying close to our customers –
through our direct sales approach – understanding their
system requirements and providing them with innovative
products and solutions to solve their process challenges.
* Based on internal estimates.
8
Why is this important?
By focusing on self-generated growth we unearth problems
and design solutions that deliver significant operational benefits
for customers. Typically, these bespoke, engineered projects
have higher margins and relatively quick sign-off timeframes
as they are funded by maintenance and operational budgets
at plant level. As we deliver engineered solutions we reinforce
our customers’ trust in our engineering expertise and forge
sustainable partnerships.
Further reading
Our direct sales approach is our greatest competitive advantage and is
covered in more detail in our business model and customer case studies.
See pages 12-19
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Our long-term market growth drivers remain positive
4
14%*
share of our addressable markets, which were valued
at £8.5 billion at the end of 2018. Our markets have
significant growth potential due to a number of positive
long-term market drivers (see table opposite) at a
macroeconomic and sector level.
Why is this important?
Our long-term growth prospects are promising. Despite being
the market leader in both steam and peristaltic pumping,
we have a relatively small share of these large addressable
markets. With just a 6% share of the electrical thermal energy
market globally we have good opportunities for growth.
We can grow by targeting self-generated sales, extending our
geographical reach and increasing our addressable markets
through innovative product development. In addition, our overall
addressable markets and sectors continue to demonstrate
headroom for long-term growth.
Further reading
Global industrial production growth rates give a good indication of
market conditions.
See pages 38-49
£1.4bn
Niche pumps and associated
equipment market
19%
Watson-Marlow
market share
£4.6bn
Steam Specialties
market
Total addressable
market size
£8.5bn
£2.4bn
Electrical thermal energy
management market
6%
Chromalox market share
Steam Specialties
addressable market
Steam Specialties market share
16%
Steam Specialties
market share
Chromalox market share
Watson-Marlow
addressable market
Chromalox addressable market
Watson-Marlow market share
* Based on Spirax Sarco internal estimates.
The revised market size reflects underlying changes in market segment sizes,
expansion of the addressable market as a result of product development and the impact
of exchange movements.
Long-term market growth drivers
Population growth
Increased consumption and demand in all our major industry sectors.
Economic development in emerging markets
New markets and increased consumption.
Ageing population
Increased demand for healthcare and pharmaceutical products.
National and international climate change mitigation
strategies
Requirement for companies to manage energy more efficiently,
increasing demand for energy management products and services.
Increase in global energy consumption
Increased investment in the Oil & Gas industry and demand for energy
management solutions.
Industrial production
Our markets reflect changes in industrial production but our sales
have consistently outperformed them as we have expanded our
addressable markets, extended our geographic penetration and
grown our market share.
Our competitive landscape
As the global market leader in both steam systems and
peristaltic pumping, and a significant player in the electrical
thermal energy market, we have a strong competitive position
in relatively fragmented markets.
Our competitors generally fall into two categories: system
specialists that supply a wide range of products and services,
and product specialists that compete on a small part of our
product range. Most system specialists are relatively small,
privately owned, regional players, while product specialists lack
the whole system expertise and application knowledge offered
by our direct sales force. Our broad product range, global
presence, applications knowledge and direct sales business
model give us a strong competitive advantage in our markets.
“ Pharmaceutical & Biotechnology
is a key growth industry for
Watson-Marlow that we are
uniquely placed to serve due
to our wide product range and
expert direct sales force.”
Kavita Winn
Pharmaceutical & Biotechnology
Marketing Manager,
Watson-Marlow
9
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Group Chief Executive’s Statement
Engineering sustainable growth
We delivered shareholder value
through increased dividends and
strong earnings per share, while
investing in the business to ensure
a strong foundation for continued,
sustainable growth.”
Nicholas Anderson
Group Chief Executive
Key points in this section:
• Good progress in the implementation of our
strategic priorities
• Growth in all of our priority sectors surpassed
market growth rates
• Further development of Spirax Sarco Academy
programmes; roll out in 16 languages
• Geographical expansion in all Group businesses
• 2017 acquisitions integrating well
Introduction
Our Company’s purpose is to create sustainable value for
all our stakeholders, by helping the users of our products
and services to increase operational efficiency, reduce
environmental impacts, improve product quality, provide safer
working environments and achieve regulatory compliance.
We do this through a direct sales business model, which
utilises an extensive global network of over 1,600 sales and
service engineers. Unique in number and expertise amongst
our competitors, these engineers understand our customers’
operational and process challenges and have the applications
knowledge to design bespoke engineered solutions to resolve
them, while utilising our broad product range.
10
Our direct sales business model is highly effective at uncovering
opportunities to improve customers’ steam systems, electrical
heating and temperature management systems, or fluid
path processes. As they walk our customers’ facilities, our
specialist engineers are able to identify unrecognised needs.
The engineered solutions required to meet these needs generally
have a relatively short payback period of around 24 months or
less and, crucially, are typically paid for out of our customers’
operational budgets. Purchasing decisions are therefore made
at operational level from budgets which are less likely to be cut in
times of recession. This “self-generated growth” element of our
business, combined with the high proportion of sales that derive
from end users’ maintenance and operating budgets, and the
wide diversity of the markets we serve, both geographically and by
industry sector, makes our business highly resilient, although not
immune, to economic downturns.
Strategy for growth
2018 marked five years since we undertook an extensive strategic
review and developed our strategy, the aim of which is to deliver
self-generated growth that outperforms our markets. We identified
six Group strategic themes which help us to do better what we
already do well:
• increase direct sales effectiveness through market sector focus;
• develop the knowledge and skills of our expert sales and
service teams;
• broaden our global presence;
• leverage R&D investments;
• optimise supply chain effectiveness; and
• operate sustainably and help improve our customers’
sustainability.
The strategy remains relevant and appropriate to our enlarged Group
and, as we continue to focus on its rigorous implementation, we are
seeing year-on-year benefits as we outperform our markets and
achieve above industry growth rates in our target industries.
Strategic implementation
During 2018, progress continued on the implementation of our
strategic priorities, which was a significant contributing factor to
the strong financial results and good organic growth achieved
during the year. Some examples of progress are outlined below.
We have continued to increase alignment between our direct
sales force and our target industries, with Growth Programmes
designed to increase sales in priority sectors. Within the Food &
Beverage industry, for example, a Growth Programme is focusing
on steam quality audits to raise customer awareness of, and
develop growth opportunities for, our clean steam products.
Within the Steam Specialties business Spirax Sarco and Gestra
operate independently in the marketplace through a dual brand
strategy with sectorisation enabling each brand to play to its
strengths in core industries – for example, the Power Generation
and Chemical industries for Gestra – while still offering customers
the choice between the two brands.
Growth in all of our priority sectors in 2018 surpassed market
growth rates. For example, within the Steam Specialties business,
we achieved 9% growth in the Food & Beverage industry and we
understand that the industry itself grew at around 4% globally.
It is also important to note that growth in our priority sectors
was not achieved at the expense of growth in other, non-focus,
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 industries. In addition, sales of Thermal Energy Management
products, solutions and services, which are the target of a number
of Growth Programmes, grew at a faster rate than our more
traditional Condensate Management products.
By December 2018, the Spirax Sarco Academy had been
made available to over 1,200 sales engineers and sales support
personnel globally. The Academy’s programmes are structured
in levels, called “belts”, with each “belt” being allocated a colour
and representing an increasing level of expertise. By the end of
2018, over 1,000 engineers had completed the “white belt”, just
under 1,000 the “yellow belt”, and nearly 450 the “orange belt”,
which was created and rolled out in 16 languages during 2018.
Towards the end of the year, “green belt” materials were created
and made available in English, with 15 additional languages to
follow in 2019. In September, the Steam Specialties business
established a new five day “consultative selling” course for sales
engineers. This will be rolled out to all English-speaking sales
companies during 2019, and later made available to all non-
English speaking companies.
Five new operating companies began trading in 2018: Spirax
Sarco Maghreb, Spirax Sarco Hungary, Spirax Sarco Romania,
Watson-Marlow UAE and Chromalox Brazil. Watson-Marlow also
established a direct sales presence in the Philippines and a new
sales company will commence trading in 2019. We broadened
the direct sales footprint of Gestra, establishing a direct sales
presence in Brazil, Indonesia, Malaysia, the Middle East,
Thailand and South Korea, and set up an Operating Company
in China (which will begin trading in 2019). We also established a
Chromalox direct sales presence in Brazil, Chile, Norway, Spain,
Sweden, the UAE and the western USA.
Investments in Research and Development (R&D) resulted in the
continued expansion of our product portfolio across the Group,
with product and range extensions as well as innovative new
products developed. In January 2018 we purchased a small, pre-
revenue company to continue expanding the technical capabilities
of our peristaltic pumping technologies. Good progress has been
made and we now have a product that is undergoing testing.
Our Steam Specialties Singapore Distribution Centre, established
in 2017, has made a significant contribution to customer service
improvements in the Asia Pacific region. A key customer service
metric, On Time To Customer Request, improved across South
East Asia, while air freighting to the region has been significantly
reduced as improved stock management has decreased the need
for expedited shipments.
The implementation of our Sustainability Strategy has continued,
with a new Group-wide sustainability training programme rolled
out, significant investment in machine guarding and engineering
controls in Gestra and Chromalox, as well as improved data
quality and reporting processes across the Group.
Acquisitions and disposal
During 2017, we acquired two outstanding businesses; steam
specialist Gestra and electrical process heating and temperature
management specialist Chromalox. Throughout 2018 we
continued work on their integration into the Group.
Gestra, acquired in May 2017, is led by Maurizio Preziosa, an
experienced Spirax Sarco steam business manager. Maurizio’s
deep understanding of the Steam Specialties business, its direct
sales business model and our strategy for growth, as well as his
excellent track record of strong performance, position him well
to lead Gestra at this important time in its history. Having revived
the Gestra brand in 2017, which had been subsumed under the
group brand of the previous owners, in 2018 we launched a new,
invigorated brand at the ACHEMA exhibition in Frankfurt. The new
brand, which retains elements of Gestra’s heritage, sends a strong
message to customers that Gestra is around to stay and will
continue to deliver expertise, products and engineered solutions to
steam users.
The acquisition of Chromalox provided us with an excellent
opportunity to expand our addressable markets through a related
business also dedicated to transferring heat energy into industrial
processes. Following acquisition, Chromalox’s management team
remained with the company, providing continuity at this time of
change. Integration is relatively light, with the company adopting
Group policies, reporting processes and HR programmes, and
integrating with the Group Sustainability Strategy, while operating
independently as a stand-alone business of the Group. We have
invested in strengthening Chromalox’s direct sales presence,
supported the company’s R&D programmes and focused on
increasing Health and Safety performance and standards through
a combination of engineered controls and behavioural based
awareness campaigns.
On 18th February 2019, we announced that we had entered
into exclusive negotiations with a view to acquiring Thermocoax
Developpement and all its group companies for €158 million
(£139 million) on a cash-free, debt-free basis. The acquisition will
be financed from existing cash and debt facilities and is expected
to be accretive to Group earnings in 2019. Thermocoax will
become part of our Chromalox business and will significantly
enhance our electrical process heating capability, especially in
Europe. The transaction will require certain regulatory approvals in
France, Germany and the USA, which are expected to be satisfied
during the second quarter of the year.
On 30th November 2018 we divested HygroMatik GmbH
(HygroMatik) to Carel Industries S.p.A. HygroMatik joined the
Spirax Sarco Group in 1988 but due to limited strategic fit has
always operated separately from the Steam Specialties business
in which it is reported. This low level of integration limited our ability
to improve sales growth.
Engineering sustainable growth
As we outperformed our markets in 2018 we delivered sustainable
value to our stakeholders, helping our more than 100,000
direct buying customers to increase their operational efficiency,
delivering shareholder value through increased dividends and
strong earnings per share, while investing in the business to
ensure a strong foundation for continued, sustainable growth.
Nicholas Anderson
Group Chief Executive
6th March 2019
11
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our business model
Creating value through meeting customer needs
At the heart of our value creation, and our
key competitive differentiator, is our deep
engagement with and understanding of our
customers and their processes, which is
achieved through our direct sales approach.
This closeness enables us to meet our
customers’ needs as we combine our
specialist knowledge and locally-available,
industry-leading products and services to
deliver value-adding engineered solutions.
Competitive strengths
Our purpose
Our Company purpose is to create sustainable value for all our
stakeholders, by helping the users of our products and services to:
• increase operational efficiency,
• reduce environmental impacts,
• improve product quality,
• provide safer working environments, and
• achieve regulatory compliance.
Further reading
By focusing on our core purpose – delivered through our core activities – we are
able to create sustainable value for a wide set of stakeholders.
See pages 13-15
Customer case studies show how we are fulfilling our purpose.
See pages 16-19
Customer
needs
Value creation
Driving sustainable growth and stakeholder value
Customer closeness
Our direct sales business model
creates a unique understanding
of our customers’ needs and
enables us to build deep, long-
term relationships as we help
our customers solve their difficult
productivity, control and energy
efficiency problems, and improve
their operational performance
and sustainability.
Applied engineering
It is not our products alone that
provide value to our customers –
it is the application of our extensive
knowledge of systems design,
operations and maintenance.
Our customers increasingly rely
on our expertise to deliver unique
engineering solutions to achieve
enhanced and sustainable
operating efficiencies.
Wide product range
The breadth of our product offering
is unmatched by our competitors
and our one-stop shop approach
simplifies the procurement
process for our customers who are
increasingly seeking partnerships
with competent full-service
suppliers. We are committed to
R&D to further widen our range
of products and pre-fabricated
engineered packages.
Regional manufacturing
Local availability of a wide range of
products, which meet applicable
regional design codes, is critical to
our business model and enhances
top-line revenue growth. We have
strategically located our major
manufacturing plants across the
world in Europe, North America,
Latin America and Asia.
12
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Our core activities
Our core activities are those things we do that enable us to meet the needs of our customers and achieve our Company purpose.
Innovate
& design
Through innovative R&D we
develop and enhance our
already broad range of products,
pre-fabricated packages and site
services, ensuring that we meet
customers’ changing needs.
Our technically-expert direct
sales force allows us to leverage
these new products and develop
new applications for existing
products, which increases the
amount of plant spend that we
can capture in the small-scale
projects and maintenance
activities that lie at the heart of
our business.
Educate
We also help our customers to
identify in-house engineering
knowledge skill gaps and offer a
wide range of training courses,
delivered in our 57 training
centres worldwide, to help plug
those knowledge gaps.
Manufacture
Our core products encompass
industrial and commercial
steam system products,
electrical process heating and
temperature management
products, and peristaltic and
niche pumps and associated
fluid path technologies.
We manufacture over
1,500 core product lines in
26 manufacturing plants, located
across four continents.
Sell
With a direct sales presence in
62 countries and distributors
in a further 53 countries,
we serve customers in 115
countries worldwide. 72% of our
revenue is generated through
our direct sales channels, with
over 100,000 direct buying
customers. The remaining 28%
of our sales are via distributors.
Monitor & measure
We offer a comprehensive range
of site audits, maintenance
services and digital monitoring
solutions, to keep our
customers’ systems operating
efficiently. Approximately 50% of
our revenue is derived from our
end users’ maintenance, repair
and overhaul activities.
Apply & solve
It is not our products alone
that provide value to our
customers – it is the application
of our extensive knowledge of
systems design, operations
and maintenance. We combine
our specialist knowledge with
our industry-leading products
and services to deliver value-
adding engineered solutions to
customers, who increasingly
rely on our service, solutions
and expertise to achieve
enhanced and sustainable
operating efficiencies.
13
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our business model
continued
Our direct sales approach
Our direct sales approach is instrumental in creating value-adding opportunities for self-generated growth.
Routes to market
Our direct sales approach plays
an important role in all routes
to market – whether direct or
indirect – as our engineers
call on end users to highlight
the benefits of our products,
solutions and services.
End users can then purchase
from us directly, specify our
products in OEM equipment,
request that contractors specify
our products, or purchase from
a distributor.
Sector specialists
We allocate sector specialists
to our core industries or,
where this is not practical or
appropriate, by geography.
The specialist, application-
based knowledge of our
sales and service engineers
enables them to build deep,
long-term relationships with
our customers, who trust
them as valued engineering
partners and expert advisers
in their plants.
Customer closeness
Our direct sales approach
allows our expert sales and
service engineers to stay
close to our customers,
understand their day-to-day
process requirements and
apply their technical expertise
to help solve their complex
productivity, process, control
and efficiency problems.
Self-generated growth
Our sales and service
engineers spend a lot of
time in our customers’ plants
and are highly effective
at self-generating growth
opportunities as they identify
often unrecognised customer
needs and design solutions to
meet those needs. Importantly,
these small improvement
projects are generally funded
through operating expenditure
budgets and have a short pay-
back period for the customer.
Routes to market
Sales companies
Over 100 Spirax Sarco, Gestra, Chromalox and Watson-Marlow sales
companies, supplied by our manufacturing units, holding stock locally and
selling our products and services to customers.
Sales and
service
engineers
Over 1,600
specialist sales and
service engineers
identifying end
user requirements.
Direct sales channels
Indirect sales
End users
OEMs
Contractors
& consultants
Distributors
40%
20%
12%
28%
Sales and
service
engineers
Over 1,600
specialist sales and
service engineers
identifying end
user requirements.
Users of our products and services
Industrial and commercial steam, electrical process heating and peristaltic
and niche pump users, across a wide range of markets, purchasing from
us directly, specifying our products, or buying from distributors.
Unique benefits of our direct sales approach: a summary
Bridge the
knowledge gap
Many users of our
products and services
no longer have the
in-house knowledge or
engineering resources
to understand and
fix their problems.
We bridge that
knowledge gap.
Focus on
value-creating
solutions
We act as a trusted
adviser to identify
efficiency improvement
opportunities and
provide value-creating
solutions to customers.
Self-generate
growth
opportunities
Our sales engineers
use their wide industry
experience and
knowledge to identify
often unrecognised
problems or efficiency
opportunities,
generating sales growth.
Develop innovative
products and
solutions
Our deep understanding
of end user processes
drives product
innovation. We lead
the way in developing
convenient, effective and
reliable ready-to-install
packaged solutions.
Leverage
information
from our unique
databases
Leveraging information
from our large and
unique customer
databases enables
our sales engineers to
establish relationships
with key decision
makers and positions
us well to achieve
sales growth.
14
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Engineering sustainable value for our stakeholders
We recognise the importance of operating in a way that delivers long-term sustainable value for our stakeholders. We engineer
sustainable value creation as we manage relationships in a way that reflects our Values; effectively use financial, human and natural
resources; understand our associated risks and opportunities; and implement our strategy for growth.
Further reading
Examples of how we engage with and manage
relationships with a wider set of stakeholders.
Customers
Engaging with customers to create
mutual value is at the heart of our
purpose and is exemplified by our
direct sales approach.
We create sustainable value for our
customers as we provide products
and services that enable them
to improve operational efficiency,
productivity and safety, meet
regulatory requirements and increase
their sustainability.
See pages 65, 71 and 94
5.7 million
tonnes of CO2 saved by
our customers annually
from a select range of
energy management
products sold in 2018
Further reading
Our six strategic themes and an update on our
strategic progress.
Employees
We engage with our employees
through a wide array of
communication channels, including
a Global Employee Survey, to identify
improvement areas and ensure
open and honest dialogue between
employees and senior management.
We create value for employees
by investing in developing their
knowledge and skills, providing a safe
and inclusive working environment
and remunerating them fairly for the
work that they do.
See pages 16-19 and 64
See pages 58-60 and 71
See pages 20-25
£350 million
paid in wages,
salaries and pension
contributions in 2018.
£67 million
paid as dividends
to shareholders in 2018
120%
TSR over 3 years
Shareholders
We maintain an active dialogue with
our principal investors, institutional
shareholder advisers and the
investment community.
We create value for our shareholders
as we achieve growth that
outperforms our markets and
continue to deliver our track record
of shareholder value. We have a
progressive dividend policy, that
has delivered over 50 years of
dividend progress.
Suppliers
We engage with our suppliers
throughout the tender and
procurement process and on a
continuous improvement basis.
We use a range of local and national
suppliers who adhere to our Supplier
Sustainability Code, which embeds
sustainability criteria into our
purchasing processes and promotes
our strategic objective to continuously
improve the sustainability of our end-
to-end supply chain.
£500 million
paid to suppliers for
materials and services
in 2018.
See pages 52 and 91
See page 61
Communities
We engage positively with
our local communities through our
network of community engagement
champions and recognise their
initiatives through the Group’s annual
“Community Engagement Award”.
We offer support through financial
and in-kind charitable donations,
employee volunteering and
educational provision.
£600,000
in cash, in-kind
donations and
employee time
to community
engagement activities
worldwide in 2018
Environment
We create value for the environment
by providing products and services
that improve the sustainability of our
end users’ operations. However, we
also recognise the environmental
impacts that our core activities have.
We are as committed to minimising
our own environmental impacts
through reducing energy
consumption, emissions, water use
and waste as we are to delivering
solutions to help our customers to
reduce theirs.
5% reduction
in CO2e emissions
intensity in 2018
See pages 24 and 65
See pages 62-64
15
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Realising our purpose
Customer case studies
Processing time
reduced by
2/3
of the time
previously taken
“ Dramatically reduced
processing time with
highly accurate, low-
pulsation pumping.”
Tony Barrass
Product Manager,
Watson-Marlow
Increasing process efficiency
Reducing virus
filtration time
The issue
Pumps previously utilised by Goodwin Biotechnology Inc.,
USA, were unable to meet challenging process efficiency
requirements in a high-volume, two-stage virus purification,
filtration and concentration process that produces a protein
solution for use in biopharmaceutical manufacture.
The solution
Designed specifically for single-use, downstream
bioprocessing applications, the revolutionary Quantum 600
pump, launched by Watson-Marlow in 2017, is able to deliver
a consistent, low-pulsation flow, regardless of changes in
downstream pressure, making it the ideal filtration feed pump
for this challenging application.
The result
Processing time has been dramatically reduced. 1,500
litres of product can now be concentrated to 100 litres
in just seven hours, one third of the time taken previously.
16
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Reducing environmental impacts
Increasing
fuel efficiency
The issue
Firewood accounts for up to 70% of energy consumption
during the tea drying process in Kenya. Steam is used to
heat the air that dries the tea leaves. Although a renewable
fuel source, the overuse of firewood has potentially damaging
environmental and social impacts. KTDA Olenguruone, a tea
manufacturing customer, turned to Spirax Sarco East Africa in
a drive to increase fuel efficiency.
The solution
Spirax Sarco designed a bespoke solution, including six
control valve stations, to modulate the flow of steam to the
drying bed, reducing steam use and increasing fuel efficiency.
The result
The solution, which had a 17 month payback period,
reduced firewood consumption by 12% per annum, saving
£11,000 in fuel costs per year and reduced the customer’s
environmental impacts.
“ Steam use optimised
and energy saved in a
tea drying application.”
James Mburu
Sales Manager,
Spirax Sarco East Africa
12%
reduction in firewood use
Spirax-Sarco Engineering plc
Annual Report 2018
17
Strategic Report Realising our purpose
continued
Improving product quality
Maximising rice
grain length
The issue
Par-boiling and drying of paddy prior to milling reduces grain
breakage during the de-husking process. A customer of
Spirax Sarco India was experiencing rice grain breakage as
steam system inefficiencies were preventing the dryer from
reaching the required temperature. Looking to reduce grain
breakage, they turned to Spirax Sarco.
The solution
A bespoke engineered steam solution that included automatic
pump traps and steam injectors with temperature and
pressure controls, to enable the efficient drying of rice.
The result
3% reduction in rice breakage; reduced wastage; increased
product quality, leading to higher customer revenue; and
energy and water savings.
3%
reduction in rice
grain breakage
“ Increased productivity
and product quality in
rice milling process.”
Bhrigu Bhatia
Senior Sales Engineer,
Spirax Sarco India
18
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Reduced risk
of explosion
Providing safer working environments
Safely warming
liquefied natural gas
$200,000
Saved per annum in
operating costs
“ A safe and efficient
temperature
management solution
from Chromalox.”
Mark Malloy
Proposal and Estimating Engineer,
Chromalox USA
The issue
When cooled to approximately -160°C, natural gas liquefies,
making it significantly easier to transport. However, the
temperature of the product and cold weather conditions can
cause pipes and pumps to freeze. If warming is not carefully
controlled, the liquefied natural gas reverts to its gaseous
state, producing a risk of explosion.
The solution
A Chromalox temperature management system, including
line-sensing technology, self-regulating heat tracing cables,
and IntelliTRACE temperature control panels, for
precision warming.
The result
Safe, reliable heating; significantly reduced health and
safety risk. The cost efficient solution saved US$300,000
in installation costs and US$200,000 per annum in
operating costs.
19
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our strategy
Five years ago, we undertook an
extensive strategic review and
developed our strategy for growth,
the aim of which is to deliver self-
generated growth that outperforms
our markets. We identified six Group
strategic themes, which help us to
do better what we already do well.”
Nicholas Anderson
Group Chief Executive
Our strategic objective
To deliver self-generated growth that
outperforms our markets
Our strategic focus
Doing better what we already do well
How do we
“self-generate” growth?
Read about the importance of our
direct sales approach and how
our specialist sales and service
engineers uncover opportunities
that deliver growth.
What industries and
markets are we in?
Read about the industries we serve
and our total addressable market, as
well as our long-term growth drivers.
What strengths are
we building on?
Read about our competitive
differentiators, in our direct sales
business model.
How do we measure
our performance?
Our Group KPIs are used
to measure our overall
strategic progress.
See pages 12-19
See pages 6-9
See pages 12-14
See pages 26-27
Our six strategic themes
1. Increase direct sales
effectiveness through
market sector focus
2. Develop the knowledge
and skills of our expert
sales and service teams
3. Broaden our
global presence
4. Leverage our
R&D investments
5. Optimise supply
chain effectiveness
6. Operate sustainably
and help improve
our customers’
sustainability
How do we manage risk?
Read about our approach to risk, our risk appetite and how we manage our principal risks.
See pages 28-33
Progress in 2018
During 2018, progress was made in the implementation of each of
our Group strategic priorities, which are outlined on the following
pages. Overall, our robust progress against these strategic priorities
was a significant contributing factor to the good financial results
and strong organic growth achieved during the year. We increased
the effectiveness of our direct sales organisation, leveraged our
strength in key sectors, identified and took advantage of attractive
opportunities, and directed our resources effectively to improve
business performance.
20
Further reading
Our Divisional Directors provide
additional disclosure on our strategic
progress at the segmental level.
Read about the implementation of our
sustainability strategy and progress
in 2018.
See pages 38-49
See pages 55-65
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 1. Increase direct sales
effectiveness through
market sector focus
2. Develop the knowledge
and skills of our expert
sales and service teams
As we sectorise our sales and service engineers around key
industries, and align our products and services in support of this,
we increase our ability to self-generate growth and provide value
to customers.
The knowledge of our sales and service engineers is a
key differentiator. We invest extensively in the professional
development of our people, building a level of expertise that is
unrivalled by our competitors.
Progress in 2018
Sectorisation is a core component of Gestra’s integration plan,
with Gestra and Spirax Sarco focusing on those industries that
best suit their respective strengths and expertise. Gestra, for
example, has a strategic focus on boiler OEMs, Power Generation
and the Chemical industry, while Spirax Sarco’s strategic focus
is directed towards industries such as Food & Beverage and
Healthcare. Throughout the year, our operating units have
continued to sectorise their sales teams – balanced against
geographical coverage requirements. We have continued to focus
on market development, with industry managers setting strategic
direction in their respective industries and creating communities of
practice across the organisation. New product development has
been aligned with our sector focus and we have continued to raise
the efficacy of our marketing efforts through campaigns clearly
targeted at specific industries.
Progress in 2018
We continued to develop the programmes of the Spirax Sarco
Academy in 2018, with “orange belt” programmes rolled out in
16 languages to over 1,200 people. The “green belt” learning
materials have been created and rolled out in English, with 15
additional languages to follow in 2019. In April, Watson-Marlow
delivered a training event in the USA, attended by nearly 200
international sales engineers from across the organisation,
focused on the Food & Beverage, Industrial and Environmental
sectors. Online training materials about the products of recent
acquisition, Aflex Hose, were developed and have been rolled out
across the Watson-Marlow organisation in Europe and the Middle
East as part of the conversion from distributor to direct sales for
Aflex. Watson-Marlow also launched a new skill assessment
tool to enable better analysis of individual development and
training needs.
Focus for 2019
• Developing industry and application-focused products and
engineered solutions to align our offering with the needs of
customers in our target industries
• Continuing sectorisation of sales and service engineers globally,
Focus for 2019
• Continuing development and roll out of the programmes of the
Spirax Sarco Academy
• Increasing sectorisation of Watson-Marlow’s training materials
• Watson-Marlow Biotechnology and OEM conferences for
as appropriate
Strategy in action
sales engineers
Strategy in action
Combining products designed to meet specific industry
requirements with the application knowledge of our sectorised
sales engineers, increases direct sales effectiveness. To this end,
and in response to a customer request, within 18 months Spirax
Sarco developed the innovative STAPS ISA100 Wireless Steam
Trap Monitoring device, specifically designed for use in the Oil &
Gas industry, to drive down energy and water wastage. Due to the
large trap population on many Oil & Gas facilities, failed traps can
go unnoticed for an extended period of time. Wireless monitoring
enables customers to identify and quickly address failed traps,
reducing costs and environmental impacts. STAPS ISA100
is certified as safe to operate in areas where there is a risk of
explosion or restrictions due to flammable atmospheres.
Lukas Grech joined Spirax Sarco’s graduate programme in
Cheltenham, in 2013. Following several placements around the
business he took a permanent role in Spirax Sarco Australia
as a sales engineer and is now Sales Manager for the state of
Victoria. The Spirax Sarco Academy has played a key role in
Lukas’ progression in the company. He used it to develop his own
product and applications knowledge and now uses it to measure
and meet his team’s development needs. “The Academy benefits
my team” said Lukas, “by placing 100+ years of Spirax knowledge
at their fingertips. My team is young and the Academy allows them
to fast track their knowledge intake, which in turn ensures that
they can provide the advice and quality of service that customers
expect from Spirax Sarco.”
21
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our strategy
continued
3. Broaden our
global presence
4. Leverage our
R&D investments
Our strong global infrastructure enables us to rapidly branch into
neighbouring markets or leverage our existing infrastructure to
pioneer the introduction of our businesses and technologies into
new markets.
We leverage R&D investments to meet changing customer
requirements, improve our offering, respond to market trends,
expand our addressable market and maintain our market-leading
position in each of our business niches.
Progress in 2018
New Spirax Sarco operating units began trading in the Maghreb,
Hungary and Romania, a direct sales presence was established in
Ghana. A new Watson-Marlow operating unit beginning trading in
the United Arab Emirates (UAE) and a direct sales presence was
established in the Philippines. We have accelerated a programme
of international expansion for Gestra and Chromalox, leveraging
Spirax Sarco’s global presence to facilitate ease of entry into new
markets. During the year, Chromalox established an operating
unit in Brazil and a direct sales presence in Chile, Spain, Sweden,
Norway and the UAE, countries previously served by distributors.
Gestra established a direct sales presence in Brazil, the Middle
East, Korea, Indonesia, Thailand and Malaysia, and set up its first
new operating unit post-acquisition in China.
Focus for 2019
• Continued geographical expansion and strengthening of Gestra
and Chromalox’s direct sales presence internationally
• Strengthening Watson-Marlow’s direct sales presence in Asia
and Latin America
• Strengthening Spirax Sarco’s direct sales presence in
developing markets
Strategy in action
Progress in 2018
Within the Spirax Sarco Steam Specialties business our applied
research model enables us to feed the product development and
solutions pipeline, developing new technologies in support of our
strategy for growth. Such research, in 2018, included a world first
thermal energy to electricity transformation cycle. During 2018,
Gestra developed a range of new market-leading boiler controls,
ready for launch in 2019, while Chromalox developed an extensive
range of new products including a new line of electric steam
boilers (see below). Within the Watson-Marlow Fluid Technology
Group, Bredel launched two hose range extensions that
incorporate new hose materials, the first is designed for use in
water treatment and chemical pumping applications, the second
has the benefit of reducing maintenance frequency. Watson-
Marlow also extended the Qdos pump range, launched a new
range of ASEPCO valve actuators and developed a new Flexicon
fully automated filling system, ready for launch in January 2019.
Focus for 2019
• Sector-aligned new product development
• Core product range extensions, broadening their application
scope and meeting a wider range of customer needs
Strategy in action
In 2016, Watson-Marlow established an office in the United Arab
Emirates (UAE), located in Spirax Sarco’s premises in Sharjah, to
support third-party distribution. Having demonstrated that there
was a demand for Watson-Marlow’s product offering, a trading
company was established and direct sales commenced in March
2018. Reon Durgapersad, a sales manager from Watson-Marlow
South Africa, transferred to the UAE in 2016 and leads the small,
but growing, team. Experiencing high levels of investment in the
Water, Biotechnology and Food & Beverage industries, and having
customers that value globally recognised brands with a strong
reputation for reliability and quality, the Middle East is a relatively
untapped market with strong growth potential for Watson-Marlow.
During its first year of trading, the new company performed in line
with plan, meeting stretching performance targets.
In December 2018, Chromalox launched a new line of steam
boilers, incorporating patented DirectConnect™ technology.
The high capacity steam boilers are uniquely designed
for large industrial applications and offer steam output of
up to 9,685kg/hr, and standard pressures of up to 31 bar.
Chromalox DirectConnect™ boilers operate with an advanced
power control system that delivers instantaneous power
conversion to heat energy and ensures that all available power is
directly delivered to the process. The boilers are the first of their
kind in the industry; no other technology exists that can match
the voltage range, third-party certifications, and patented control
methodology of Chromalox’s DirectConnect™ medium voltage
system. This technology provides customers with safe, highly
efficient, emission-free and cost effective electric solutions for their
large process heating needs.
22
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Q&A with Nicholas Anderson:
Update on 2017 acquisitions
Q: How significant were the acquisitions?
Q: How are the businesses performing?
A: As a reminder, the 2017 acquisitions were the largest by value
in the history of the Group. A rare opportunity arose in 2017 to
acquire two outstanding businesses: steam specialist, Gestra, for
€186 million; and electrical thermal energy management solutions
provider, Chromalox, for US$415. The acquisitions expanded our
total addressable market by over £2 billion, increased our market
share in the Steam Specialties business, increased the diversity
of our product and service offering and will provide opportunities
for growth.
Q: What have been the key operational challenges
and opportunities associated with bringing these new
businesses into the Group?
A: To date, the key operational challenge associated with these
acquisitions has been their safe delivery into the Group, without
losing business, customers, any of their talented people, and
without affecting our reputation in the market. I am pleased to say
that this has been fully achieved.
Both businesses provide opportunities for revenue growth and
margin expansion. Following an initial period of accelerated
investment in the first few years post-acquisition, we will look
to expand the operating margins of these businesses to Group
levels. We have given ourselves 10 years to achieve this margin
expansion, applying many of the same tools and techniques that
we have implemented in the rest of the business, to achieve the
strong margins we have today. Revenue growth will be achieved
as we leverage Spirax Sarco’s global presence to broaden Gestra
and Chromalox’s direct sales presence outside of their core
geographic markets.
A: I am delighted to say that both Gestra and Chromalox
are performing in line with their respective acquisition plans.
Both businesses saw strong organic sales growth in their first
full year of ownership.
Q: Do you foresee any more significant acquisitions
in the short term?
A: In May 2017 we announced a self-imposed moratorium
on acquisitions for 12-18 months, to enable us to focus on
the safe delivery and integration of the Gestra and Chromalox
acquisitions. That period ended in the second half of 2018
and we resumed our analysis of potential acquisition targets.
While acquisitions contribute to the Group’s development, our
business strategy continues to be one of organic growth and
we will only acquire businesses that meet stringent strategic
and financial criteria. Acquisitions will generally be bolt-ons that
expand the capabilities of our niche businesses through new
technologies, skills or geographic coverage, or that increase
the addressable market of our businesses. We do not foresee
significant acquisitions outside of our three core businesses.
One never has control over when potential acquisition targets
could become available. As it happens, on 18th February
2019, we announced our intention to acquire Thermocoax
Developpement and all of its group companies (Thermocoax),
for €158 million (£139 million). Thermocoax, headquartered
in Paris, is a leading designer and manufacturer of highly
engineered electrical thermal solutions for critical applications
in high added-value industries. Upon acquisition, Thermocoax
will become part of our Chromalox business.
Acquisition integration case study
Strengthening the
Gestra brand
When steam specialist Gestra joined the Spirax Sarco family in
2017, many in the industry thought the German company’s name
would disappear. However, Gestra is a well-respected business
with a strong name for engineering excellence so, instead, the
Spirax Sarco and Gestra teams worked together to re-energise
and relaunch the brand.
The new logo was revealed in June at the high-profile ACHEMA
show in Frankfurt. It was the centrepiece of Gestra’s stand, sending
a strong message that Gestra is back with a long-term strategy to
serve steam customers.
The company’s new strap line “Engineering steam performance”
reflects Gestra’s strengths as an expert engineering provider
of high-quality products and solutions that assist customers to
achieve optimum efficiency from their steam systems.
Maurizio Preziosa,
Divisional Director Gestra
23
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our strategy
continued
5. Optimise supply
chain effectiveness
6. Operate sustainably and
help improve our customers’
sustainability
We operate a regional manufacturing strategy and focus on
increasing supply chain agility and compressing lead times to enable
greater responsiveness, reduce costs and improve customer service.
Progress in 2018
On Time To Request (OTTR) is a key supply chain effectiveness
metric used by our sales companies to monitor customer
service. Throughout 2018 we focused on stock management
to ensure that we have the right products, in the right place at
the right time to improve our OTTR performance. In its first year,
our new Steam Specialties Distribution Centre in Singapore
has delivered a significant improvement in OTTR in South East
Asia and has reduced inbound air freight costs to Singapore.
Recent investments in quality monitoring and management
solutions, supply site audits and stronger governance,
have improved our oversight of product quality metrics and
management. Our commodity strategy (strategic sourcing) has
delivered financial and, most importantly, customer service
improvements, and regional champions have been established
in our steam business to improve the service that Spirax Sarco
delivers to internal and external customers.
Focus for 2019
• Improving alignment and communication between sales and
supply companies to support OTTR improvements
• Training employees so that they understand the role that they
individually play in delivering outstanding customer service
In a resource constrained and competitive world, sustainability
makes good business sense. As we focus on improving our own
sustainability and deliver innovative solutions that improve the
sustainability of our customers’ operations, we create value and
drive growth.
Progress in 2018
2018 saw a step-change in sustainability awareness and training
across the Group as we commenced the roll out of a “Group
Essentials” online training programme, to be completed by all
employees. The programme, which will be supplemented by
additional local and job-specific training, contains modules on
Sustainability; our updated Values; Health and Safety at Work;
Driving Safety; and Anti-Bribery and Corruption. The programme
includes electronic assessment and also requires “on-the-job”
assessment, to be overseen by each employee’s manager.
Throughout 2018 we also strengthened the sustainability
programmes and governance structures in recent acquisitions
Gestra and Chromalox, and continued to implement our strategic
priorities in each of our 10 material sustainability topic areas.
Focus for 2019
• Complete the roll out of the “Group Essentials” training
programme to all Group companies and monitor compliance
• Drive improvements in health and safety performance
• Continue to make progress against targets and objectives in
each of our 10 sustainability topic areas
Strategy in action
Strategy in action
We strive to deliver outstanding customer service, with On Time
to Request (OTTR) a key operational metric. During 2018 Spirax
Sarco France conducted detailed process analysis and identified
a programme of initiatives to improve OTTR performance.
These included changes to customer touchpoints, with a new
format developed for quotations and a new process for customer
order collection; closer collaboration with customers to understand
their needs; more effective credit hold management systems
to prevent delays if customers unknowingly exceed their credit
limits; and weekly cross-functional team meetings to increase
collaboration, resolve delays, identify process improvements and
establish shared priorities. As a result of these initiatives, Spirax
Sarco France has seen a strong improvement in OTTR over the
course of the year.
During 2018, employees of Spirax Sarco Thailand worked together
to build a chicken and a mushroom farm at a rural school in
central Thailand. The project, which also included the design and
installation of an irrigation system, was funded by Spirax Sarco
and employees contributed working and free time over a period
of two months to complete the project. Children at the school –
many of whom previously went hungry as their parents could not
afford to pay for school meals – will now receive nutritious lunches
and will be taught agricultural skills to increase their self-sufficiency
in the future. Spirax Sarco Thailand is the “small company” winner
of the Group’s 2018 Community Engagement Award and plans to
spend the £5,000 prize money constructing greenhouses and an
integrated duck and fish farm at the school.
24
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Group sustainability strategy overview
Driven from the top
Our Group Chief Executive is responsible for our sustainability
strategy and is supported by the Board of Directors. Our dedicated
Sustainability Committee comprises five Senior Managers and is
responsible for overseeing strategy implementation and reviewing
progress against strategic objectives.
Further reading
More information on our sustainability reporting structure and
updated information on targets and performance is provided
in our Sustainability Report.
See pages 55-65
Our sustainability vision:
To engineer a more sustainable future
Our sustainability mission:
We will operate sustainably through responsibly managing our business for on-going financial success; operations in accordance with
laws and regulations; social and environmental impacts; ethical and social responsibilities; and customer and supplier relationships,
to improve the sustainability of their operations.
Our sustainability objectives:
We commit to engineering a sustainable future by focusing on five core areas, setting objectives and targets each.
1. Our workplaces
• H&S excellence
• Diversity and equality
• Zero tolerance approach to
bribery and corruption
• Develop knowledge and skills
2. Our supply chain
• Continuous improvement with
a focus on sustainability
• Incorporate sustainability
factors into product and
design process
3. Our environment
• Limit the environmental impacts
of our operations (water, effluent
and waste)
• Minimise the environmental
impacts of our operations
(energy and carbon emissions)
4. Our customers
• Provide products and services
that improve the sustainability
of our customers’ operations
5. Our communities
• Engage positively with
the communities in which
we operate
Group strategy outlook
Our strategic priorities are designed to enhance performance
and deliver organic growth through strengthening our business
model, whether that be through developing the knowledge of our
direct sales people, ensuring that our product offering continues
to develop to meet customer needs, or maximising efficiency in
our supply chain. Our strategy is delivering good growth in our
focus industries and improving operating efficiencies across the
business. We anticipate this continuing.
Our Group strategy is primarily one of organic growth,
supplemented by strategic acquisitions. Opportunities to
make large acquisitions, such as those of 2017, are rare.
Acquisitions are most likely to be bolt-ons that expand the
technical capabilities or product offering of our existing
businesses, such as the acquisition of Thermocoax that
we announced on 18th February 2019, or that expand their
addressable markets in related sectors.
25
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Key Performance Indicators
1. Organic revenue growth†
Organic revenue growth %
2. Adjusted operating profit*
Adjusted operating profit £m
3. Adjusted operating profit
Operating profit margin* %
%
KPI
2018
2017
2016
2015
2014
7
6
2
4
4
£m
KPI
2018
2017
2016
2015
2014
264.9
235.5
180.6
152.4
153.0
margin* %
KPI
2018
2017
2016
2015
2014
23.0
23.6
23.8
22.8
22.5
Definition
Organic revenue growth measures
the change in revenue in the current
year compared with the prior year from
continuing Group operations. The effects
of currency movements, acquisitions and
disposals have been removed.
Definition
Adjusted operating profit is the profit
earned from our business operations
before interest, taxes, the share of profit
of Associate companies and certain
other items.
Definition
Adjusted operating profit margin is defined
as adjusted operating profit expressed
as a percentage of revenue.
Link to strategy1
Link to strategy1
Link to strategy1
1
2
3
4
5
6
1
2
3
4
5
6
1
2
3
4
5
6
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Progress in 2018
Organic sales increased by over
7%, with 7% organic growth in the
Steam Specialties business and 9%
organic growth in Watson-Marlow.
Both businesses saw organic growth
across all three geographic regions.
Progress in 2018
Adjusted operating profit increased by over
12% to £264.9 million. Watson-Marlow
delivered organic profit growth of 11%,
with the Steam Specialties business up
12% organically. Currency movements
reduced profit by 4%, while the incremental
impact of acquisitions, net of a disposal,
added 6%.
Progress in 2018
The adjusted operating margin fell by 60
bps, to 23.0% due to currency impacts
and the full-year dilutionary effect of the
acquisitions made in 2017. Excluding the
impacts of acquisitions the adjusted
operating margin increased 120 bps
to 25.2%.
Link to remuneration2
Revenue growth is a key driver of profit
generation and a central element in the
annual planning process. Bonus targets
are driven off annual plans and therefore
revenue growth drives a key measure of
variable remuneration.
Link to remuneration2
Group operating profit is a key element
of the annual planning process.
Bonus targets are driven off annual plans
and therefore profit is a key measure of
variable remuneration.
Link to remuneration2
Executive Directors’ variable remuneration
is measured on two main indicators: profit
and ROCE. Operating profit margin is a key
driver of both profit and ROCE.
Bonus measure
Performance Share Plan measure
Bonus measure
Performance Share Plan measure
Bonus measure
Performance Share Plan measure
Link to risk3
Link to risk3
Link to risk3
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Direct link
Indirect link
No link
† Organic growth is at constant currency and excludes
contributions from acquisitions and disposals.
* Based on adjusted operating profit. Adjusted operating
profit excludes certain items as set out and explained in
the Financial Review and in Note 2.
26
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 4. Return on capital
Return on capital employed %
employed (ROCE)* %
5. Basic earnings per share
Basic earning per share* p
(EPS)* p
6. H&S accidents with over
H&S accidents with over 7 days
of lost time per 1,000 employees
seven days of lost time per
1,000 employees
KPI
KPI
2018
2017
2016
2015
2014
54.9
52.9
47.9
44.1
44.3
KPI
2018
2017
2016
2015
2014
250.0
220.5
171.5
142.6
140.4
2018
2017
2016
2015
2014
3.5
3.0
3.4
3.3
5.4
Definition
Return on Capital Employed is a pre-tax
measure of the efficiency with which the
Group generates operating profits from its
capital. ROCE is calculated as adjusted
operating profit divided by average
capital employed.
Definition
Earnings per share is a measure of the
profit performance of the Group, taking
into account the equity structure. EPS is
defined as the adjusted after-tax profit
attributable to equity shareholders divided
by the weighted average number of shares
in issue.
Definition
The number of work-related accidents that
resulted in over seven days of absence per
1,000 employees. For an accident to be
considered “work-related” the machinery,
plant, substances, or equipment being
used; the way the work was carried out; or
the condition of the site, must have played
a significant role.
Link to strategy1
Link to strategy1
Link to strategy1
1
2
3
4
5
6
1
2
3
4
5
6
1
2
3
4
5
6
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Progress in 2018
ROCE was 54.9%, an increase of 200
bps due to the high growth in adjusted
operating profit and our close control
of the various components of capital
employed. At constant currency, excluding
acquisitions and disposals ROCE
increased by 470 bps.
Progress in 2018
Adjusted basic earnings per share
increased by 13% to 250.0 pence as
organic growth and the incremental impact
of recent acquisitions, partially offset by
exchange headwinds, contributed to an
increase in earnings.
Progress in 2018
Our over seven day lost-time accident
rate increased to 3.5 accidents per
1,000 employees. A small increase in
the accident rate in our more mature
businesses was compounded by a higher
accident rate in a number of our recently
acquired companies, which have less
mature H&S programmes.
Link to remuneration2
ROCE is a key measure in Executive
Directors’ annual bonus arrangements.
Link to remuneration2
EPS measured over three-year periods
is one of the two components of the
Performance Share Plan.
Link to remuneration2
The safety of our employees is central
to the sustainability of our business and
has an impact on the financial success
and profitability of the Group, creating
an indirect link with Executive Directors’
variable remuneration.
Bonus measure
Performance Share Plan measure
Bonus measure
Performance Share Plan measure
Bonus measure
Performance Share Plan measure
Link to risk3
Link to risk3
Link to risk3
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Direct link
Indirect link
No link
Further reading
1 More information about our strategy.
2 More information about our remuneration measures.
3 More information about our principal risks.
See pages 20-25
See pages 90-119
See pages 28-33
27
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Risk management
In 2018, we undertook the important
task of implementing a Crisis
Management Plan. We ensured
that all operating companies have
the resources and action plans to
respond to any Brexit outcome in
March 2019.”
Nicholas Anderson
Chair of Risk Management Committee
Risk likelihood, control and impact
Our approach and appetite for risk
We recognise risk as an inherent part of our business operations
and we approach risk with the same deliberate, strategic
consideration as other aspects of the business. The Risk
Management Committee monitors our risks, in particular those
identified as principal risks, on an on-going basis, while the Board
is responsible for the overall stewardship of risk management
and internal control. Using the information and evaluations
obtained from our regular top-down and bottom-up reviews,
alongside the Committee-led principal risk appetite ratings, the
Committee creates an effective system for monitoring, planning
and developing a Group-wide approach and culture regarding
risk. General Managers of our operating units are directly involved
in the risk assessment process. The evaluations of the Committee,
including the appropriate levels of risk, are communicated to all
Group companies.
The on-going monitoring and engagement contributes to the
Group’s risk register and the management of risks. Both the risk
register and the principal risks are dynamic and fluid. They provide
a reflection of current conditions across the Group and guidance
for on-going monitoring and mitigation activities.
What important developments occurred
in 2018?
In addition to the on-going monitoring and review of developing
risks, the Committee took the following actions during the year:
• Top-down risk review – the Committee determined that the
responses were satisfactory and that Group companies have in
place countermeasures to mitigate the Group’s principal risks;
• Risk register and principal risks – the top-down review informed
the annual review of the risk register;
• Risk Appetite Statement – the Committee reviewed and
confirmed the statement which can be found on page 85;
l
o
r
t
n
o
c
o
N
l
o
r
t
n
o
c
f
o
l
e
v
e
l
The Committee’s analysis of the principal risks affecting the Group,
before mitigation, is set out in the adjacent diagram.
1
2
Key
1. Economic and political instability
2. Significant exchange rate movements
3. Cybersecurity
4. Failure to realise acquisition objectives
5. Loss of manufacturing output at any Group factory
6. Breach of legal and regulatory requirements (including ABC laws)
7. Loss of critical supplier
8. Health, safety and environmental risks
Further reading
The numbers relate to the
principal risks.
See pages 30-33
Potential impact of the risk
6
7
3
8
5
4
h
g
H
i
28
Low likelihood
High likelihood
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018
• Modern Slavery Statement – the Committee approved the
revised statement which can be found on the Group website,
www.spiraxsarcoengineering.com;
• Crisis Management Plan – the Committee formalised a crisis
management plan. Further information can be found on pages
84 and 86; and
• Group Head of Internal Audit – Dan Harvey joined the
Committee in December 2018 improving oversight of risk
across the Group.
How is the Group preparing for the impacts
of Brexit?
The Committee continued to oversee and implement its Brexit
preparedness strategy in 2018, with significant activity occurring
in the latter part of the year. These actions, which will continue into
2019 as necessary, include the following:
• Purchasing of pre-determined additional raw stock to be held at
UK manufacturing sites;
• Organising UK manufacturing schedules to complete and
deliver additional finished goods to key Group companies in
advance of the 29th March 2019 Brexit deadline;
• Assessing and updating costs associated with a “no deal”
scenario;
• On-going communication with sales companies to confirm
stock build.
Additionally, the Committee identified the potential impacts of
Brexit on both customer and supplier contracts. The Group
Legal Team is co-ordinating with Group companies to address
those issues and mitigate any potential negative impacts, and the
Committee will monitor that process.
The 2019 Plan takes into account the Profit & Loss and working
capital impacts of Brexit for at least the initial six months of 2019.
What, if any, risks do climate change
present to the Group?
As a leading provider of thermal energy solutions, many of our
products and services increase the energy efficiency of our
customers’ processes, meaning that we play a role in climate
change mitigation. As awareness of climate change increases,
this creates opportunities for us to support our customers in
meeting their energy and carbon reduction goals. Nevertheless,
like all businesses, climate change increases certain risks,
especially those related to extreme weather events. We seek to
mitigate this risk by annually mapping weather related and other
physical risks by geographic location, and ensuring that we have
appropriate insurance cover in place. Our regional manufacturing
capability, strategic duplication of manufacturing, and the local
holding of stock by our sales companies serve to reduce the risk
of disruption should an extreme weather event disrupt our supply
chain in any given location. Lastly, we also take steps to proactively
manage our own carbon footprint, by monitoring and managing
energy use and reducing our carbon emissions intensity.
Managing risks
Board
Audit
Committee
Reports to
Works with
Risk Management Committee
Oversees risk management processes and
procedures and monitors mitigating actions put in
place by the Group. Works with the Audit Committee
to monitor the effectiveness of internal controls and
the audit process
Top-down review
Risk review (external/internal)
Carried out at regular intervals
Risk assurance
Internal audit and external auditor (on-going review
of effectiveness by the Audit Committee and Risk
Management Committee)
Group-wide risk register
Maintained and reviewed by the Risk
Management Committee
Bottom-up review
Group operating companies
What are the key areas of focus for 2019?
In 2019, the Committee will undertake a bottom-up risk review,
as well as the annual review of the risk register. The issues
surrounding climate change will take a significant share of the
Committee’s attention: the Committee will be conducting a more
in-depth review of the related risks and opportunities in order to
formulate and implement appropriate targets and governance
mechanisms to focus business activity across the Group.
Further reading
More information on the Group’s
approach to risk, including risk
appetite, along with the roles,
responsibilities and actions of the Risk
Management Committee.
Our Viability Statement.
See page 89
Our Going Concern Statement.
See pages 86-89
See page 122
29
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Risk management
continued
The table below sets out the Group’s principal
risks and describes the links to strategy, the
mitigation measures and the appetite for each
risk. The year-on-year change column sets
out the direction of change from 2017.
The table includes those risks which we have
identified as currently most relevant to the Group.
Key
Year-on-year change
Risk appetite ratings defined:
Very low
Following a marginal-risk, marginal-reward approach
that represents the safest strategic route available.
Low
Seeking to integrate sufficient control and mitigation
methods in order to accommodate a low level of risk,
though this will also limit reward potential.
Balanced
An approach which brings a high chance for success,
considering the risks, along with reasonable rewards,
economic and otherwise.
High
Willing to consider bolder opportunities with higher levels
of risk in exchange for increased business payoffs.
Increased risk
No change to risk
Decreased risk
Very high
Link to strategy
Direct link Indirect link No link
Pursuing high-risk, unproven options that carry with
them the potential for high-level rewards.
Principal risk and
why it is relevant
Year-on-
year
change
Key mitigation, sponsor
and explanation of change
1. Economic and political instability
The Group operates worldwide
and maintains operations in
territories that have historically
experienced economic or political
instability. This type of instability,
which includes the uncertainties
of regime change, creates risks
for our locally based direct
operations and broader risks to
credit, liquidity and currency.
• Operations in accordance with Group
Treasury Policy
• Externally-facilitated scenario planning
• Strong internal controls, including internal audit
and appropriate insurance
• Resilient business model
• Well spread business by geography and sector
Executive sponsor: Nicholas Anderson
Change: No change
Risk
appetite
rating
Rationale for rating
Link to strategy:
1 2 3 4 5 6
Very high
High
Balanced
Low
Very low
We have the
background and
know-how to
successfully manage
the unique challenges
in economically and
politically unstable
territories. We are
willing to accept these
challenges where
opportunities for growth
are substantial.
2. Significant exchange rate movements
Link to strategy:
1 2 3 4 5 6
The Group reports its results
and pays dividends in sterling.
Operating and manufacturing
companies trade in local
currency. With sales companies
in nearly 50 countries and
manufacturing spread across
the globe, the nature of the
Group’s business necessarily
results in exposure to exchange
rate volatility.
• Maintain spread of manufacturing across
currency areas
• Consideration of exchange rate exposures in
manufacturing strategy
• Forward cover where appropriate and in line
with Group Treasury Policy
• Focus on reducing manufacturing cost
Executive sponsor: Kevin Boyd
Change: This risk has increased
Very high
High
Balanced
Low
Very low
We take a balanced
view of this risk: the risk
arises as a direct result
of our global presence,
but our geographic
spread means we are
not wholly dependent
on any one currency.
30
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018
Principal risk and
why it is relevant
3. Cybersecurity
Cybersecurity risks include risks
from malware, accident, statutory
and legislative requirements,
malicious actions and other
unauthorised access by
third parties.
Year-on-
year
change
Key mitigation, sponsor
and explanation of change
• Global assessment of IT environment against
UK cyber essentials framework and prioritising
actions for improvement
• Deploying security tools to limit impact and
spread of ransomware
• Initiating new centrally managed
Firewall environment
• Further strengthening of security for centrally
managed systems for heightened protection
and consistency
Executive sponsor: Shaun Mundy
Change: No change
Risk
appetite
rating
Rationale for rating
Link to strategy:
1 2 3 4 5 6
Very high
High
Balanced
Low
Very low
Concerns of potential
impact on the business,
in addition to the
important considerations
surrounding protection of
personal data, reinforce
our commitment to
implement and maintain
robust security measures
across the Group.
4. Failure to realise acquisition objectives
Link to strategy:
1 2 3 4 5 6
Whilst the Group mitigates this
risk in various ways, including
through comprehensive
due diligence, professional
advisers and contractual
protections, amongst others,
there are some variables that
are uncontrollable or difficult
to control, such as economic
conditions, culture clashes
and employee movement.
Therefore, these could impact
acquisition objectives.
Very high
High
Balanced
Low
Very low
Thorough planning and
proper due diligence
can mitigate many of the
potentially risky aspects
of an acquisition.
Implementation plans
must be well-developed
and carefully pursued to
achieve the full strategic
and financial benefits.
• Regular review of acquisition criteria in line with
strategic plan
• Board approval of integration plans for
major acquisitions
• Scrutiny of targets and implementation plans by
external advisers and internal key players
• Use of retainer/escrow to provide protection
against warranty claims
• Use of insurance as protection against seller
breach and non-disclosure
• Ensuring valuation models show healthy return
on investment
• Regular monitoring of performance by the Board
against the approved investment case
Executive sponsor: Kevin Boyd
Change: At the end of 2018 this risk had
decreased as a result of progress with our robust
integration plans for Gestra and Chromalox
5. Loss of manufacturing output at any Group factory
Link to strategy:
1 2 3 4 5 6
The risk includes loss of output
as a result of natural disasters,
industrial action and accidents.
Loss of manufacturing output at
any important plant risks serious
disruption to sales operations.
• Investing in modern flexible machining
• Capacity planning and holding stock in
sales companies
• Conducting audits/inspections
• Annual Risk Assessments and business
continuity planning
• Reviewing and maintaining appropriate
insurance cover
• Continuing commitment to employee policies,
ensuring satisfactory benefits and regular
communication with all employees
Executive sponsors: Jay Whalen, Mike Sutter
and Ian Farnworth
Change: No change
Very high
High
Balanced
Low
Very low
Whilst we have mitigated
this risk through a
geographic spread of
factories, calculated
replication of capacity
and management of
stock, the potential
negative consequences
to the Group and its
customers warrants a
low appetite for this risk.
31
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Risk management
continued
Principal risk and
why it is relevant
Year-on-
year
change
Key mitigation, sponsor
and explanation of change
Risk
appetite
rating
Rationale for rating
6. Breach of legal and regulatory requirements (including ABC laws)
Link to strategy:
1 2 3 4 5 6
We operate globally and must
ensure compliance with laws
and regulations wherever we do
business. As we grow into new
markets and territories, we must
continually review and update
our operations and procedures,
and ensure our employees are
fully informed and educated in
all applicable legal requirements.
This is particularly important
with respect to anti-bribery and
corruption (ABC) legislation.
Breaching any of these laws or
regulations could have serious
consequences for the Group.
• On-going global monitoring of commercial
arrangements and agreements, with appropriate
professional advice
• Established procedures to maintain accreditations
• Group-wide ABC training and whistle-
Very high
High
Balanced
Low
Very low
blowing hotline
• Group Litigation Report and on-going monitoring
We respect the laws,
rules and regulations
of the jurisdictions
in which we operate
and believe we have
a duty to comply with
those requirements.
of cases
• Regular updates on Corporate Governance and
Stock Exchange rules
• GDPR compliance plan implemented
• Conducting supplier audits
• Engaging suppliers to commit to compliance with
the principles of the Supplier Sustainability Code
Executive sponsor: Andy Robson
Change: No change
7. Loss of critical supplier
Link to strategy:
1 2 3 4 5 6
This risk is concerned with
the impact of the loss of a
critical supplier that could lead
to logistical difficulties and
delayed deliveries.
• Identifying alternative supplies in advance and
developing dual source supply
• In-sourcing production
• Changing specifications
• Raising orders on an expedited basis
• Conducting supplier audits
• Engaging suppliers to commit to compliance
with the principles of the Supplier
Sustainability Code
Executive sponsor: Ian Farnworth
Change: This is a new principal risk and is
highlighted because of Government policy
changes in Brazil and China
Very high
High
Balanced
Low
Very low
Whilst the loss of a
critical supplier would
present logistical
difficulties and cause
delays, the impact
would be limited in
terms of the number of
products and customers
affected. Nevertheless,
the potential impacts
on customer service
warrant a low appetite
for this risk.
32
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018
Principal risk and
why it is relevant
Year-on-
year
change
Key mitigation, sponsor
and explanation of change
Risk
appetite
rating
Rationale for rating
8. Health, safety and environmental risks
Link to strategy:
1 2 3 4 5 6
A major health, safety or
environmental incident could
cause total or partial closure of a
manufacturing facility. As a premium
provider of safety critical products,
a breach of these requirements
would also have reputational
consequences for the Group.
• All manufacturing locations report monthly on
health and safety issues
• Board review of HSE items at every Board Meeting
• Role of Group EHS Executive and appointment
of EHS Officers in all major Supply and Sales sites
• Enhanced training programmes, keeping the
focus on health, safety and the environment
• Site visits conducted by Group EHS Director
and Group EHS Executive where practices are
reviewed and improvement opportunities identified
Executive sponsor: Ian Farnworth
Change: This risk has reduced due to increased
investment in HSE programmes, including 87,671
training units undertaken by employees across the
Group in 2018
Very high
High
Balanced
Low
Very low
We take seriously
the health and safety
of our employees,
customers and all
related stakeholders.
We continually strive
to put in place policies
and procedures to
improve performance
and ensure on-going
compliance with
HSE legislation.
As a result of the top-down review, the following points were agreed by the
Risk Management Committee:
• Economic and Political Instability to remain as ranked first;
• Loss of Manufacturing Output at any Group Factory to be ranked fifth rather than third;
• Cybersecurity to be ranked third rather than fifth;
• Breach of Legal and Regulatory Requirements (including ABC Laws) to be ranked sixth rather than seventh;
• Loss of a Critical Supplier raised to a principal risk;
• Solution Specification Failure no longer a principal risk, but will continue to be monitored on the Risk Register; and
• The year-on-year change for each principal risk assessed and updated.
33
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Group Chief Executive’s Review of Operations
Record revenue and adjusted
operating profit, achieved through
a combination of strong organic
growth and the incremental
contribution of acquisitions
made in 2017.”
Nicholas Anderson
Group Chief Executive
Key points in this section:
• Reported revenue up 15% to £1,153.3 million
• 7% organic revenue growth in the Steam
Specialties division*
• 9% organic revenue growth in Watson-Marlow
• Adjusted operating profit up 12% organically to
£264.9 million*
• 23.0% adjusted operating margin
• Acquisitions performing in line with expectations
* Unless otherwise stated, all profit measures exclude certain items, as set out and
explained in the Financial Review and in Note 2. Organic measures are at constant
currency and exclude contributions from acquisitions and disposals.
Introduction
During 2018, the Group delivered record revenue and adjusted
operating profit, achieved through a combination of strong
organic growth and the incremental contribution of acquisitions
made in 2017, set against a weaker global industrial production
environment and a currency headwind. We saw progress in
all geographical segments of the Steam Specialties business.
The Watson-Marlow Fluid Technology business had another
strong year while Gestra and Chromalox both performed in line
with our overall expectations.
Market environment
Steam remains the most efficient medium for transferring
large energy loads (in the form of heat) within industrial
processes. Applications for steam are wide-ranging and
include heating, curing, cooking, drying, cleaning, sterilising,
space heating, humidification and on-demand hot water
production. Electrical heating technologies are widely utilised
for freeze protection, high temperature industrial applications
and temperature management in mission critical industrial
processes. Electrical heating is particularly appropriate where
rapid “on-off” control is needed, high temperatures are required,
easy installation is desired or zero-emissions at point of use
are valued. Peristaltic and niche pumps and associated fluid
path components are widely used across an extensive range
of industries to address mission critical or difficult pumping
problems. Peristaltic pumps are particularly suitable for hygienic
applications (as the fluid is contained within a tube, sterile tubing
creates a sterile pump), or for applications where corrosive or
caustic materials would otherwise damage the pump.
The wide applicability of our products across a broad range of
industries, combined with our extensive geographical presence
and the large proportion of revenues that derive from end users’
maintenance and operating budgets, mean that our markets
closely correlate with industrial production growth. During 2018,
global industrial production growth, at 3.3%, was slightly weaker
than initially forecasted and was lower than the 3.6% of 2017.
Growth in mature markets, at 2.3%, was lower than emerging
markets, which saw 4.4% growth. The positive industrial
production growth rate is reflected in the strong organic growth
achieved in 2018 and once again, sales growth outperformed
industrial production growth as we successfully self-generated
sales through the effective use of our direct sales business model,
strengthened by the implementation of our strategy.
Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
34
23.6%
£198.9m
19.9%
2017
Base
2017
M&A
2017
2018
£872.1m £126.6m £998.7m (£21.4m) £62.8m £113.2m £1,153.3m
£13.6m £264.9m
£214.1m £21.4m £235.5m (£9.7m) £25.5m
Actual Exchange
Organic
Acquisitions
and disposal
+7%
+12%
23.0% +120 bps
Organic Reported
+15%
+12%
-60 bps
+50%
+600 bps
£299.1m
25.9%
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 As 93% of our sales and profits are made outside the UK, Brexit
uncertainty had a limited impact on us and our customers in 2018.
During the year, we completed a Brexit contingency planning
exercise and have put plans in place to manage the situation, as it
continues to unfold. Further information on our Brexit contingency
plans can be found in the Financial Review on page 52.
Global industrial production growth is currently expected to remain
positive in 2019, although at a lower level than seen in 2018.
Progress in 2018
Sales
Overall the Group achieved organic sales growth of over 7%, with
7% organic growth in the Steam Specialties business and 9%
organic growth in Watson-Marlow. Gestra saw year-on-year sales
growth of 10% and Chromalox 9%. These acquisitions contributed
£114.3 million incremental sales in 2018. HygroMatik was divested
on 30th November 2018 and as a result contributed £1.1 million
less sales than in 2017.
At £1,153.3 million, Group sales were up over 15%
(2017: £998.7 million). Sterling was stronger on average across the
year, than in 2017, and acted as a currency headwind, reducing
sales on translation by 2%.
Geographically, the Steam Specialties business, which accounted
for 64% of Group revenue in 2018, saw growth in all regions.
Sales of £733.5 million, were up 9% and up 7% organically.
Gestra added an incremental £33.1 million to revenue in 2018.
Chromalox, which accounted for 13% of Group revenue in
2018, saw strong year-on-year sales growth of 9%, benefiting
from stronger market conditions in the USA, as well as initial
contributions from our increased investments to strengthen direct
sales activities across the world.
Watson-Marlow accounted for 23% of Group revenue in 2018 and
saw organic growth of 9%, partially offset by negative currency
movements. Growth was achieved across all geographic regions.
Adjusted operating profit
Group adjusted operating profit was more than 12% ahead of
the prior year on an organic basis and, at £264.9 million, was
up 12% at reported exchange rates. The strong growth reflects
the increase in revenue, a net 6% positive impact from the full
year effect of acquisitions and a disposal, and a boost from the
Argentine currency devaluation in the Americas, partially offset by
a 4% negative translational and transactional exchange impact,
due to the stronger sterling. Excluding the boost from Argentina,
we saw organic adjusted operating profit growth of 10%.
Within the Steam Specialties business, adjusted operating
profit was 12% higher than the prior year on an organic basis,
with the Americas and Asia Pacific delivering strong organic
adjusted operating profit growth and a marginal decline in EMEA.
All geographic segments benefited from the inclusion of Gestra
which contributed 3% growth to the Steam Specialties business.
For reference, on a constant currency, like-for-like basis, Gestra’s
sales rose 10% and adjusted operating profit was up 12%, despite
significant investments in the business. HygroMatik was divested
on 30th November 2018 and as a result contributed £0.3 million
less adjusted operating profit than in 2017.
Chromalox added an incremental £9.4 million to adjusted
operating profit and continues to perform in line with our overall
expectations. For reference, on a constant currency, like-for-like
basis, Chromalox’s sales rose 9%, however adjusted operating
profit reduced by 10% as we stepped up our investments for
future growth and responded to manufacturing inefficiencies and
bottlenecks exposed by the very strong sales growth.
Watson-Marlow’s organic adjusted operating profit grew by
11%, despite increased levels of investment.
Statutory operating profit increased from £198.9 million to
£299.1 million, with £47.4 million of the increase coming from the
sale of HygroMatik, which was a constituent of the EMEA division
within Steam Specialties.
Adjusted operating profit margin
At 23.0% the Group adjusted operating profit margin was
60 bps lower than the prior year, as the dilutionary impacts
of 2017 acquisitions combined with an exchange headwind.
Excluding the impact of acquisitions, the adjusted operating
margin expanded by 120 bps to 25.2% at constant currency,
despite increased investments for growth and an increase in
material prices. Excluding HygroMatik and the devaluation-
driven profit boost from Argentina, the adjusted operating profit
margin was 22.5%. Within the Steam Specialties business,
the operating margin increased by 30 bps to 23.2% with the
dilutionary impact of Gestra and foreign currency being offset
by the impact of devaluation in Argentina. Despite the increased
investment and manufacturing inefficiencies described above,
Chromalox maintained its first half margin of 14.7%. As expected,
Watson-Marlow’s operating margin was lower, although still very
strong, at 32.0%, due to exchange impacts.
35
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our performance at a glance
Steam Specialties
EMEA Europe, Middle East and Africa
Asia Pacific
Revenue
Revenue
Americas
Revenue
30%
20%
14%
Reported
£344.4m
+13%
+4%
Adjusted operating profit
Organic
Reported
£232.7m
+7%
+7%
Adjusted operating profit
Organic
Reported
£156.4m
+3%
+12%
Adjusted operating profit
Organic
£69.3m
£63.9m
£36.9m
Adjusted operating margin
Adjusted operating margin
Adjusted operating margin
20.1%
27.5%
23.6%
No. of operating units at year end
No. of operating units at year end
No. of operating units at year end
34
16
11
Key industries
Key industries
Key industries
Performance summary
Performance summary
Performance summary
Organic sales up 4%; adjusted operating
profit down organically 1%. Sales growth
in the UK, Germany, Iberia; France
down. Additional eight months of Gestra
adds £29.4m to sales; £3.9m to profit.
HygroMatik divestment reduces sales by
£1.1m; profits by £0.3m. Gestra integrating
well; good growth in key markets.
Adjusted operating margin down 160 bps;
Gestra dilution and strategic investments.
Organic sales up 7%; adjusted operating
profit up 13% organically. China strongly
ahead, good growth in Australasia and SE
Asia; Korea flat. India making progress;
strong growth in sales. Gestra increased
direct sales presence; delivering
growth. Singapore distribution centre
delivering improved customer service.
Adjusted operating margin up 140 bps to
27.5%; organic increase +150 bps.
Organic sales up 12%; up 8% excluding
Argentine effect. Adjusted operating profit
up 40% organically; up 20% excluding
Argentine benefit. North America: organic
sales up 5%; good direct sales growth
in USA. Latin America: organic sales up
22%; up 14% excluding Argentine effect.
Gestra performing well. Adjusted operating
margin up organically 490 bps; excluding
Argentine benefit up 200 bps.
See pages 40-41
See pages 42-43
See pages 44-45
36
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Steam Specialties
F l u i d Te c h n o l o g y G r o u p
Steam Specialties
Revenue
64%
Chromalox
Revenue
Watson-Marlow
Revenue
23%
25%
Reported
£733.5m
+9%
+7%
Adjusted operating profit
Organic
£170.1m
13%
£154.6m
Adjusted operating profit
£22.8m
Reported
£265.2m
+7%
+9%
Adjusted operating profit
Organic
£84.8m
Adjusted operating margin
Adjusted operating margin
Adjusted operating margin
23.2%
14.7%
32.0%
No. of operating units at year end
No. of operating units at year end
No. of operating units at year end
61
20
41
Key industries
Key industries
Key industries
Performance summary
Performance summary
Performance summary
Sales of £733.5 million, up 7%
organically and 9% on a reported basis.
Adjusted operating profit of £170.1 million
ahead 12% on an organic basis and
10% as reported. Strategy delivering
above market growth in priority
sectors. Divestment of HygroMatik
for €59.0 million (£52.3 million).
Gestra integration progressing well and
performance ahead of acquisition case.
See pages 38-39
Sales of £154.6m up 9% on 2017;
order book up 11%. MRO small
projects strong; growth in all product
sectors. Stepped up investments:
people, property and processes.
Adjusted operating profit down 10%
on 2017; investments for growth.
Adjusted margin 14.7%, consistent with
H1 2018. Overall performance in line with
expectations; good medium and long-
term prospects confirmed.
Organic sales up 9%; growth in all
regions. Good growth in Pharma &
Biopharm and Food & Bev. Aflex sales
and profit strongly up; benefiting
from direct sales. Small pre-revenue
acquisition; to expand technical
capabilities. Adjusted operating profit up
11% organically, despite investments.
Adjusted operating margin down 40 bps
due to exchange; up 50 bps organically.
See pages 46-47
See pages 48-49
37
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Steam Specialties
The Steam Specialties business
performed strongly in 2018 as
we focused on implementing our
strategy for organic growth and the
successful integration of Gestra.”
Neil Daws
Managing Director,
Steam Specialties
Revenue £m
Reported
Organic
£733.5m +9% +7%
2017: £675.4m
2018
2017
2016
2015
2014
733.5
675.4
563.5
514.6
540.1
Adjusted operating profit £m
Reported
Organic
£170.1m +10% +12%
2017: £154.6m
2018
2017
2016
2015
2014
170.1
154.6
129.1
114.5
120.3
Key market performance
Adjusted operating margin £m
Group revenue £m
• Global industrial production
growth of 3.3% in 2018
• Industrial production growth
of 1.5% in EMEA; 4.4%
in Asia Pacific; 3.8% in
North America and 0.4% in
Latin America
• Above market growth across
priority sectors
23.2%
2017: 22.9%
Reported
+30 bps
Organic
+120 bps
64%
Positive
Neutral
Negative
Industrial production growth rates, 2018*
Stream Specialties at a glance (at year end)
61
operating units*
* Operating units are
business units that
invoice locally.
62
countries with
a direct sales
presence
4,742
employees
>4%
>2 to 4%
>0% to 2%
<_0%
No data
* Compared with the prior year. (Source: Oxford Economics, World Economic
Prospects Monthly, February 2019.)
38
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
2017
Base
2017
M&A
Actual Exchange
£623.9m £51.5m £675.4m (£15.2m)
£7.6m £154.6m
(£5.7m)
£147.0m
22.9%
£141.0m
20.9%
Organic
£41.3m
£17.0m
Acquisitions
and disposal
2018
£32.0m £733.5m
£4.2m £170.1m
Organic Reported
+9%
+7%
+10%
+12%
23.2% +120 bps +30 bps
+58%
+940 bps
£222.5m
30.3%
Market overview
In Europe, Middle East and Africa (EMEA), industrial production
was positive at 1.5%; falling back to broadly the same level as seen
in 2016, following a stronger year in 2017. Excluding China, Asia
Pacific saw industrial production growth of 2.6%. Including China,
industrial production in Asia was 4.4%. In the Americas, North
America’s industrial production growth was up 3.8%, buoyed by
improved conditions in the USA. Within Latin America, growth
was 0.4%. With the exception of Argentina, which experienced
industrial recession, all other countries in the region saw growth.
For further information, see the Steam Specialties segmental
reviews that follow.
Progress in 2018
Good progress was made in the Steam Specialties business
during 2018. Organic revenue growth was up 7%, with reported
revenues of £733.5 million. Adjusted operating profit was also
strongly ahead; up 12% on an organic basis and 10% on a
reported basis, at £170.1 million. Despite the full-year dilutionary
impact of Gestra and currency headwinds, we achieved operating
margin improvements. On an organic basis the margin was
up 120 bps and was up 30 bps on a reported basis, to 23.2%
(2017: 22.9%). Excluding Gestra, the operating margin for the
Steam Specialties business was up 120 bps on an organic basis
to 24.4%.
Gestra, which joined the Steam Specialties business in May 2017,
had a strong year; performing ahead of its acquisition case in both
sales and adjusted operating profit. The full year effect of Gestra’s
acquisition contributed an incremental £33.1 million to sales and
£4.5 million to adjusted operating profits of the Steam Specialties
business in 2018.
On 3rd December, we announced the disposal of HygroMatik
GmbH for a total cash consideration of €59.0 million (£52.3 million)
on a debt-free, cash-free basis. HygroMatik joined the Spirax
Sarco Group in 1988 but due to limited strategic fit operated
separately from the Steam Specialties business. This low level
of integration limited our ability to improve sales growth while
maintaining HygroMatik’s excellent profitability. During the
11 months of our ownership in 2018, HygroMatik’s sales were
£12.9 million with an operating profit of £3.8 million.
Statutory operating profit increased from £141.0 million to
£222.5 million, with £47.4 million of the increase coming from the
sale of HygroMatik.
The Steam Specialties segmental reviews that follow provide
detailed information on our progress in 2018.
Management changes
In September 2018, Neil Daws, Group Executive Director and
Divisional Director for Spirax Sarco Steam Specialties EMEA,
was promoted to the position of Managing Director for the
Steam Specialties business. In his new role, Neil is responsible
for the Steam Specialties business worldwide, including Gestra,
and reports to the Group Chief Executive. As a result of Neil’s
promotion, Sean Clay joined the Group in July 2018, taking the
role of Divisional Director Spirax Sarco EMEA.
Historically, our Group Chief Executives have held the position of
Managing Director for the Steam Specialties business, but with
the Group’s evolution in size and complexity, separating the two
roles provides a more appropriate organisational structure to
support the Group’s continued growth. It will enable the Group
Chief Executive to focus more on medium and longer-term growth
opportunities, including the further development of our Watson-
Marlow and Chromalox businesses, while the Steam Specialties
Managing Director will manage the day-to-day operations
of the steam business and oversee its strategic direction
and implementation.
Strategy update
The Steam Specialties business strategy, “Customer First”,
is delivering good growth in priority industry sectors and is
strengthening the people, processes and performance of the
business that will underpin long-term, sustainable growth.
Our sales and service engineers are utilising and benefiting from
the advanced training materials delivered through the Spirax Sarco
Academy; key customer service metrics are improving, from an
already strong base; strategic account management initiatives
are strengthening our relationships with key customers, as we
help them achieve their sustainability and process efficiency
targets; and we have continued to strengthen our H&S culture
and raise awareness of Group sustainability initiatives across our
global operations.
Gestra, has integrated well; the “safe delivery” phase of the
integration process is complete and we are now focusing on
strategic implementation to deliver growth whilst continuing to
review opportunities for synergies with the original Spirax Sarco
steam business. During 2018, we invested to expand Gestra’s
direct sales footprint, leveraging Spirax Sarco’s global presence for
quick and easy access into new markets.
Further information about our strategic implementation, at a
segmental level, can be found on the pages that follow.
39
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Steam Specialties:
Europe, Middle East and Africa (EMEA)
Sales of £344.4 million were up
4% on an organic basis, with
Gestra contributing an additional
£29.4 million. Adjusted operating
profit was up 5% on a reported
basis at £69.3 million.”
Sean Clay
Divisional Director,
EMEA
Revenue £m
Reported
Organic
£344.4m +13% +4%
2017: £305.3m
2018
2017
2016
2015
2014
344.4
305.3
234.3
219.4
236.2
Adjusted operating profit £m
Reported
Organic
£69.3m +5% -1%
2017: £66.1m
2018
2017
2016
2015
2014
69.3
66.1
50.0
42.7
45.9
Key market performance
Adjusted operating margin £m
Group revenue £m
• Industrial production growth
rate of 1.5%
• Low growth rate in UK
as Brexit negotiations
created uncertainty
• Growth in priority sectors;
Oil & Gas small decline
• OEM boiler makers and
German Chemical and
Power Generation industries,
key markets for Gestra, saw
good growth
20.1%
2017: 21.7%
Reported
-160 bps
Organic
-120 bps
Positive
Neutral
Negative
Industrial production growth rates, 2018*
EMEA at a glance (at year end)
30%
34
operating units*
* Operating units are
business units that
invoice locally.
34
countries with
a direct sales
presence
2,694
employees
>4%
>2 to 4%
>0% to 2%
<_0%
No data
* Compared with the prior year. (Source: Oxford Economics, World Economic
Prospects Monthly, February 2019.)
40
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 2017
Base
2017
M&A
2017
Actual Exchange
£0.8m
£0.5m
Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
£59.0m
£259.5m £45.8m £305.3m
£7.1m £66.1m
21.7%
£58.7m
19.2%
Organic
£10.0m
(£0.9m)
Acquisitions
and disposal
2018
£28.3m £344.4m
£3.6m £69.3m
Organic
+4%
-1%
20.1% -120 bps
£111.5m
32.4%
Reported
+13%
+5%
-160 bps
+90%
+1,320 bps
Market overview
In Europe, Middle East and Africa (EMEA), industrial production
growth was positive at 1.5%, in line with that seen in 2016,
following a stronger year in 2017. With the exception of South
Africa and Portugal, all countries in EMEA, for which data is
available, saw industrial production growth although, perhaps
unsurprisingly, the UK had one of the lowest growth rates at
0.7% as Brexit negotiations created uncertainty. The markets in
which Gestra operates, geographically and by industry, remained
positive, with industrial production in Germany at 0.9%, OEM
(original equipment manufacturer) boiler makers having a good
year, the Chemical and Petrochemical industries growing and
Power Generation bouncing back after a weak 2017.
Progress in 2018
Sales increased by 4% on an organic basis, with Gestra
contributing an additional £29.4 million. The divestment of
HygroMatik, on 30th November 2018, reduced sales by
£1.1 million while currency movements provided a small tailwind,
increasing sales by £0.8 million. Reported sales were therefore
£344.4 million, up 13% on the prior year.
Organic sales growth in the region was variable, with progress
in the UK, Germany, Italy, Spain, Turkey, the Middle East and
across Africa, somewhat offsetting weaker performance in France
and some smaller European operations. Our new operating
companies in Egypt, Kenya, Hungary, Romania and Morocco
delivered growth. Sales into the Food & Beverage, Healthcare,
Pharmaceutical and OEM industries were robust, offsetting a
small decline in Oil & Gas. In the second half of the year there
was some softening of demand for large projects, although they
came back strongly in the final quarter to end the year in line with
our expectations. Maintenance, repair and baseload business
remained robust throughout the year.
Gestra, whose sales in EMEA account for over 85% of its total
revenue, saw strong sales growth of close to double digits, in
the region, with good growth in Germany, where Gestra is the
market leader, boosted by the strength of boiler OEM markets
and Gestra’s core industries. Gestra Italy, Spain and Portugal also
performed well.
At £69.3 million, adjusted operating profit was ahead 5%.
Organically, adjusted operating profit decreased 1% and there was
a small impact following the divestment of HygroMatik; these were
offset by an additional 6% from Gestra and a very small exchange
gain. Growth in adjusted operating profit from operating leverage
and price management initiatives was counteracted by increased
revenue investments for future growth, including improvements in
our Italian manufacturing operations, additional sales and service
engineers, and investment in enhanced information systems and
platforms. Strong improvements in gross profitability in Gestra
were, in accordance with the acquisition plan, re-invested in the
business to strengthen the company for future growth.
The adjusted operating margin reduced 160 bps to 20.1% due to
the dilutionary impact of Gestra and increased revenue investment.
Statutory operating profit increased from £58.7 million to
£111.5 million, with £47.4 million of the increase coming from the
sale of HygroMatik.
Strategy update
Three new Spirax Sarco operating companies began trading in
the region during 2018, in the Maghreb (covering Morocco, Algeria
and Tunisia), Hungary and Romania. Strategic value-based pricing
tools and methodologies have been updated and rolled out across
the region and we have continued to sectorise our sales teams,
increasing alignment with our priority industries. The Spirax Sarco
Academy is being widely used and is delivering class-leading
technical and skills training to our sales and service engineers
as well as sales support staff. Our safety culture continues to
evolve, driven by activities such as safety awareness weeks, safety
culture assessments, training and a “don’t walk by” campaign.
Good progress has been made in our employee engagement
initiatives, with local actions identified and implemented across our
operating companies.
Gestra’s integration and strategy implementation are progressing
well. During the year, Gestra Germany’s operational structure was
re-organised to mirror the successful structure used elsewhere
within the Group, with Product Management and Product
Development functions established. Gestra established a new
sales company in China, which will begin trading in 2019, and
broadened its direct sales presence, appointing sales engineers in
Brazil, Indonesia, Malaysia, the Middle East, Thailand and South
Korea, while also strengthening its presence in France.
Segment outlook
Softening forecasts suggest lower, but still positive,
industrial production growth in the region throughout 2019.
Uncertainty surrounding Britain’s exit from the EU continues to
cast a shadow over 2019, but our contingency plans are being
executed in readiness for the scheduled exit on 29th March; we
are well-positioned to continue to serve our customers throughout
any transition period. While we remain cautious on the short-
term economic outlook for the region, our self-generated growth
initiatives, resilient business model and the large proportion of
our revenue generated from customers’ maintenance and repair
needs give us confidence that we can make progress despite
uncertain conditions.
41
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Steam Specialties:
Asia Pacific
Sales were up 7% to £232.7 million;
7% organic growth and a small
contribution from Gestra partially
offset by a currency headwind.
Adjusted operating increased
to £63.9 million.”
Paul Lee Suay Wah
Divisional Director,
Asia Pacific
Revenue £m
Reported
Organic
£232.7m +7% +7%
2017: £218.0m
2018
2017
2016
2015
2014
232.7
218.0
193.3
171.8
177.7
Adjusted operating profit £m
Reported
Organic
£63.9m +12% +13%
2017: £56.9m
2018
2017
2016
2015
2014
63.9
56.9
49.9
44.7
46.4
Key market performance
Adjusted operating margin £m
Group revenue £m
• Excluding China, industrial
production in the region of
2.6%, including China 4.4%
• Lower industrial production
in China, of 5.8%, Korea and
Japan low growth
• Market conditions began to
soften across the region in
the final quarter of 2018
• Growth in key industries;
Oil & Gas at similar levels
to 2017
27.5%
2017: 26.1%
Reported
+140 bps
Organic
+150 bps
Positive
Neutral
Negative
Industrial production growth rates, 2018*
Asia Pacific at a glance (at year end)
20%
16
operating units*
* Operating units are
business units that
invoice locally.
16
countries with
a direct sales
presence
1,132
employees
>4%
>2 to 4%
>0% to 2%
<_0%
No data
* Compared with the prior year. (Source: Oxford Economics, World Economic
Prospects Monthly, February 2019.)
42
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 2017
Base
£215.9m
£56.9m
Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
Actual Exchange
(£2.3m)
(£0.7m)
2017
M&A
£2.1m £218.0m
£0.0m £56.9m
26.1%
£56.3m
25.8%
Organic Acquisitions
£15.7m
£7.6m
2018
£1.3m £232.7m
£0.1m £63.9m
Organic Reported
+7%
+7%
+12%
+13%
27.5% +150 bps +140 bps
+24%
£69.9m
+420 bps
30.0%
Market overview
Excluding China, Asia Pacific saw industrial production growth
of 2.6%. Including China, industrial production in the region was
up 4.4% in 2018 despite industrial production growth in China
slowing to 5.8%. Elsewhere, our second largest market in the
region, Korea, experienced almost zero growth and Japan was
also relatively weak with growth of less than 1%, but most of
our smaller markets saw good growth. After a strong first three
quarters, across much of the region, market conditions began to
soften in the final quarter of the year.
Progress in 2018
Sales of £232.7 million were up 7%. On an organic basis, sales
were also ahead 7%, with a less than 1% incremental contribution
from Gestra, which has a small local presence in the region.
A currency headwind reduced sales on translation by 1%.
China saw very strong, double-digit growth. Korea was flat against
a very tough compare, where the non-repeat of a particularly large
order in 2017 was compensated for by an increase in smaller
projects in 2018. Japan, Malaysia, the Philippines, Thailand,
Australia and New Zealand all achieved record sales, Australia
bounced back strongly from a difficult prior year, while our
relatively new operating companies in Indonesia and Vietnam
performed well.
Sales growth came mostly from a combination of smaller self-
generated projects and base business, although large project
orders also achieved growth. With the exception of Oil & Gas,
which remained at similar levels to 2017, we saw growth in all
our core sectors, with Food & Beverage doing particularly well.
The new Distribution Centre in Singapore shortened lead times,
contributing to sales growth. The availability of products from our
new Indian factory helped us win a number of Oil & Gas projects
and an increasing customer focus on safety, energy savings and
productivity increased demand for small projects.
Sales in India grew very strongly, in line with our expectations.
We are starting to realise the benefit from increased sales resource
and a wider geographic presence in the sub-continent.
Gestra’s sales in the region outperformed the market, with
double-digit growth, driven by a combination of better distributor
management and investment in direct sales.
Adjusted operating profit increased to £63.9 million, up 13%
organically, with an additional small contribution from Gestra,
partially offset by exchange headwinds, which reduced reported
adjusted operating profit by 1%. The adjusted operating margin
was ahead 140 bps, to 27.5%, due to efficiency gains and
reduced shipping costs from the new Distribution Centre, active
price management and increased localisation of products from
the expanded Chinese factory and India, all of which more
than covered increased personnel and material costs and
increased overheads.
Statutory operating profit increased from £56.3 million to
£69.9 million.
Strategy update
Six new Regional Business Development Managers were
appointed to oversee the deployment of key strategic projects
and drive business improvements in the region and a Divisional
Pricing Manager was appointed to provide the focus and expertise
to maintain pricing discipline. Increased sector focus supported
an increase in self-generated sales, while a focus on customer
Energy Services (audits) uncovered a number of self-generated
sales opportunities. We continued to roll out the programmes of
the Spirax Sarco Academy while improving customer service and
growing our On Time To Request performance.
A key element of Gestra’s strategy for growth is to broaden
its direct sales presence, by leveraging Spirax Sarco’s global
presence. Historically, Gestra has primarily served Asia Pacific
via distributors, and was missing out of the self-generated sales
that expert sales engineers can win as they “walk the plant”
and identify customers’ unrecognised needs. During 2018,
we established a direct sales presence in Indonesia, Malaysia,
Thailand and South Korea to supplement distributor sales and
established an operating company in China, which will become
operational in the first half of 2019.
Segment outlook
Industrial production growth, for the region as a whole, looks
likely to soften as a result of the reported slowdown in China.
The slowdown and the wider uncertainty this will cause, may
subdue capex spend in the region if customers delay large
projects. Furthermore, US-China trade tensions continue to
dampen the economic outlook and general elections in a number
of countries (Australia, India, Indonesia, Japan and Thailand)
may impact growth. Nevertheless, while the macro environment
looks uncertain in the near term, we will continue to derive
revenue from our customers’ on-going maintenance, repair and
overhaul activities, from our large installed base and continue
to see opportunities for self-generated growth as we provide
bespoke, engineered solutions to help our customers meet their
sustainability and productivity targets.
43
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Steam Specialties:
Americas
Sales of £156.4 million were ahead
12% organically, adjusted operating
profit of £36.9 million was up 40%
organically; with sales and profit
both benefiting from Argentina’s
currency devaluation.”
Sheldon Banks
Divisional Director,
Americas
Revenue £m
Reported
Organic
£156.4m +3% +12%
2017: £152.1m
2018
2017
2016
2015
2014
156.4
152.1
135.9
123.4
126.2
Adjusted operating profit £m
Reported
Organic
£36.9m +17% +40%
2017: £31.6m
2018
2017
2016
2015
2014
36.9
31.6
29.2
27.1
28.0
Key market performance
Operating margin £m
Group revenue £m
• Industrial production up
3.8% in North America,
buoyed by growth in USA
• In Latin America, conditions
mixed, with industrial
production less than 1%
overall, hampered by
recession in Argentina
• In the Oil & Gas industry,
upstream investments
subdued but downstream
facilities invested in
efficiency improvements
23.6%
2017: 20.8%
Reported
+280 bps
Organic
+490 bps
14%
Positive
Neutral
Negative
Industrial production growth rates, 2018*
Americas at a glance (at year end)
11
operating units*
* Operating units are
business units that
invoice locally.
12
countries with
a direct sales
presence
910
employees
>4%
>2 to 4%
>0% to 2%
<_0%
No data
* Compared with the prior year. (Source: Oxford Economics, World Economic
Prospects Monthly, February 2019.)
44
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 2017
Base
£148.5m
£31.1m
Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
M&A
2017
Actual Exchange
£3.6m £152.1m (£13.7m)
£0.5m £31.6m
(£5.5m)
20.8%
£26.0m
17.1%
Organic Acquisitions
£15.6m
£10.3m
2018
£2.4m £156.4m
£0.5m £36.9m
Organic Reported
+3%
+12%
+17%
+40%
23.6% +490 bps +280 bps
+58%
£41.1m
+920 bps
26.3%
Market overview
In the Americas, North America’s industrial production was up
3.8%, buoyed by improved conditions in the USA where, despite
deteriorating relations with China, tax concessions and “business-
friendly” policies have helped to stimulate growth of 4.0%. Within Latin
America, industrial production growth was up 0.4%, with only
Argentina experiencing contraction. In Mexico, a presidential election
plus uncertainties regarding the re-negotiation of NAFTA, which led
to the creation of USMCA, caused some market softness. Colombia,
Peru and Brazil also saw presidential elections during the year, with
a more business-friendly regime, that claims it will tackle corruption
and economic malaise, established in Brazil. Conditions in Argentina
have steadily worsened, despite the administration’s efforts to stem
the currency devaluation, with the country falling into a recession,
which looks likely to continue into 2019. The rise and subsequent
fall of oil prices during the year, broadly speaking, served as neither
a stimulus nor a constraint in the region, as upstream investment
remained subdued and downstream facilities continued with efficiency
improvement projects.
Progress in 2018
On an organic basis, sales were ahead 12%, with an additional 2%
incremental contribution from Gestra, partially offset by a 9% negative
impact from currency movements. Sales, at £156.4 million, were
up 3%. Excluding the impact of Argentina’s unexpected currency
devaluation, organic growth was 8%.
Organic sales were up 5% in North America. Within the USA, both our
Spirax Sarco and Gestra companies delivered good growth, benefiting
from investments in direct sales resource. We continue to work closely
with our distribution partners in the USA and saw increased demand
from them during the year. Additionally, direct sales through the other
channels to market grew by double digits in the USA.
In Latin America, organic sales were up 22%, benefiting from
Argentina’s US dollar-denominated pricing. Excluding the £4.4 million
sales benefit from Argentina’s devaluation, organic sales growth was
14%. Hiter, our Brazilian Controls business, which we acquired in 2016,
saw double-digit growth, as it regained its former strong position in
the Sugar & Ethanol and Oil & Gas markets, and our relatively new
company in Colombia also performed strongly. Improving market
conditions in Brazil translated into growth, while our company in
Argentina was not immune to the challenging conditions and sales
were flat in real terms.
Food & Beverage sales have grown across the region as customers
focused on safety, quality, productivity and energy efficiency
improvements. Pharmaceuticals also delivered good growth,
particularly in North America, with customers’ operational and capital
projects both providing opportunities for sales growth. Through our
investments in direct sales resource, we self-generated growth as our
sales engineers walked our customers’ sites and conducted Steam
System Audits, which uncovered sales opportunities for Thermal
Energy Solutions.
Adjusted operating profit in the Americas was strongly ahead of the
prior year; up 17% to £36.9 million. On an organic basis, adjusted
operating profits were up 40%. Excluding the £5.2 million benefit from
Argentina’s exceptional currency devaluation, which saw large price
increases and positive in-country foreign exchange gains, organic
adjusted operating profit growth was 20%. The reported adjusted
operating profit margin was also strongly ahead, up 280 bps to
23.6%. Excluding the impact of the Argentine currency devaluation,
the adjusted operating margin increased by 200 bps to 21.0%, as a
consequence of operational leverage from higher sales, pricing and
purchasing discipline.
Statutory operating profit increased from £26.0 million to £41.1 million.
Strategy update
New modules of the Spirax Sarco Academy have been rolled out,
providing more advanced training in key areas such as Thermal
Energy Management, which are increasing the confidence of our
sales engineers when walking customer plants and their ability to
identify improvement opportunities.
As well as training our own engineers, customer training remains an
important focus, further strengthening our relationship with them and
reinforcing our position as providers of expert knowledge and advice.
During the year, we opened a training facility in Guadalajara, Mexico,
where customers can receive technical advice, world-class training in
our Steam Laboratory, or collect Spirax Sarco parts.
The sectorisation of our direct sales teams is stimulating demand
for our products and solutions from end users, while we maintain
strong relationships with our distribution partners who will continue to
provide a crucial role in supplying products to meet our customers’
maintenance, repair and overhaul needs, in particular.
A focus on on-time delivery performance by our manufacturing
companies in the region is starting to see returns, despite a particularly
challenging year with incidents such as the Truck Strike in Brazil and
a number of General Strikes in Argentina. Revenue investments in
health and safety, quality and inventory management are improving
the foundation for sustainable future growth.
Segment outlook
In North America, industrial production is expected to slow in
2019, although remain positive. Across Latin America a mixed
picture is expected, with progress in Brazil, as a result of the
new administration’s policies to stimulate growth, being offset by
continuing recessionary conditions in Argentina. To compound the
problems in Argentina, a presidential election in October 2019 is likely
to generate uncertainty and suppress growth in the lead up to the
election. Mexico should see improved market conditions as recent
uncertainty has now been removed by the signing of the USMCA
trade agreement.
Oil & Gas markets remain uncertain, with upstream investments likely
to continue to be stagnant. In addition, National Oil Companies in
Latin America face uncertainty as discussions continue regarding
the possible privatisation of some of their assets, with the new
governments in Colombia and Brazil not yet having made their
positions on possible divestments clear. By contrast, the Food &
Beverage and Pharmaceutical industries look set to remain buoyant,
which, when combined with our wide geographic presence, stronger
direct sales teams and our ability to self-generate growth leave
us confident in our ability to make further progress in the region
during 2019.
45
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Chromalox
Chromalox delivered £154.6 million
of sales in 2018, a 9% increase at
constant currency over the prior
year, with adjusted operating profit
of £22.8 million.”
Mike Sutter
Divisional Director,
Chromalox
Revenue £m
£154.6m
70.9
154.6
75.1
2018
2017
2016
2015
2014
Pre-acquisition
Post-acquisition
Adjusted operating profit £m
£22.8m
22.8
12.2
13.8
2018
2017
2016
2015
2014
Pre-acquisition
Post-acquisition
Key market performance
Adjusted operating margin £m
Group revenue £m
14.7%
• Over 70% of revenue
generated in the USA, which
experienced good industrial
production growth in 2018
• High oil prices for much of
the year provided a stimulus
for growth, as did buoyant
conditions in the USA
• Good maintenance, repair
and overhaul demand
13%
Positive
Neutral
Negative
Industrial production growth rates, 2018*
Chromalox at a glance (at year end)
20
operating units*
* Operating units are
business units that
invoice locally.
16
countries with
a direct sales
presence
1,255
employees
>4%
>2 to 4%
>0% to 2%
<_0%
No data
* Compared with the prior year. (Source: Oxford Economics, World Economic
Prospects Monthly, February 2019.)
46
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
31 Dec
2017 Exchange
(£1.7m)
(£0.4m)
£75.1m
£13.8m
18.4%
£4.0m
5.3%
Organic Acquisitions
–
–
31 Dec
2018
£81.2m £154.6m
£9.4m £22.8m
14.7%
£12.1m
7.8%
(For reference only)
Full Year 2017*
+9%
£142m
£25m
-10%
17.8% -310 bps
* At constant currency
Market overview
Towards the latter end of 2017, Chromalox saw a marked
improvement in baseline business in the USA and Europe, in several
key market sectors and across the company’s three products
segments. This trend continued throughout 2018 with an improved
industrial production growth rate in the USA where Chromalox
generates over 70% of its revenue, and relatively steady growth
rates elsewhere provided a generally positive operating environment.
The higher oil prices, which prevailed through much of the year,
provided a stimulus for growth in this important industry which
accounted for 16% of Chromalox’s revenues during the year. The fall
in the oil price towards the end of the year, increasing US-China
trade tensions and the slowing Chinese economy cast a shadow
over a number of markets in the final quarter.
Progress in 2018
Chromalox delivered £154.6 million of sales in 2018. For
information only, on a comparable basis this was 9% higher than
the full-year sales of 2017 at constant currency, with the order
book expanding by 11%. We saw good maintenance, repair and
overhaul demand and also strong project orders, with growth
across all product sectors (Heat Trace; Industrial Heaters &
Systems; and Component Technologies) and particularly strong
growth in Heat Tracing in North America. We reinvigorated our
efforts with OEM customers, which started to deliver results
towards the end of the year as several new, or returning, OEM
customers placed orders.
Having established a direct sales presence in Latin America (Brazil
and Chile), we began to secure additional sales, which will grow in
the coming years as we increase our product and service offering,
as well as expert applications knowledge, to customers in this
region and secure a greater proportion of self-generated sales.
While sales growth in North America and EMEA was strong,
Asia Pacific was more subdued due to the sales phasing of its
significantly increased order book.
On a comparable basis at constant currency, adjusted operating
profit of £22.8 million was 10% lower than the prior year, as we
accelerated revenue and capital investments in the business.
Investments included, but were not limited to, the establishment
of a company in Brazil and six new sales offices with an attendant
increase in headcount; safety upgrades undertaken at several
facilities; improved information systems; and talent development.
In addition, the very strong growth in sales and even stronger
growth in orders in a company that had experienced shrinkage in
recent years placed significant stress on the manufacturing process,
exposing some bottlenecks and inefficient working practices.
These processes are being strengthened to enable more effective
capacity expansion going forward. As a result of the above factors
the operating margin, at 14.7%, was 310 bps lower than the prior
year, although in line with that seen in the first half of the year.
Statutory operating profit increased from £4.0 million to £12.1 million.
Strategy update
A core component of Chromalox’s strategy and a key element of
the acquisition plan is the development of the company’s direct
sales presence. In addition to strengthening the direct sales team
in the western region of the USA, we established new offices in
Spain, Norway, Sweden, Brazil, Chile and the UAE leveraging
Spirax Sarco’s presence in these countries for ease of access into
these markets.
New product development continued apace and key international
certifications (such as IECEx/ATEX) were secured for a number
of recently developed products, notably the DirectConnect™
medium voltage heating systems and Self-Regulating High
Temperature heat trace cable, enabling these product ranges to
be sold in a wider range of countries. An example of a product
launched in 2018 is the “ITC Fire Sprinkler System Control” for use
on freeze protection of fire suppression systems. This product
is the first fire sprinkler control that is certified to key standards
IEEE 515.1 and UL 864. A robust product pipeline is also under
development for launch in 2019.
Throughout the year, we invested in Chromalox’s manufacturing
facilities, carrying out important safety upgrades, expanding
the Mexico plant, and launching a series of improvements to
increase the capability and performance of the manufacturing
plant in France, which includes implementing our global-standard
ERP (Enterprise Resource Planning) system that will go live in
early 2019.
A sustainability management structure has been embedded within
the organisation and the Group’s programmes and policies have
been adopted.
On 18th February 2019, we announced that we had entered
into exclusive negotiations with a view to acquiring Thermocoax
Developpement and all of its group companies in France,
Germany and the USA. This acquisition, which will be reported
within Chromalox, will significantly enhance our electrical process
heating business in Europe and the USA, while also strengthening
our organic growth platform in Asia.
Outlook
The stronger industrial production growth rates experienced in
2018 are expected to soften slightly in 2019, although we anticipate
that they will remain broadly positive for the geographic territories
in which we directly trade. Nevertheless, there are a number of
gathering macroeconomic headwinds, not least US-China trade
tensions, the Chinese economic slowdown and the lower oil price,
which may impact in 2019. However, our differentiating technologies
combined with our direct sales business model, our broad industry
base and the large proportion of our revenue that is generated from
our customers’ operational and maintenance budgets, position us
well to continue to outperform our markets, while our strategy for
growth is laying the foundation for a more robust and sustainable
business in the medium to long term.
47
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Watson-Marlow
Sales of £265.2 million in 2018,
with 9% organic growth partially
offset by currency headwinds.
Adjusted operating profit of
£84.8 million, up 11% organically.”
Jay Whalen
Executive Director,
Watson-Marlow
Revenue £m
Reported
Organic
£265.2m +7% +9%
2017: £248.2m
2018
2017
2016
2015
2014
265.2
248.2
193.9
152.6
138.2
Adjusted operating profit £m
Reported
Organic
£84.8m +6% +11%
2017: £80.3m
2018
2017
2016
2015
2014
84.8
80.3
64.3
48.0
43.5
Key market performance
Adjusted operating margin £m
Group revenue £m
• Global industrial production
growth of 3.3%
• Pharmaceutical &
Biotechnology industry,
which accounts for over
40% of Watson-Marlow’s
sales, buoyant
• Good growth in Clinical
Diagnostics and Food
& Beverage, the latter
boosted by the Certa Pump,
launched in 2016
32.0%
2017: 32.4%
Reported
-40 bps
Organic
+50 bps
23%
Positive
Neutral
Negative
Industrial production growth rates, 2018*
Watson-Marlow at a glance (at year end)
41
operating units*
* Operating units are
business units that
invoice locally.
34
countries with
a direct sales
presence
1,443
employees
>4%
>2 to 4%
>0% to 2%
<_0%
No data
* Compared with the prior year. (Source: Oxford Economics, World Economic
Prospects Monthly, February 2019.)
48
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 2017
Base
£248.2m
£80.3m
Revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
M&A
2017
Actual Exchange
(£4.5m)
(£3.6m)
– £248.2m
£80.3m
–
32.4%
£74.8m
30.1%
Organic Acquisitions
£21.5m
£8.1m
2018
– £265.2m
–
Organic Reported
+7%
+9%
£84.8m +11%
+6%
32.0% +50 bps -40 bps
+4%
£77.5m
-90 bps
29.2%
Market overview
Watson-Marlow is subject to similar economic conditions and
industrial production growth rates as those experienced by
the Steam Specialties business, due to its wide geographical
spread and the broad diversity of its end user markets. However,
Watson-Marlow’s greater exposure (c.40% of sales) to the
Pharmaceutical & Biotechnology industry means that it is more
affected by conditions in that market, than is the Group as a
whole. Throughout the year, the Pharmaceutical & Biotechnology
market remained buoyant, as did the Clinical Diagnostics and
Food & Beverage industries, two other important markets for
Watson-Marlow. The Water & Wastewater (environmental) market
was generally robust globally and Mining and General Industry
were both broadly positive on a global scale.
Progress in 2018
Watson-Marlow delivered sales of £265.2 million in 2018, with
9% organic growth partially offset by exchange headwinds
of 2%. Strong organic sales growth was delivered across all
geographical regions.
Within Europe and the Middle East we achieved strong growth
across most of our territories, including the UK. Our new company
in the UAE, which was established during the year, performed
ahead of plan while Watson-Marlow Ireland achieved very
strong growth. In Asia Pacific, China performed exceptionally
well against a very tough compare, notably with strong growth
in base business, while India and South Korea also performed
strongly. Within North America, investments in the USA’s east
and west coast direct sales initiatives, where we moved from reps
to direct sales teams, have fuelled excellent growth, while our
new company in Canada made good progress during the year.
Latin America performed very strongly, with Mexico delivering
outstanding growth against a tough compare, and Brazil and
Chile also having a good year.
Sales into the Pharmaceutical & Biotechnology industry continue
to be strong, with BioPure, FlowSmart and Watson-Marlow
Tubing, in particular, all contributing strongly to growth. Sales into
the Food & Beverage sector were good as the Certa Sine™
(Certa) pump, launched by Watson-Marlow in 2016, continued
to underpin growth.
Aflex, which was acquired at the end of November 2016,
delivered double-digit growth as the Aflex product range began
to be sold through the Watson-Marlow direct sales channels
during the year. Due to above-plan progress, we have brought
forward the consolidation of Aflex’s four UK manufacturing
sites into one purpose-built factory. Work on this £21 million
facility began towards the end of the year and is scheduled for
completion in 2020.
Watson-Marlow’s adjusted operating profit was £84.8 million,
up 6% and up 11% organically, with a 5% exchange headwind.
At 32.0% the reported adjusted operating profit margin was
down 40 bps, due to exchange. On an organic basis, the margin
increased 50 bps.
Statutory operating profit increased from £74.8 million to
£77.5 million.
Strategy update
Watson-Marlow’s geographic expansion continued in 2018, with
a direct sales presence installed in the Philippines and a company
established there that will begin trading in 2019, as well as a new
company which began trading in the UAE.
During the year, we broadened our direct sales product portfolio
as our sales operations in the USA, Korea, South Africa and the
UAE began selling Aflex products directly to their customer base,
with discernible sales growth resulting.
New product development remains a key strategic priority, with
several product launches during the year, including a new platform
for the Flexicon FP60 small batch fully automated filling machine,
which utilises a modular concept that will reduce lead times
and broadens the machine’s capabilities; range extensions to
the Watson-Marlow Qdos chemical metering pump; new valve
actuators from ASEPCO; and hose range extensions from Bredel.
Throughout the year, we made good progress developing an
innovative product following the acquisition of a small, pre-revenue
company in January 2018, which will expand the technical
capabilities of our peristaltic pumping technologies.
During 2018, we added a sixth element to the Watson-Marlow
business strategy: “Creating environments where people
thrive”, focused on our people, talent management, culture and
working environment.
Outlook
Industrial production is generally expected to remain positive
during 2019, although at lower levels than seen in 2018, as various
political and economic events and circumstances potentially
subdue growth rates. Nevertheless, the market drivers in Watson-
Marlow’s core industries, notably Pharmaceutical & Biotechnology,
as well as Food & Beverage, Clinical Diagnostic OEMs and
Environmental, all remain strong. Our strategic investments in
our direct sales force, geographical expansion, new product
innovation and manufacturing efficiencies, to name but a few,
position us well to continue to see good, above-market organic
sales growth.
49
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Financial Review
A good financial result was
achieved in 2018 against the
background of continuing industrial
production growth, albeit at a lower
rate than was seen in 2017.”
Kevin Boyd
Chief Financial Officer
Key points in this section:
• Final dividend of 71.0p per share; total Ordinary
dividend of 100.0p per share, an increase of 14%
• Adjusted basic earnings per share increased by
13% to 250.0p
• Return on capital employed increased 200 bps
to 54.9%
• Net debt of £235.8 million; 0.8 times EBITDA
* Unless otherwise stated, all profit measures exclude certain items, as set out and
explained in the Financial Review and in Note 2. Organic measures are at constant
currency and exclude contributions from acquisitions and disposals.
The Group reports under International Financial Reporting
Standards (IFRS) and also uses adjusted and organic
figures where the Board believe that they help to effectively
monitor the performance of the Group and help users of
the Financial Statements to draw comparisons with our
peers. Certain alternative performance measures also form a
meaningful element of Executive Directors’ annual bonuses.
Unless otherwise stated, adjusted figures are used throughout
this section. A reconciliation of adjusted operating profit to
statutory operating profit is given below and more detail can be
found in Note 2 to the Financial Statements.
As we are a multi-national Group of companies that trade in a
large number of foreign currencies and regularly acquire and
sometimes dispose of companies, we also refer to organic
performance measures. Organic measures strip out the effects
of the movement of foreign currency exchange rates and of
acquisitions and disposals. The percentage organic growth or
50
decline is measured as the constant currency movement in those
businesses that were part of the Group at the end of the current
year and the beginning of the prior year, i.e. excluding the effects
of any acquisitions or disposals made in either year. The Board
believes that this allows users of the Financial Statements to gain a
further understanding of how the Group has performed.
A good financial result was achieved in 2018 against the
background of continuing industrial production growth, albeit
at a lower rate than was seen in 2017. Sales grew over 15% to
£1,153.3 million (2017: £998.7 million). Organic sales grew by over
7%. Watson-Marlow had another excellent year, delivering 9%
organic growth, with all regions performing well. Organic sales
grew by 7% in the Steam Specialties business, with a 4% advance
in EMEA, 7% gain in Asia Pacific and 12% growth in the Americas.
The net effect of the acquisition of Gestra in May 2017, Chromalox
in July 2017 and the divestment of HygroMatik at the end of
November 2018, added 12% to sales.
Following two years of currency tailwinds, the trend reversed this
year with the general strengthening of sterling resulting in a 2% fall
in revenue. If recent exchange rates were to prevail for the whole
of 2019 we would not expect to see a material exchange impact to
sales on translation when compared to 2018.
Adjusted operating profit of £264.9 million (2017: £235.5 million)
was over 12% ahead at reported exchange rates and 12% ahead
on an organic basis (constant currency, excluding acquisitions and
a disposal). On an organic basis the Steam Specialties business
saw adjusted operating profits increase by 12% with a 1% decline
in EMEA being more than offset by 13% growth in Asia Pacific and
40% growth in the Americas. Watson-Marlow’s adjusted operating
profits grew 11% on an organic basis.
Currency movements depressed adjusted operating profit by
4%, a mixture of translational and transactional losses. The net
transactional loss was £3.4 million. The main transactional
exposure flow affecting the Group is the export of products from
our factories in the UK, invoiced in sterling, less the import of
goods from overseas Group factories and third parties priced
predominately in euros and US dollars. The net exposure is
approximately £100 million. If recent exchange rates prevail
for the whole of 2019 we would not expect to see a material
impact to profit due to transactional and translation foreign
exchange movements.
The net effect of the acquisitions made in 2017 and disposal in
2018 was to add 6% to adjusted operating profit on a constant
currency basis.
The adjusted operating profit margin in the Steam Specialties
business grew 30 bps to 23.2% despite the dilutionary impact
of an additional four months of trading from Gestra and one
month less from HygroMatik in 2018. Excluding these effects, the
margin would have been 120 bps higher at 24.4% at constant
currency. Watson-Marlow’s reported margin fell 40 bps to 32.0%,
although increased by 50 bps at constant currency. Investment in
Chromalox continued in the second half of the year with margin
remaining constant at 14.7%, a fall of 310 bps on the full year
2017 result. Overall, the Group’s reported margin fell by 60 bps to
23.0% due to the dilutionary impacts of an additional four months
contribution from Gestra, six months from Chromalox and one
month less from HygroMatik combined with adverse currency
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 movements. The adjusted operating profit margin, excluding these
effects, improved 120 bps to 25.2% on an organic basis.
negative in the year. At constant currency, adjusted profit before
tax increased by 14%.
Statutory operating profit was £299.1 million (2017: £198.9 million),
the increase was primarily due to the profit on disposal of
HygroMatik in the year.
The statutory profit before tax was £288.8 million
(2017: £192.5 million) and includes the items listed below that have
been excluded from the adjusted profit:
Interest
Net interest rose from £6.4 million to £10.3 million. Net bank interest
increased from £3.9 million in 2017 to £8.3 million reflecting a full
year of the additional debt taken on in 2017 to fund the Gestra and
Chromalox acquisitions. We anticipate net bank interest charges in
the region of £7 million in 2019 after taking account of the additional
debt required to fund the acquisition of Thermocoax.
Net finance costs under IAS 19 in respect of the Group’s
defined benefit pension schemes reduced to £2.0 million
(2017: £2.5 million). We anticipate a similar cost in 2019.
In 2019, the Group will adopt IFRS 16 (Leases). As a result
on transition we anticipate an increase in Property, plant and
equipment in the region of £36 million, increase in liabilities of
£40 million and an adjustment to opening retained earnings of
£4 million. Interest charges are expected to rise by approximately
£1 million with a corresponding increase in adjusted
operating profit.
Associates
The Group has only one Associate holding, a 26.3% interest in
Econotherm, a heat pipe technology business. Econotherm’s
performance in 2018 was similar to 2017, with our share, net of
tax, reflecting a break-even position.
Profit before tax
The adjusted profit before tax of £254.6 million (2017: £229.1 million)
was 11% ahead. As outlined earlier, currency movements were
• profit on disposal of business £47.4 million (2017: £nil);
• a charge of £25.2 million (2017: £21.6 million) for the amortisation
of acquisition-related intangible assets;
• profit on disposal of property £6.5 million (2017: £nil);
• a credit of £6.0 million resulting from the post-retirement benefit
plan in the USA being frozen to future accrual (2017: £nil);
• a charge of £0.7 million for equalising guaranteed minimum
pensions in the UK post-retirement benefit plans (2017: £nil);
• a credit of £0.2 million for acquisition related items
(2017: £7.8 million charge); and
• reversal of acquisition related fair value adjustments to inventory,
£nil (2017: £7.2 million charge).
Taxation
The tax charge on the adjusted profit before tax fell by 150
bps to 27.6% (2017: 29.1%), due primarily to the reduction in
the US federal corporate income tax rate from 35% to 21%
from 1st January 2018. The Group’s overall tax rate reflects the
blended average of the tax rates in over 40 tax jurisdictions around
the world in which our operations trade and generate profit.
The Group comprises over 120, mainly small, operating units
reflecting our local direct sales business model. On a statutory
basis the Group’s effective tax rate was 22.6%.
For the year to 31st December 2019 we currently anticipate that,
as a result of changes to our internal financing structures and
forecasted mix of adjusted profits, the Group effective tax rate on
adjusted profits will increase to approximately 29%.
Europe, Middle East and Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate expenses
Adjusted operating profit
Profit on disposal of businesses
Profit on disposal of property
Post-retirement benefit plan in the USA being frozen
to future accrual
Equalising guaranteed minimum pensions for the UK
post-retirement benefit plans
Amortisation and impairment of acquisition-related
intangible assets
Acquisition related items
Reversal of acquisition related fair value adjustments
to inventory
Statutory operating profit
Adjusted operating
margin 2018
%
20.1%
27.5%
23.6%
23.2%
14.7%
32.0%
23.0%
Adjusted operating
profit 2018
£m
69.3
63.9
36.9
170.1
22.8
84.8
(12.8)
264.9
47.4
6.5
Adjusted operating
profit 2017
£m
66.1
56.9
31.6
154.6
13.8
80.3
(13.2)
235.5
–
–
Adjusted operating
margin 2017
%
21.7%
26.1%
20.8%
22.9%
18.4%
32.4%
23.6%
6.0
(0.7)
(25.2)
0.2
–
299.1
–
–
(21.6)
(7.8)
(7.2)
198.9
51
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Financial Review
continued
Earnings per share
Adjusted basic earnings per share increased by 13% to 250.0
pence (2017: 220.5 pence). Statutory earnings per share was
303.1 pence (2017: 214.4 pence). The fully diluted earnings per
share was not materially different in either year.
Dividends
The Group has a progressive dividend policy where dividend
payments follow underlying earnings per share growth while
maintaining prudent levels of dividend cover. The aim is to provide
sustainable, affordable dividend growth, building on our 51 year
record of dividend progress, with a compound annual increase of
11.0% over that period; in line with the 12% per annum increase
over the last 10 years. The Board is proposing a final dividend
of 71.0 pence per share for 2018 (2017: 62.0 pence) payable
on 24th May 2019 to shareholders on the register at 26th April
2019. Together with the interim dividend of 29.0 pence per share
(2017: 25.5 pence), the total Ordinary dividend is therefore 100.0
pence per share, which is an increase of 14% on the Ordinary
dividend of 87.5 pence per share in 2017.
The total amount paid in dividends during the year was
£67.3 million, 16% above the £58.4 million paid in 2017.
Acquisitions and disposal
Acquisitions are an important complement to our strategy for
organic growth. In 2017 we made two relatively large acquisitions,
Gestra and Chromalox. When we announced the acquisition of
Chromalox in May 2017 we declared a self-imposed moratorium
on significant acquisitions for 12-18 months so as to maintain
management’s focus on the integration and safe delivery of the
new companies. As a result, the only acquisition in 2018 was a
small pre-revenue company for the Watson-Marlow business
in January for consideration on a cash-free, debt-free basis
of €3.0 million with up to a further €6.5 million to be paid if the
company achieves certain technical specifications.
Dedicated resource remains focused on identifying opportunities
to add attractive businesses that closely match our strategic,
industrial and commercial requirements. Our three broad
acquisition criteria are:
• geographic expansion, typically through the acquisition of a
distributor in a developing market;
• products that can be integrated into our existing businesses; and
• related acquisitions that fit alongside our existing Steam
Specialties, Watson-Marlow or Chromalox businesses.
The two acquisitions that were made in 2017, Gestra and Chromalox,
have been integrated successfully into the Group and are performing
in line with expectations in their first full year in our Group.
On 30th November 2018, we divested HygroMatik GmbH
(HygroMatik) to Carel Industries S.p.A. for a total cash consideration
of €59.0 million (£52.3 million) on a debt-free, cash-free basis and
including working capital adjustments, represents a trailing EBITDA
multiple of 12.5.
HygroMatik joined the Spirax Sarco Group in 1988 but due to
limited strategic fit has always operated separately from the
Steam Specialties business in which it was reported. This low
level of integration limited our ability to improve sales growth while
maintaining HygroMatik’s excellent profitability.
52
The profit on disposal of £47.4 million, after relevant fees, has
been excluded from adjusted operating profit but included in
statutory operating profit. In the year ended 31st December 2017,
HygroMatik’s sales were £13.0 million and operating profit was
£3.9 million all translated at the 2017 average euro exchange rate
of 1.15 euro to the pound.
On 18th February 2019, we announced that we had entered
into exclusive negotiations with a view to acquiring Thermocoax
Developpement (Thermocoax), based in France, for a cash-free,
debt-free consideration of €158 million (£139 million).
Thermocoax is a leading designer and manufacturer of highly
engineered electrical thermal solutions for critical applications in
high added value industries.
We anticipate that Thermocoax will become part of our Chromalox
business and will significantly enhance our electrical process
heating business, especially in Europe. Thermocoax enables us
to address critical high value applications where product cost is
a secondary concern to reliability and performance and allows
for cross-selling opportunities for both businesses, strengthening
Thermocoax’s presence in North America and Chromalox’s
presence in Europe.
In the year ended 31st December 2018, Thermocoax recorded
revenues of €49.8 million (£43.9 million), EBITDA of €12.9 million
(£11.4 million) and adjusted operating profit of €12.1 million
(£10.7 million). In 2018, 54% of the company’s revenues were in
EMEA with 32% in the Americas and 14% in Asia Pacific. At 31st
December 2018, Thermocoax’s gross assets were €94.6 million
(£83.0 million).
The purchase will be financed from existing cash and debt facilities
and is expected to be accretive to Group earnings in 2019.
Upon completion of the exclusive negotiations, the transaction
will require certain regulatory approvals in France, Germany and
the USA. These regulatory approvals are expected to be satisfied
during the second quarter of 2019.
Brexit
93% of the Group’s sales and operating profit are made outside
the UK, reducing the risk to the Group from the United Kingdom’s
decision to leave the European Union. That said, we are net
exporters from the UK, importing approximately £50 million
raw materials and components and exporting in the region of
£150 million of finished goods to our sales companies around
the world. To mitigate the risk of delays at ports we have made
the decision to build a month’s buffer stock of raw materials
and components in the UK and finished goods outside the UK
equating to an additional two weeks usage. Assuming an orderly
Brexit we would expect inventory levels to return to normal
levels by the end of the year. The additional cost of building and
maintaining these inventories is expected to be in the region of
£0.8 million in 2019.
We have modelled potential tariff impacts and believe that these
would be more than compensated for by a devaluation in sterling
following a “no deal” Brexit.
We are well prepared and well placed to take on the challenges
and identify the opportunities resulting from a UK exit from the EU.
We have navigated periods of economic and political uncertainty
in many different places around the world and have a long and
successful history of doing so.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Capital employed
Property, plant and equipment
Inventories
Trade receivables
Prepayments and other current assets
Trade, other payables, current provisions and current tax
Capital employed
Intangibles including goodwill
Post-retirement benefits
Net deferred tax
Non-current provisions and long-term payables
Net debt
Net assets
Adjusted operating profit
Average capital employed
Return on capital employed
2018
£m
230.8
160.6
245.1
43.7
(195.7)
484.5
645.2
(85.1)
(35.5)
(6.4)
(235.8)
766.9
264.9
482.2
54.9%
2017
£m
227.5
145.4
237.5
46.3
(176.9)
479.8
631.3
(85.6)
(36.9)
(5.5)
(373.6)
609.5
235.5
444.9
52.9%
Research and development
The development of innovative new products, and getting
those products to market faster and sold more effectively, is an
important element of our strategy for growth. Overall, the Group’s
total spend in research and development in 2018 was £12.4 million
(2017: £14.4 million) of which £1.6 million was capitalised
(2017: £2.9 million).
Capital employed
Total capital employed has increased by 1% at reported exchange
rates. If the effects of currency and the sale of HygroMatik are excluded
growth was also 1%. This compares with organic sales growth of 7%.
Tangible fixed assets (PPE) increased by £3.3 million to
£230.8 million. Changes in exchange rates increased fixed assets
by £1.0 million and £0.2 million came from the acquisition in the
year while £1.3 million left the Group with the sale of HygroMatik,
giving an organic increase of £3.4 million, around 1%. There were
no significant plant expansion projects in 2018 with spend
being spread over a number of investment categories including
continuation of the “Future Factory” programme at our Steam facility
in Cheltenham to upgrade machine tools and an implementation
of a Global Order Entry System in Chromalox. Looking forward,
we would expect capital expenditure to increase in 2019 to
approximately £65 million as we continue to invest in the Group
and, in particular, £18 million in the year for a new factory for Aflex
Hose. This new site will consolidate the existing four locations
into a purpose-built facility giving capacity for future growth while
increasing efficiencies and providing a dedicated production line for
Pharmaceutical products. We generate significant cash and our first
priority is to reinvest in the business, taking opportunities to generate
good returns from increased efficiency, reduced costs and flexibility.
Total working capital increased by £1.4 million. The ratio of working
capital to sales reduced by 330 bps to 22.0% (2017: 25.3%)
due to higher sales from the inclusion of a full year’s sales for
the acquisitions made during the prior year and organic sales
growth of 7% while working capital remained similar to 2017.
On a constant currency basis, excluding acquisitions and
disposals, working capital as a percentage of sales reduced by
270 bps. Going forward, we would expect working capital as a
percentage of sales to increase slowly as Gestra and Chromalox
expand the proportion of their revenue that goes through direct
sales channels.
Return on capital employed (ROCE)
ROCE measures effective management of fixed assets and
working capital relative to the profitability of the business.
ROCE increased to 54.9% (2017: 52.9%), an increase of 200 bps
due to the high growth in adjusted operating profit and our
close control of the various components of capital employed.
At constant currency, excluding acquisitions and disposals, ROCE
increased by 470 bps. ROCE is defined in Note 2.
Post-retirement benefits
The net post-retirement benefit liability under IAS 19 fell to
£85.1 million (2017: £85.6 million). Liabilities fell by £16.9 million
despite further small reductions in the AA corporate bond rates
used to discount future cash flows. Assets fell by £16.4 million
(4%) reflecting returns on plan assets that were less than the
discount rate.
The main UK schemes, which constitute 88% of assets, were
closed to new members in 2001 but have remained open to
future service accrual. These schemes continue to be managed
under a dynamic de-risking strategy whereby asset and liability
values are monitored on a daily basis by the asset manager and
appropriate asset allocation decisions taken as the funding level
improves against pre-agreed trigger points. Following the outcome
of the Lloyds judgement in October 2018, UK pension schemes
are required to provide for any liability arising from equalising
guaranteed minimum pensions (GMP). Our assessment resulted
in an increase in liabilities of £0.7 million. Following actuarial
valuations of the three UK schemes, we agreed deficit reduction
programmes with the Trustees and additional contributions of
£4.8 million were made during the year. Further contributions at
the rate of £3.9 million per annum have been agreed until 2021.
The pension plan in the USA was frozen to future accrual with effect
from 31st December 2018. This led to a reduction in liabilities of
£6 million as benefits are no longer linked to future salary increases.
Cash flow and treasury
Adjusted cash from operations increased to £242.1 million
(2017: £202.6 million) representing 91% cash conversion.
There was an outflow of working capital in the year of
£23.3 million. However, on a constant currency basis, excluding
acquisitions and disposals, working capital as a percentage of
sales reduced by 270 bps.
53
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Financial Review
continued
Capital expenditure increased to £43.4 million (2017: £38.4 million),
in part reflecting investment in the acquisitions. Capital disposals
were higher than usual in the year at £9.9 million as we disposed
of our facility in Singapore having moved the operation into
more suitable leased accommodation. We would expect capital
expenditure in 2019 to increase to around £65 million as we
continue to invest across the Group. In particular, we expect to
complete construction of a new facility for Aflex that will combine
the four existing UK sites into one. We estimate that this will cost
£18 million in 2019. We also expect work to complete on the
expansion of our Belgium operating company and to continue
the accelerated equipment upgrade programme for some of our
manufacturing facilities.
Tax paid in the year benefited from the reduction in corporate
tax rates in the USA and at £61.6 million was similar to the
£61.0 million paid in the prior year. Free cash flow rose to
£173.8 million (2017: £135.2 million).
Dividend payments were £67.3 million, including payments to
minorities, (2017: £58.4 million) and represent the final dividend for
2017 and the interim dividend for 2018.
There was a cash inflow, including fees, of £48.8 million as the net
of disposals and acquisitions in the year compared with an outflow
of £484.3 million in the prior year. The net of share purchases
and new shares issued for the Group’s various employee share
schemes gave a cash outflow of £5.0 million (2017: inflow of
£2.4 million).
Net debt at the start of the year reduced from £373.6 million to
a net debt figure of £235.8 million at 31st December 2018, a
reduction of £137.8 million. This equates to a net debt to EBITDA
ratio of 0.8x. Following completion of the Thermocoax acquisition
we would expect the ratio of EBITDA to net debt to increase to
approximately 1.0x by 31st December 2019. EBITDA is defined in
Note 2 and the components of net debt are disclosed in Note 8.
The Group’s Income Statement and Statement of Financial
Position are exposed to movements in a wide range of different
currencies. This stems from our direct sales business model,
with a large number of local operating units. These currency
exposures and risks are managed through a rigorously applied
Treasury Policy, typically using centrally managed and approved
simple forward contracts to mitigate exposures to known cash
flows and avoiding the use of complex derivative transactions.
The largest exposures are to the euro, US dollar, Chinese renminbi
and Korean won. Whilst currency effects can be significant, the
structure of the Group provides some mitigation through our
regional manufacturing strategy, diverse spread of geographic
locations and through the natural hedge of having a high
proportion of our overhead costs in the local currencies of our
direct sales operating units.
Capital structure
The Board keeps the capital requirements of the Group under
regular review, maintaining a strong financial position to protect
the business and provide flexibility of funding for growth.
The Group earns a high return on capital, which is reflected in
strong cash generation over time. Our capital allocation policy
remains unchanged. Our first priority is to maximise investment
in the business to generate further good returns in the future,
aligned with our strategy for growth and targeting improvement
in our key performance indicators. Next, we prioritise finding
suitable acquisitions that can expand our addressable market
through increasing our geographic reach, deepening our market
penetration or broadening our product range. Acquisition targets
need to exhibit a good strategic fit and meet strict commercial,
economic and return on investment criteria. When cash resources
significantly exceed expected future requirements, we would
look to return capital to shareholders, as evidenced by special
dividends declared in respect of 2010, 2012 and 2014. However,
in the near term, we will look to reduce our financial leverage prior
to considering new returns of capital to shareholders.
Adjusted cash flow
Adjusted operating profit
Depreciation and amortisation
Adjusted earnings before interest, tax, depreciation and amortisation
Cash payments to pension schemes (more)/less than the charge to adjusted operating profit
Equity settled share plans
Working capital changes
Capital additions (including software and development)
Capital disposals
Adjusted cash from operations
Net interest
Income taxes paid
Free cash flow
Net dividends paid
Movement in provisions
Purchase of employee benefit trust shares/Proceeds from issue of shares
Disposals/(Acquisitions) (including costs)
Cash flow for the year
Exchange movements
Opening net (debt)/cash
Net debt at 31st December
54
2018
£m
264.9
32.9
297.8
(4.6)
5.7
(23.3)
(43.4)
9.9
242.1
(6.7)
(61.6)
173.8
(67.3)
0.8
(5.0)
48.8
151.1
(13.3)
(373.6)
(235.8)
2017
£m
235.5
31.6
267.1
0.1
4.6
(34.2)
(38.4)
3.4
202.6
(6.4)
(61.0)
135.2
(58.4)
1.2
2.4
(484.3)
(403.9)
2.9
27.4
(373.6)
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Sustainability Report
Our Group sustainability strategy
provides the common framework
by which all our Group companies
manage their social and
environmental impacts.”
Ian Farnworth
Group EHS† Director
† Environment, Health and Safety
Key points in this section:
• Leading indicators provide evidence of a well-
embedded safety culture
• Diversity initiatives designed to promote positive
change and greater inclusion
• Supplier sustainability, including human rights
and the avoidance of modern slavery
• Improved water, waste, energy and carbon
management in our core businesses
• 5% reduction in carbon emissions intensity
• Qdos pumps help customer reduce energy
use by 3%
• Group Community Engagement Award
winners announced
Operating sustainably means embedding
long-term thinking and action across our
whole business and stakeholder base.
Sustainability Committee Report
Membership, engagement and reporting
Our Sustainability Committee comprises:
Ian Farnworth (Steam Supply Chain and Group EHS Director);
Sheldon Banks (Divisional Director, Spirax Sarco Americas); Sean
Clay (Divisional Director, Spirax Sarco EMEA);
James Wright (WMFTG Supply Chain Director); and
Mark Wyatt (Group EHS Executive).
The Sustainability Committee engages a wide range of senior
managers, project leaders and employees as part of its
responsibility to oversee strategy implementation and review
progress against strategic objectives. The Committee meets
quarterly and receives presentations from project leaders at each
session. Progress against the Group’s sustainability objectives is
reported to the Group Chief Executive, Executive Committee and
Board of Directors.
Managing sustainability
We have a well-defined management structure to help us
achieve our sustainability objectives.
Group Chief
Executive
Responsible for the Group
sustainability strategy
Supported by
Board of
Directors
Sustainability Committee
Senior Managers (Steam Supply Chain and Group EHS
Director; Divisional Director Spirax Sarco Americas;
Divisional Director Spirax Sarco EMEA; WMFTG
Supply Chain Director; Group EHS Executive) oversee
strategy implementation and review progress against
strategic objectives
Sustainability
strategy
sponsors
Senior managers
allocated to each
sustainability
objective
Divisional Directors,
Regional and General
Managers
Ensure the Group’s sustainability
policies are upheld and
implemented by our
operating units
Sustainability strategy project leaders
and teams
Establish strategic priorities, with sponsors, and oversee
strategic implementation
Employees and organised
employee groups
Oversee, record and report on strategic implementation
and performance within their local workplaces
Group Sustainability Committee*
* Sean Clay (not pictured) is also a member of the Committee.
55
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Sustainability Report
continued
Progress in 2018
As stated in last year’s Annual Report, our key priorities as a
Group in 2018 were:
Both businesses reported progress against Group and company-
specific sustainability objectives and targets on a quarterly basis to
the Sustainability Committee.
• to increase the number of employees completing
sustainability training;
• to raise awareness in Gestra and Chromalox of our sustainability
Focus for 2019
During the year, the Sustainability Committee agreed to focus on
the following key priorities for the Group in 2019:
strategy; and
• to involve Gestra and Chromalox more actively in our
sustainability strategy implementation.
We are pleased to report that we made progress in the
above priorities during 2018. Towards the end of the year, we
commenced the roll out of a new “Group essentials” training
programme, which will be available across the Group in 16
languages. The programme entails e-learning modules on topics
such as Sustainability, our Values, Health and Safety at Work,
Driving Safety, and Anti-Bribery and Corruption. The programme
utilises a combination of in-built and on-the-job assessments
to review understanding and compliance. Completion of the
programme will be a compulsory requirement for all employees.
During the year, Chromalox appointed Amy Broadie as
Environmental, Health, Safety & Sustainability Director. Jens Höft,
Gestra’s Human Resources Director, was allocated responsibility
for the implementation of the sustainability strategy in Gestra.
• increase employees’ knowledge and understanding of
sustainability across the Group, through the roll out of the
“Group essentials” training programme;
• continued adoption and integration of Gestra and Chromalox
into the Group’s sustainability programmes; and
• progress against the Group’s sustainability targets.
Further reading
Operating sustainably is one of the Group’s
strategic themes. Our overall sustainability vision
and mission is set out in the Group strategy update.
See page 25
Spirax-Sarco Engineering
plc is a constituent of the
FTSE4Good UK Index
Non-financial information statement
This Annual Report contains the information required to comply with the Companies, Partnerships and Groups (and Non-Financial
Reporting) Regulations 2016, as contained in sections 414CA and 414CB of the Companies Act 2006. The table below provides key
references to information that, taken together, comprises the Non-Financial Information Statement for 2018.
Reporting requirement
Group Policies that guide our approach
Environmental matters
– Group Environmental, Health, Safety, Energy and
Employees
Social matters
Respect for
human rights
Anti-corruption and
anti-bribery matters
Sustainability Policy
– Group Management Code
– Supplier Sustainability Code
– Group Diversity and Inclusion Policy
– Group Management Code
– Group Human Rights Policy
– Group Environmental, Health, Safety, Energy and
Sustainability Policy
– Group Human Rights Policy
– Group Charitable Donations Policy
– Supplier Sustainability Code
– Group Human Rights Policy
– Group Sanctions, Embargoes and Restrictions Policy
– Supplier Sustainability Code
– Group Anti-Bribery and Corruption Policy
– Group Gifts, Entertainment and Hospitality Policy
– Group Competition Law Compliance Policy
– Group Sanctions, Embargoes and Restrictions Policy
– Group Whistle-Blowing Policy
– Supplier Sustainability Code
Description of the business model
Description of the principal risks in relation to the above matters, including business relationships,
products and services likely to affect those areas of risk, and how the company manages the risks
Non-financial key performance indicators
56
Information and risk management,
with page references
Sustainability Report, pages 57, 62-64
Realising our purpose, page 17
Our business model, page 15
Principal risks, page 33
Sustainability Report, pages 57, 58-60
Our business model, page 15
Principal risks, page 32-33
Sustainability Report, pages 57, 61, 65
Our business model, page 15
Our strategy, page 24
Sustainability Report, pages 57, 59, 61
Sustainability Report, pages 57, 60, 61
Principal risks, page 32
Risk Management Committee Report,
page 87
Our business model, pages 12-15
Risk management and principal risks,
pages 28-33
Risk Management Committee Report,
pages 86-89
Sustainability Report, pages 57-65
Key Performance Indicators, page 27
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 Sustainability overview 2018
Sustainability area
Material
sustainability topic
Objective
Health & Safety
1. Our
workplaces
Employment
practices
To achieve Health and Safety (H&S)
excellence through engagement,
empowerment and fostering
good behaviours while targeting
zero accidents
To promote diversity and equality
through employment practices that
are free from discrimination and in
accordance with international human
rights principles
Target
Zero accidents
Further
reading
Page 58
33% of women on our Board,
as opportunities arise
Page 59
Ethical business
practices
To act in accordance with our Values,
upholding a zero tolerance approach
to bribery and corruption
Zero incidents of bribery and corruption
Page 60
People development
To invest in developing the knowledge
and skills of our people
Increase the impact of our technical
and leadership training offering
Page 60
End-to-end
supply chain
To focus on continuous improvement
in our supply chain with particular
emphasis on sustainability
2. Our
supply chain
Product
responsibility
Water and waste
3. Our
environment
Energy and carbon
Customers
Community
engagement
4. Our
customers
5. Our
communities
To incorporate sustainability factors
into our product design process,
including energy efficiency, emissions,
serviceability, recyclability and the
availability of compliant and ethically
sourced materials
To limit the environmental impacts of
our operations through reducing water
use and minimising and managing
effluent and waste
To minimise the environmental
impacts of our operations by
managing energy consumption with
the aim of reducing carbon emissions
To provide products and services
that improve the sustainability
of our customers’ operations
through helping them reduce their
environmental impacts, improve
plant efficiency and productivity and
maintain product quality
To engage positively with the
communities in which we operate
and to offer financial support to
approved charities
90% of direct material suppliers, by
spend, of recently acquired businesses
(Hiter, Aflex, Gestra and Chromalox) to
have signed our Supplier Sustainability
Code by December 2018*
Page 61
Continuing compliance with all applicable
EHS standards, while meeting customer
expectations of performance and cost
Page 62
To identify opportunities for waste
reduction, increase recycling rates
and reduce water use*
Page 62
To achieve a year-on-year reduction
in our energy consumption and CO2e
emissions intensity*
Page 63
n/a
Page 64
All Group manufacturing companies to
participate in at least one community
engagement activity
Page 65
* 2018 target. New target set for 2019.
57
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Sustainability Report
continued
1. Our workplaces
Health & Safety
Overview
H&S excellence
Reducing accidents and maintaining a safe working environment
for our employees, contractors, visitors and customers are our
primary aims. We actively promote a strong H&S culture, reflected
in our updated Values, and require our employees to adopt
safe working practices at all times. The Group Chief Executive
and Board of Directors oversee our H&S programmes and
performance, with H&S a standing agenda item at every Board
meeting. All Group companies are expected to adhere to the
Group Environmental, Health, Safety, Energy and Sustainability
Policy, operate within Group programmes and have detailed H&S
management systems in place locally.
2018 Performance and actions
H&S performance
Despite maintaining a rigorous focus on H&S, our over 7 day
accident rate per 1,000 employees increased to 3.5 in 2018
(2017: 3.0). Benchmarked against RIDDOR’s “Over 7 Day Rate
of Reported Non-Fatal Injuries Per 100,000 Employees in the
UK Manufacturing Sector, 2013/14-2017/18”, which is 361 per
100,000 employees (or 3.61 per 1,000 employees), we performed
slightly better than the industry average. All lost time accidents
were thoroughly investigated, the findings were communicated
to raise awareness of risk and actions were taken to reduce risk
going forward.
H&S training, safety awareness and culture
During 2018, we created a Safety Leadership training programme,
with training delivered to over 180 senior managers across the
Group. We again increased the number of H&S training units
delivered across our wider workforce, with 87,671 training units
delivered in 2018 (2017: 24,747). We held a “safety week” across all
steam business manufacturing sites and some of our larger sales
companies, and held our annual three-day EHS conference at
Gestra’s manufacturing site in Germany, which was attended by
17 H&S managers from across the Group.
A standard “Take 5” risk assessment was developed and rolled
out to our sales and service engineers, requiring them to take
five minutes to review tasks they are about to perform, identify
any risks and determine if the task is safe, stopping the job if it is
unsafe. During 2018, we also focused on ensuring that recently
acquired businesses adopted and implemented Group EHS
policies, programmes and management systems, with the aim of
reducing lost time accidents.
Safety concern and near miss reporting
Reporting of safety concerns and near misses is an essential
tool for accident prevention. The higher the number of safety
concerns or near misses reported, the greater the evidence of a
well-embedded safety culture within an organisation. During 2018,
the number of safety concerns reported across the Group more
than doubled to 14,465 (2018: 5,485) as did the reported number
of near misses, at 1,446 (2018: 562). All safety concerns and near
misses were assessed, reviewed and corrective action taken and,
where appropriate, learning shared across the Group.
H&S accidents with over 7 days of lost time per 1,000 employees
KPI
2018
2017
2016
2015
2014
3.5
3.0
3.4
3.3
5.4
H&S total number of accidents with over 7 days of lost time
KPI
2018
2017
2016
2015
2014
19
7
26
15
4
19
17
16
26
Accidents in businesses acquired in 2017
H&S total number of accidents with over 3 days of lost time*
KPI
2018
2017
2016
2015
2014
27
9
36
20
4
24
24
24
31
Accidents in businesses acquired in 2017
* Includes over 7 day lost-time accidents.
Engineering controls and policies
A Lock Out Tag Out Policy was rolled out across the steam
manufacturing sites. We also continued to invest extensively in
machine guarding and engineering controls, to prevent risk to our
operatives, particularly in our recently acquired businesses.
Safety management, certification and audits
We employ 39 full-time qualified EHS professionals and additional
part-time EHS employees. During 2018, we developed an
internal EHS audit framework, with audits completed across all
steam manufacturing sites. Across the Group, 2,446 EHS audits
and 1,599 inspections were completed during the year. 15 of
our 26 manufacturing sites hold OHSAS 18001 certification,
with a number of our companies working towards achieving it.
Spirax-Sarco Ltd, Cheltenham, received a Gold award in the
internationally-renowned RoSPA Health and Safety Awards.
Focus for 2019
• Steam supply sites to increase internal audit scores by 20%
• Establish an internal audit framework for steam sales companies
• Establish a Group-standard behavioural based safety system
• Establish a Group safety competition to increase engagement
58
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 1. Our workplaces continued
Employment practices
Gender diversity 2018*
Board of Directors
Senior management
Overview
Policies and practices
We have policies and commitments around the way that we treat
people and we base our employment practices on our Values,
in particular the value of respect. Our HR policies (including our
Group Diversity and Inclusion Policy, Group Whistle-Blowing Policy
and Group Human Rights Policy) and systems provide a strong
framework to protect the rights of employees and ensure their fair
and equitable treatment.
Importance of diversity
A diverse workforce brings vitality and creativity to our workplaces
and increases our ability to sustainably create value for our
stakeholders. We seek to increase diversity at all levels of
the organisation, with a particular focus on gender diversity.
Our remuneration practices are designed to reward and recognise
skills, experience and achievement, and to be free of gender bias.
Employees are remunerated fairly for the work that they do and
we do not promote or require excessive working hours. We are a
member of the Business Disability Forum (UK) and the Employers
Network for Equality & Inclusion (UK).
Employee communication
We communicate with employees through a variety of channels,
to ensure that they have an understanding of the operations and
performance of the Group. We undertake confidential employee
surveys to assess our performance as an employer and have well-
established grievance and whistle-blowing procedures to enable
employees to raise concerns. See ethical business practices,
page 60.
2018 Performance and actions
Workforce diversity
Board diversity was unchanged in 2018, although we remain
committed to meeting our target of 33% of women in our Board,
as opportunities arise. Across the Group as a whole, 79% of
our senior managers are male and 21% are female, which is
comparable with our wider workforce. Our total workforce gender
diversity remained broadly unchanged, with 22% females and
78% males, despite programmes to raise awareness of the
importance of gender diversity (2017: 22% females, 78% male).
During 2018, we participated in the FTSE Women Leaders
(Hampton-Alexander) Review. With 22.2% female representation
on the Board and 18% of the Executive Committee and their
direct reports being female, we ranked second in the industrial
engineering sector, but 151st overall. Recognising that action
needs to be taken to address this gender imbalance, we
implemented a number of programmes and initiatives in 2018,
some of which are briefly outlined below.
Executive diversity initiatives
We delivered a Diversity & Inclusion session for members of the
Group and Spirax Sarco Executive Committees. The discussion
focused around understanding diversity and building an inclusive
culture. During 2018, we established an Executive mentoring
programme and all Executives across the Group are mentoring
2
113
7
433
Workforce
1,675
5,845
Male
Female
* At year end.
Our values
In 2018, we refreshed our Values, drawing on extensive
consultation with leaders from across our business. We clarified
the important aspects of our current culture to preserve
and maintain. In addition, we identified what was needed
to ensure our culture continues to deliver future business
success. Our Values are: Safety, Customer focus, Excellence,
Collaboration, Respect and Integrity. Nicholas Anderson
communicated the Values by a video to all employees, in nine
languages, supported by a booklet in all 25 of our business
languages. Managers have been required to lead team
discussions to raise awareness and ensure their teams live
our Values.
talented women to support their career and personal development
and to accelerate our internal talent pipeline.
Employee engagement survey
Following the employee engagement survey in 2017, all teams built
an action plan to ensure that we continuously increase employee
engagement. These plans were delivered with focus throughout
2018, with support from, and progress reviewed by, the Group
Executive Committee.
Focus for 2019
• Conduct a second global employee engagement survey in
March 2019 to measure progress, incorporating Chromalox and
Gestra for the first time
• Diversity and Inclusion: more diverse shortlists for external
recruitment and supporting our diverse talent internally
• Embed our Values across the business
Further reading
To find out more about working at Spirax-Sarco Engineering plc,
visit our global careers website:
https://www.spiraxcareers.com
59
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report
Sustainability Report
continued
1. Our workplaces continued
Ethical business practices
1. Our workplaces continued
People development
Overview
Zero tolerance approach
As our Group expands in number of people, geographic reach
and revenue, so does our commitment to ensuring that we have a
strong culture of ethical behaviour across all our global operations.
2018 Performance and actions
Renewed Group Values
Our Values serve as guiding principles across the Group to
underpin decision-making, guide our conduct and define our
culture. In 2018, we refreshed and communicated these Values
across the Group to ensure that all employees globally understand
their responsibilities for maintaining these Values, laying the
foundation on which we will continue to build a successful,
sustainable business.
Expanded and updated ABC training
During 2018, we updated our anti-bribery and corruption (ABC)
training, clearly communicating our expectations of the highest
ethical standards and a zero tolerance approach to breaches
of our ABC standards. The online training is part of our Group
Essentials programme and is hosted on our internal Academy
platform. It is available to all employees with an email address,
increasing accessibility across the Group. ABC training has been
made an annual requirement, increasing the frequency with which
employees engage with the ABC message. In 2018, the updated
ABC training was translated into five key languages, with an
additional 11 languages to follow in 2019.
Over 1,300 employees completed ABC training using the new
platform and nearly 500 employees completed either the original
or refresher training. The new platform has enabled the Group
to double the number of employees who have access to ABC
training, compared with 2017. Compliance with the training, by
Group company, is monitored via our internal audit function.
Whistle-blowing
The Group continues to make an independent, third-party
whistle-blowing hotline, Safecall, available to all employees.
Safecall provides local hotlines in all countries in which our
Group companies are located, and each Group company posts
information about Safecall in public areas on the premises.
In 2018, Chromalox moved from its historic whistle-blowing hotline
provider to Safecall and is now fully integrated into the Group
whistle-blowing programme. In 2018, Safecall was contacted
five times, with each report thoroughly investigated by a relevant
management team member and, as appropriate, follow-up
actions implemented. The Audit Committee reviewed post-action
reports to ensure the management response was satisfactory.
Focus for 2019
• Complete translations of the ABC course into 11
additional languages
• Provide updated whistle-blowing materials to all
Group companies
Overview
Skills for sustainable growth
Developing the knowledge and skills of our people is central to
our strategy for growth and for the long-term sustainability of
our business. All employees are actively encouraged to pursue
professional development opportunities. As they strengthen their
knowledge and skills we are better able to deliver value to our
customers and generate shareholder value.
2018 Performance and actions
Graduate development
Having established our two-year Group Global Graduate
Development Programme in 2017, we increased the number
of graduates in 2018, adding a further 21 people (2017: 16).
We now have graduates from Argentina, Canada, China, France,
Germany, Italy, Mexico, Spain, the UK and USA. Recently acquired
businesses, Gestra and Chromalox, engaged with the programme
for the first time in 2018, ensuring that this is a Group-wide offering.
Our graduates experience a wide diversity of development
opportunities and help to replenish our global talent pipeline.
Leadership development
During 2018, we enhanced our leadership development offering
as we partnered with a specialist consultancy to design an
innovative programme for talented leaders from across the Group.
The year-long programme, “LEAP”, which includes two residential
courses, on-going professional mentoring and regular webinars,
is designed to accelerate the development of our current and
future leaders, challenging them to drive change within their
areas of responsibility. 38 managers, across two cohorts, joined
the programme in 2018. In 2017, Watson-Marlow launched a
global leadership programme called “ASPIRE”, which is focused
on strengthening the deployment of strategy through effective
leadership. 27 people attended the programme in 2018.
Senior management development
16 senior managers attended external executive education
programmes in 2018. Eight attended a two-week Advanced
Management Programme, run by the Ashridge Business School,
while others attended courses run by the London Business
School, the Darden School of Business, the Centre for Creative
Leadership and the Stanford Graduate School of Business,
covering topics such as executing strategy and leading for
organisational impact.
Technical development
See page 21 for information on technical training and an update on
the Spirax Sarco Academy in 2018.
Focus for 2019
• Expand our Graduate development efforts, focusing on career
development post-programme
• Continue to expand our Leadership Development initiatives
• Assess and develop our sales management capability
60
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 2. Our supply chain
End-to-end supply chain
Overview
End-to-end sustainability
Improving the sustainability of our end-to-end supply chain, which
encompasses all the activities that transport and transform raw
materials and components into finished products and delivers
them to customers, is a key strategic objective for the Group.
Regional manufacturing strategy
We have 26 manufacturing sites globally. By manufacturing
close to the point of sale we shorten lead times and deliver good
customer service, ensure that products meet local specifications,
reduce transportation requirements for finished goods and provide
local employment in the regions in which we operate.
Supplier Sustainability Code of Conduct
Our Supplier Sustainability Code (Code) outlines the expectations
that we have for suppliers and enables us to embed sustainability
criteria into our purchasing processes. Amongst other
requirements, suppliers must not use forced, bonded or non-
voluntary labour; should establish recognised employment
relationships, including non-discriminatory employment practices,
maximum working hours, the freedom of association and clarity
in relation to wages. Their facilities must be constructed and
maintained to an acceptable standard and their activities safe for
the health of their employees, contractors, the local community
and users of their products. Suppliers must have a H&S policy and
management system, and seek to prevent work-related injuries
and illnesses through effective risk mitigation.
Suppliers must operate in accordance with law, conduct
business free from bribery or corruption, and adhere to the UN
Guiding Principles on Business and Human Rights and the Core
Conventions of the International Labour Organisation. They must
not use child labour, should take steps to mitigate environmental
impacts, deliver a high quality of product and source responsibly.
2018 Performance and actions
Code roll out performance
In 2016, we commenced the Phase 1 roll out of the Code to
direct material suppliers of our Spirax Sarco and Watson-Marlow
manufacturing companies, and in 2017 our Phase 2 roll out
extended this to direct suppliers of our sales companies. By the
end of 2018, 97% of Phase 1 and Phase 2 suppliers combined
had signed the Code. During 2018, we exited eight suppliers that
would not sign the Code or failed to meet our standards, and were
not prepared to work with us to improve.
In 2018, we commenced the Phase 3 roll out of the Code to the
manufacturing and sales company suppliers of recently acquired
businesses Hiter, Aflex, Gestra and Chromalox. By the end of the
year, a little over 50% of these suppliers had signed the Code.
All Group businesses have adopted the requirement for the Code
and are aligned with the Group supply chain sustainability agenda.
Our 2019 target is for 84% of Phase 3 suppliers to have signed
the Code.
There were no identified breaches of Human Rights or incidents of
modern slavery in our supply chain in 2018.
Supply chain management
During 2018, we strengthened supply chain management,
appointing a supplier development engineer in Spirax Sarco
India and another in Spirax Sarco Mexico, with plans approved
to expand our supplier auditing capabilities in Gestra.
We are utilising our Product Lifecycle Management (PLM)
system to more effectively monitor supplier quality, enabling
us to proactively work with suppliers to conduct root cause
analysis of any quality issues and rectify problems quickly.
Supplier quality has a key impact on the sustainability of our
supply chain, with sub-standard castings either being rejected
and returned to the supplier or requiring additional working on
our sites, both of which contribute to additional energy use,
as well as reducing manufacturing efficiency. Therefore, by
improving supplier quality management, we are increasing
supply chain sustainability.
Supplier development case study
Following an audit, supplier development engineers from
Spirax Sarco UK have been working with supplier Amtech
Investment Castings (Amtech), based in India, on a continuous
improvement basis. During 2018, Spirax Sarco and Amtech
decided to work together in a joint Community Engagement
project to support the Mother Teresa Ashram, located in
Rajkot, Gujarat. The Ashram is home to 240 permanent
residents: 60 children, many with severe physical or mental
disabilities, and 180 elderly women. The Ashram also provides
food and schooling to 40 children who live in a nearby slum.
Employees from both companies visited the Ashram and
identified the following urgent needs: bunk beds for the
children’s dormitory, roof repairs in the women’s dormitory,
repairs and painting of outside walls, repairs to the door
and rain cover in the canteen. Spirax Sarco India agreed to
purchase and supply the bunk beds, while Amtech provided
paints, materials and labour for the repairs.
Focus for 2019
• Supplier Sustainability Code adoption by suppliers of recently
acquired businesses Aflex, Hiter, Gestra and Chromalox
• Improve supplier quality performance
Modern Slavery Statement
Spirax-Sarco Engineering plc prides itself on setting high standards
for sustainable and ethical business practices in its operations
worldwide. Included in those high standards is a commitment to
respecting and protecting the human rights of all individuals and
combating all forms of modern slavery or human trafficking in all
parts of our business organisation, including our supply chain.
We are continuously developing and improving our business
practices and policies in line with that commitment. We support
a strong, collective stand to identify, prevent and raise awareness
of modern slavery and human trafficking practices in all parts of
the world.
Further reading
Read the Modern Slavery Statement in full or view our Supplier Sustainability
Code on our website:
www.spiraxsarcoengineering.com/Sustainability/Pages/our-
supply-chain.aspx
61
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Sustainability Report
continued
2. Our supply chain continued
Product responsibility
3. Our environment
Water and waste
Overview
Product safety and integrity
Application and continuous improvement of our robust product
development process enables us to maintain best practice in
the areas of design for manufacture and reliability, eco-design,
legislative compliance and validation. This ensures that our
products are safe to use, contain ethically sourced materials, avoid
hazardous substances and are environmentally sound throughout
the lifecycle.
Our analysis, test and validation capability is second to none in
providing the evidence to support all regulatory standards and
compliance requirements, and provide our customers with safe,
reliable and environmentally friendly products driven by our central
policy and governance.
2018 Performance and actions
Supplier Sustainability Code linkage
Pro-active linking of Supplier Sustainability Code compliance
to our Eco-Design Policy enables us to work closely with our
suppliers during the design phase to prevent the use of hazardous
substances, utilise ethically sourced materials and ensure that
our new products are environmentally sound during all phases of
design, manufacture, service and end of life recovery.
Eco-design standardisation
Cross collaboration within our Steam Specialties business on
Research & Development functional best practice has enabled
us to share and benefit from eco-design principles globally, as we
work towards establishing a common approach to the application
of eco-design methods during new product development.
Monitoring product quality
Enhanced global quality data, via improved data management
systems, has increased the immediacy of feedback to the design
process for field and production quality monitoring and provides
direct insight into the stability, performance and lifecycle impact of
our new designs in an environmental and sustainability context.
Improved sustainable design maximises production efficiency and
service life with minimum intervention, to lower energy costs and
material waste throughout the product lifecycle.
REACH and RoHS management systems
During 2018, Chromalox implemented an advanced management
system for REACH (Registration, Evaluation, Authorisation and
Restriction of Chemical) and RoHS (Restriction of Hazardous
Substances) compliance, increasing efficiency and improving
the ease by which Chromalox can demonstrate compliance with
these important product safety directives.
Focus for 2019
• Consolidate our best-practice approach to product eco-design
methods and compliance across Group companies
• Continue to monitor future legislation and standards via our
structured compliance processes to ensure we remain at the
leading edge of product sustainability philosophy
Overview
Managing resources and waste
Fresh water is a scarce resource in many parts of the world.
Therefore, we aim to monitor and use water efficiently, control
leakage, reduce effluent and help our customers to do the same.
We also proactively manage and seek to reduce waste, utilising
specialist contractors to responsibly handle and recycle waste, in
line with safe Duty of Care best practice.
Our target is to reduce waste intensity by 10% and water intensity
by 5% over the next three years.
2018 Performance and actions
Water use
We have increased water monitoring across our manufacturing
sites, invested in additional water metering and deployed internet
based water monitoring in the UK. Our Indian manufacturing
site introduced flow controllers to limit supply and reduce waste
water. Spirax Sarco USA undertook water reduction programmes,
including the installation of drip irrigation, watering only on an “as
needed” basis and improved landscaping. As a result, irrigation
water was reduced by 80% in 2018, while maintaining an
aesthetically pleasing landscape.
In 2018, our global operations used 211,540m3 of water
(2017: 167,000m3). The increase is due to the inclusion of 2017
acquisitions, Gestra and Chromalox, and new operations
established in 2017, which were included for the first time in 2018.
On a like-for-like basis, water use in our Spirax Sarco Steam
Specialties and Watson-Marlow businesses fell by 13% in 2018
as we focused on better monitoring and management of this
important resource. On an intensity basis (m3 of water used per
£m of inflation adjusted sales at constant currency), water use fell
by 4% in 2018.
Waste
During 2018, we increased office recycling facilities across
the UK steam business and improved management of wood
waste, reducing waste transport collections. Our Latin American
companies focused on sourcing better waste contractors to
improve measuring, reporting and recycling of waste. All sites
have focused on improving the weighing and monitoring of waste,
and improving waste management and recycling processes. As a
result, we are able to report on our global waste generation for the
first time. Globally, we generated 7.8 tonnes of waste per £m of
sales in 2018.
Improving data quality
We increased the number of third-party assurance reviews of
our environmental data, conducting on-site data quality audits of
waste and water across three additional sales and manufacturing
sites in India and the UK, covering the Spirax Sarco Steam
Specialties and Watson-Marlow businesses.
Focus for 2019
• External data assurance audits at Gestra and Chromalox sites
• Progress towards our 2021 water and waste reduction targets
62
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 3. Our environment continued
Energy and carbon
Overview
Climate change challenge
Climate change is a global challenge that requires individuals,
businesses and governments to address. In accordance with
national and international directives, we proactively manage our
energy use, with the aim of reducing the carbon intensity of our
business and our carbon footprint, and help our customers to
do the same. Over the next three years, our target is to reduce
our energy intensity by 10%, with an accompanying reduction in
carbon emissions.
2018 Performance and actions
CO2e emissions performance
Our CO2e 2018 emissions data have been audited by TÜV UK Ltd,
which has provided limited assurance as follows:
“TÜV UK Ltd is acting as the independent verifier of the carbon
footprint of Spirax Sarco. Based on our checks and reviews,
taking into consideration a materiality level of 5% and a limited
level of assurance we have found no evidence suggesting
that the calculated greenhouse gas emissions are materially
misstated and, hence, they are not an unreasonable assertion
of the greenhouse gas-related data and information. Further, no
facts became evident, which led us to the assumption that the
calculation was not carried out in accordance with the applied
international norm for the quantification, monitoring and reporting
of GHG emissions (GHG-Protocol). The emissions for the reporting
period 1st January 2018 to 31st December 2018 (inclusive) are:
19,563 tCO2e for Scope 1 and 20,446 tCO2e for Scope 2.
TÜV UK Ltd, London, February 2019”
The increase in total emissions reflects the significant expansion
of our business in 2017, in particular the acquisitions of Gestra and
Chromalox whose emissions are included for the first time in 2018.
Excluding new businesses, we reduced our total emissions by 4%
during 2018. Our carbon emissions intensity reduced by 5% in
2018, giving a 24% reduction since 2013, our benchmark year.
Energy performance
Group energy use increased significantly in 2018 as energy
savings were offset by the first time inclusion of data for recent
acquisitions, Gestra and Chromalox, as well as core business
growth. On an intensity basis (MWh per £m of inflation adjusted
sales at constant currency), energy use increased by 6%,
primarily due to our new businesses having less mature energy
management programmes than our pre-existing operations.
Energy management
During the year, we established a common approach to designing,
managing and tracking our energy programmes across the
steam manufacturing sites. Projects to upgrade to LED lighting
were undertaken in most manufacturing and some sales sites.
Other projects included compressor upgrades (Spirax Sarco
France), behaviour campaigns (Spirax Sarco South Korea), pipe
insulation (Spirax Sarco USA), improved windows and building
infrastructure (Gestra Germany) and steam valve monitoring
(Spirax Sarco UK).
Auditing
In 2018, we invested in global carbon accounting software
across our sales and operating companies and trained over 80
employees on carbon reporting. We conducted internal EHS
manufacturing site audits and focused energy audits across six
manufacturing sites, identifying long-term energy and carbon
saving opportunities.
Total Group CO2e emissions (scope 1 and 2) tonnes*
2018
2017
2016
2015
2014
19,563
20,446
40,009
32,058
30,704
30,050
34,431
Scope 1
Scope 2
CO2e intensity tonnes per £m of inflation adjusted sales,
at constant currency
2018
2017
2016
2015
2014
34.7
36.7
38.1
39.0
Group energy consumption MWh
2018
2017
111,065
44.8
155,947
Energy intensity MWh per £m of inflation adjusted sales,
at constant currency
2018
2017
135.2
127.2
* We employ an “operational control” definition to outline our carbon footprint
boundary. Included within that boundary are manufacturing facilities, administrative
and sales offices where we have authority to implement our operating policies.
For each of these entities we have measured and reported on our relevant Scope 1
and Scope 2 emissions. (Scope 1 refers to direct emissions from sources owned
or controlled by the Company; Scope 2 refers to indirect emissions resulting from
the purchase of energy generated off site, including electricity.) Excluded from our
footprint boundary are emission sources from operating companies established
during 2018. We have used the GHG Protocol Corporate Accounting and Reporting
Standard and emission factors from the UK Government’s GHG Conversion Factors
for Company Reporting 2017 and 2018, data from The International Energy Agency
2017 and 2018, ISO 140064-1, and regionally specific Environmental Reporting
Guidelines to calculate our total CO2e emissions figures.
Focus for 2019
• Use carbon accounting software to increase awareness of
environmental impacts and inform our carbon strategy
• Complete data assurance visits and energy reduction audits
across our manufacturing sites
• Develop our understanding of, and response to, climate related
risks, adaptation and mitigation
63
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Sustainability Report
continued
4. Customers
Overview
Our customer approach
Our ability to provide engineered solutions that improve our
customers’ operating efficiency, reduce their environmental
impacts and increase their sustainability, is at the heart of our
customer value proposition. Our direct sales business model,
wide product range and depth of knowledge uniquely position us
to be able to identify, develop and deliver bespoke solutions with
significant sustainability benefits.
2018 Performance and actions
Customer CO2 emissions reduction
Reducing energy use and lowering CO2 emissions are key
sustainability drivers for many of our customers who are seeking
to reduce costs and environmental impacts. We estimate
that a select range of Spirax Sarco Steam Specialties energy
management products that were sold during 2018 will reduce
end users’ CO2 emissions by 5.7 million tonnes annually.
The methodology used to determine this external impact was
independently assessed with the assistance of Ricardo Energy
& Environment in 2017. For 2018, the methodology remained
unchanged but was reviewed by Spirax Sarco to take revised
emission factors into account. The calculation is based on a
select range of energy saving products for which we can quantify
energy savings with reasonable accuracy. Many other products
will generate energy and CO2 savings, when used as part of an
engineered solution that increases operational efficiency, but as
the benefits are not easily quantifiable, they are excluded from
the methodology.
Sustainability offering roadmap
During 2018, the Steam Specialties business developed a three-
year product, solutions and service roadmap to support our
customer sustainability offering. The roadmap identified ways to
standardise our current sustainability offering across the steam
business, and recognised technological trends, developments
and new products that have the potential to increase the
sustainability of our customers’ operations and further strengthen
our sustainability offering.
Energy audits
Energy audits are a core component of the Steam Specialties
business’ sustainability offering to customers. Throughout 2018,
the Strategic Account Management department focused on
aligning a global approach to energy auditing for strategic
customers, developing audit tools and strengthening core
team capabilities, supported by improved training and
marketing materials.
Focus for 2019
• Adoption of the sustainability offering roadmap within the Steam
Specialties business
• Analysis of data from a Watson-Marlow customer trial,
carried out in 2018, to assess the energy saving benefits of
using Watson-Marlow technology in a solid butter pumping
dairy application
64
Tonnes of CO2e emissions our end users saved as a result
of purchasing our energy management products*
2018
2017
2016
2015
2014
5.7m
1.0m 5.8m
4.8m
4.4m
4.4m
4.8m
CO2 savings from existing product range
CO2 savings from expanded product range
* Spirax Sarco steam products only, excludes Gestra.
Customer trial case study
During 2018, Watson-Marlow conducted a customer trial to
analyse the energy saving benefits of using Qdos pumps in
a moulded fibre (paper) application. The test, and results, are
explained below.
Energy saving benefits of Qdos pumps
During paper production, fibre is suspended in water to form
a pulp, which is then moulded to the required shape. In a
process known as de-watering, a vacuum is used to remove
excess water before the paper enters a drying oven. The level
of bacteria in the process water affects the de-watering
process: higher levels of bacteria increase the production of
“slime”, which blocks the sieve and hinders water removal.
Typically, paper enters drying ovens with a ratio of 40% fibre to
60% water. The higher the water content, the more energy is
required to dry the paper.
Watson-Marlow saw an opportunity to increase energy
efficiency and in 2018, Huhtamaki, a paper manufacturer in
the Netherlands, participated in an on-site trial to establish the
energy saving benefits of using Qdos pumps to accurately
dose lime into the water, preventing bacteria growth.
The trial demonstrated that with accurate lime dosing, the
de-watering process reduced the water content of the
pulp. This enabled Huhtamaki to reduce the drying oven
temperature by 15°C, generating a 3% energy saving,
reducing carbon emissions by approximately 18,000kg per
year and delivering a return on investment of just four weeks.
Further reading
Examples of how our products and services have achieved our objectives to
reduce customer waste, energy consumption and improve their efficiency can be
found in our customer case studies.
See pages 16-19
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2018 5. Our communities
Community engagement
Overview
A force for good
We “Engineer better futures” through making financial donations to
registered charities, supporting educational provision, giving in-kind
donations of products, services or the use of company facilities,
and company-supported employee volunteering. Our primary focus
is education, particularly in the sciences and engineering, with an
aim of raising awareness of technical careers and breaking down
gender stereotypes. We also seek to respond to local needs, offer
support to the underprivileged young, disadvantaged, disabled and
elderly, and contribute to natural disaster relief. Our Group Charitable
Donations Policy guides our community engagement activities.
2018 Performance and actions
Group Charitable Trust donations
During 2018, the Spirax Sarco Group Charitable Trust made 61
donations with a total value of £263,000, including a £25,000
donation to Engineers Without Boarders, UK, a charity that
seeks to inspire young engineers and embed global responsibility
into engineering. The Trust also partnered with the Institution
of Engineering and Technology (IET) to sponsor five “Faraday
Challenge” events in schools local to our UK operations. The Faraday
Challenge is an annual engineering competition in which teams of
students, aged 12-13 years, compete to see who can design, create
and promote the best solution to a given challenge. The Trust has
also committed to sponsor five IET “Engineering Horizons Bursaries”
for the next four years. The bursaries of £1,000 per annum will be
paid for four years to selected engineering students or apprentices
pursuing a career in engineering.
Local community engagement activities
£181,000 was donated to charitable causes by our operating
companies during the year; in-kind donations with an estimated
value of £45,000 were donated; and our employees contributed
over 4,850 hours of working time to community engagement
activities. Using an average hourly salary to estimate the cost to the
company of employee volunteering, and including management
costs, we estimate that the total value of our operating companies’
community engagement activities in 2018 was in excess of
£340,000. In addition, our employees donated £55,000 of their
own money and over 1,650 hours of their own time in workplace
organised fundraising and community engagement activities.
Group Charitable Trust donations £’000
2018
2017
2016
2015
2014
263.0
231.1
180.1
150.8
155.1
Community Engagement Awards
During the year, we ran our annual Community Engagement
Award, with outstanding entries received from across the
Group. Following a rigorous selection process, the Group
Sustainability Committee chose the winners: Spirax Sarco
Mexico (large company) and Spirax Sarco Thailand (small
company), with honorary awards given to Spirax Sarco
Czech Republic, Chromalox USA and Watson-Marlow USA.
The winners will each receive £5,000 and the honorary award
winners £2,500 to supplement their community engagement
activities in 2019.
Further reading
Spirax-Sarco Thailand’s Community Engagement activities.
See page 24
Spirax Sarco Mexico (winner)
Spirax Sarco Mexico has partnered with a local school for
academically gifted students. In 2018, the company invited
30 pupils to spend the day on site to raise awareness of
career opportunities in engineering. The company initiated
a poster contest at the school with the theme “Women in
Engineering” and the three winning contestants, and their
families, spent a day at Spirax Sarco. Company employees
delivered a lecture about renewable energy, planted 60 trees
and attended the school’s graduation ceremony. The company
established a scholarship scheme for three university-level
engineering students; one from each of the following disciplines:
mechatronics, industrial engineering and software engineering.
Spirax Sarco pays 40% of the scholarship recipients’ university
fees and provides mentoring and work experience.
Honorary award winners
Spirax Sarco Czech Republic has partnered with the Ratolest
Day Care Centre in Prague, which supports children, youth
and adults with severe learning or physical disabilities.
Volunteers from Spirax Sarco helped to refurbish a classroom,
completed gardening and outside maintenance work, assisted
at the Centre’s open days and donated needed equipment.
Over the course of a year, Chromalox Inc (USA) organised 13
blood donation days across three of its sites in North America,
with the aim of collecting 100 pints of blood. The target was
exceeded with 286 pints donated, which could help save as
many as 858 lives.
In July, 12 Watson-Marlow Inc (USA) employees participated
in the Boston Children’s Hospital Corporate Cup, raising over
$5,000 for the hospital. Amongst other activities, the company
held an International Women’s Day event, collected “interview
appropriate” outfits to donate to low income men and women
in the Boston area who are seeking to enter the workforce, and
made donations to the Dana Farber Cancer Institute and the
Jimmy Fund to support life-changing breakthroughs in cancer
research and patient care.
Focus for 2019
• Increase awareness of, and encourage wider participation
in, the Group Community Engagement Awards
• Promote employee volunteering across the Group
65
Spirax-Sarco Engineering plc Annual Report 2018Strategic Report Our governance
1. Jamie Pike
Chair
3. Clive Watson
Independent Non-Executive Director
and Senior Independent Director
5. Kevin Boyd
Chief Financial Officer
1.
2.
3.
4.
5.
Further reading
Board biographies
See pages 72-73
Board overview
Core expertise*
2. Nicholas Anderson
Group Chief Executive
4. Trudy Schoolenberg
Independent Non-Executive Director
Nationality*
Gender*
1
9
11
7
1
7
2
2
3
6
4
4
1
2
2
Engineering
International
Operational
Sales and marketing
Finance
M&A
Product development
People
Senior management
Strategy
British1
American1
Dutch
Irish2
Male
Female
1
N.J. Anderson holds dual British and
American citizenship.
2
J. Pike holds dual British and Irish citizenship.
66
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 7. Jane Kingston
Independent Non-Executive Director
9. Neil Daws
Managing Director,
Steam Specialties
6.
7.
8.
9.
10.
6. Peter France
Independent Non-Executive Director
8. Jay Whalen
Executive Director,
WMFTG
10. Andy Robson
Group General Counsel
and Company Secretary
Length of service*
5
1
2
1
5+ years
3-5 years
1-3 years
Less than 1 year
*At year end.
In this section
Chair’s Introduction
68
Board leadership and Company purpose 70
72
Board of Directors
74
Division of responsibilities
Composition, succession
78
and evaluation
Audit, risk and internal control
Remuneration
Regulatory disclosures
Statement of Directors’
Responsibilities
82
90
120
123
67
Spirax-Sarco Engineering plc Annual Report 2018Governance Report Chair’s Introduction
A collective responsibility for preserving long-term value
We welcome the publication of the
2018 Corporate Governance Code,
which reinforces the importance
of diversity, long-term thinking
and stakeholder engagement.
In preparation to report fully against
the new Code next year, we have
structured this year’s Governance
Report against the new Principles,
while remaining in compliance with
the prevailing Code.”
Jamie Pike
Chair
2016 Code compliance
In running our business in 2018, we were fully compliant
with the UK Corporate Governance Code 2016 (Code) and
we detail our compliance, on a Code provision-by-provision
basis, in the Governance section on our website:
www.spiraxsarcoengineering.com.
Section 172
The Directors have performed their duty under section 172 of
the Companies Act 2006 (duty to promote the success of the
Company). The information that fulfils the requirements of the
Strategic Report can be found on pages 1 to 65. Details of
the Group’s goals, strategy and business model are on pages
12 to 25. The information that fulfils the requirements of the
Governance Report can be found on pages 66 to 123.
Fair, balanced and understandable
In accordance with the Code, the Directors confirm that
they consider the Annual Report, 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.
68
An updated Board
Following the announcement of Bill Whiteley’s intention to retire
as Chair in May 2018, the Board’s succession plan moved into
action. In March 2018, we welcomed Peter France as a new
Independent Non-Executive Director, I was appointed Chair from
the close of the AGM in May 2018 and Clive Watson became our
Senior Independent Director. On 1st March 2019, we announced
the appointment of Caroline Johnstone as an Independent
Non-Executive Director. Caroline’s financial, people and advisory
skills, together with her international business experience across
a range of different industries, will be of benefit to the further
development of the Group. Clive will retire at the 2019 AGM,
as this is the AGM following his ninth year as a Director, and a
separate announcement will be made regarding the new Senior
Independent Director and the new Chair of the Audit Committee.
Board biographies can be found on pages 72 to 73.
An updated Code
In July 2018, the UK Corporate Governance Code 2018 (2018
Code) was released which puts the relationships between
companies, shareholders and stakeholders at the heart of
long-term sustainable growth in the UK economy. We fully support
the shorter, sharper 2018 Code and we have embraced its
changes in the following ways:
• workforce and stakeholders: we are currently exploring the
most effective methods to achieve greater Board engagement
with the workforce to understand their views;
• culture: we have reviewed our values to create a culture which
aligns Company Values with strategy and to ensure that our
Board has the right mix of skills and experience, constructive
challenge and to promote diversity; we have emphasised these
elements in our Board refreshment and succession planning;
and
• remuneration: the 2018 Code emphasises that the
Remuneration Committee should take into account workforce
remuneration and related policies when setting Director
remuneration, which we already address and will strengthen
throughout 2019.
An enlarged FTSE 100 company
Our business has continued to grow organically and increase
in size with the acquisitions of Gestra and Chromalox in 2017.
We have successfully integrated and driven performance
improvement in our acquisitions. We are pleased to have entered
the FTSE 100 in December 2018, as this symbolises a recognition
by investors of the significant value creation delivered by the hard
work of the entire organisation.
An opportunity to reflect
Recent Board changes and the publication of the 2018 Code
provided the opportunity to reaffirm our individual and collective
responsibilities as a Board and to test our understanding of what
good governance means to us and why it is important.
Further reading
All governance-related policies and procedures are
available to view and download:
www.spiraxsarcoengineering.com/Governance/Pages/policies-
procedures.aspx
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Key Board activities 2018
During 2018, we paid particular attention to succession planning
for the Board with the appointments set out earlier in this section.
We also focused on our Values, culture, strategic risks and
opportunities, including Brexit and diversity.
Revising Values
We reviewed and revised our Values. Values are the guiding
principles that we use across the Group to underpin
decision-making, guide our conduct and define our culture going
forward. By working together with these Values, every day, we
build a sustainable business that is more successful and a better
place to work.
Assessing and monitoring culture
Our culture is one of the main reasons for our measured
progress and success. As we grow it is vital that we retain such a
successful culture. The refreshing of our Values was designed to
create a culture which aligns Company Values with strategy.
In considering methods to achieve greater Board engagement
with the workforce, one of our objectives will be to ensure that the
Board is able to gauge and monitor our culture and to ensure it is
both embedded and retained in our Company.
Evaluating risks and opportunities
At the Board meeting at Gestra, Bremen in June 2018 we
considered the business risks arising from our strategy for growth.
The key risks included channel conflicts, increased reliance on
sales engineers and increased exposure to large projects. In each
case we addressed the actions that we are taking to mitigate the
risk under the auspices of a steering committee.
This strategic risk review complements the work of the Risk
Management Committee in relation to the principal risks affecting
the Group, and the effective management and mitigation of those
risks, as explained on pages 28 to 33.
Brexit
On 24th June 2017, following the Referendum vote to exit the
EU, an emergency steering committee meeting was called to
implement our Brexit Contingency Plan. Since then the following
actions have taken place:
• external and internal communications issued;
• Brexit project charters updated;
• Brexit Contingency Plan finalised and issued; and
• quarterly reviews and updates.
We are preparing for “no deal” Brexit and the application of
tariffs for goods moving in and out of Europe. However, we are
poised to take advantage of opportunities that are presented and
to mitigate any adverse trading impact on the Group.
93% of our sales revenues are generated outside of the UK,
while close to a third of our cost of goods sold is manufactured
in the UK. Therefore, a devaluation of sterling would produce
translational and transactional net benefits for the Group.
Diversity
As a Group we are committed to gender diversity and to
achieving a minimum target of 33% female representation
on the Board, the Group Executive and their direct reports.
We ensure that this target is taken into account in our
succession planning and recruitment. Our Group Diversity and
Inclusion Policy has been published on the Group’s website.
With the appointment of Caroline Johnstone as an Independent
Non-Executive Director, at the time of publication we have 30%
representation on our Board.
We also attach importance to ensuring that our people can
progress to the highest levels in their business careers regardless
of their socio-economic background, race or sexual orientation.
We accept Sir John Parker’s recommendation that our Board
should have at least one director from an ethnic minority
background by 2021.
Focus for 2019
We would like to consolidate our position as part of the
FTSE 100 through both organic and inorganic growth. We see
many opportunities to build on our success and we look forward
to realising and sharing these with our shareholders through our
strategic plan.
I look forward to reporting on our progress.
Jamie Pike
Chair
Board engagement case study
Revised Values
Our revised Values are:
• Collaboration – we are more successful when we trust each
other and work together.
• Customer focus – customers are the heart of our business.
• Excellence – we approach challenges with passion, aiming
for excellence in everything we do.
• Respect – everyone matters, both inside and outside
our Company.
• Integrity – we work in a way that is fair and honest, and we do
the right thing at all times.
• Safety – the safety and wellbeing of people is our
first consideration.
69
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 1. Board leadership and Company purpose
Adopting the spirit of the 2018 Code
We have summarised some of the key words from the 2018 Code’s Principles A-E in the graphic below and provided cross-references
for further reading. This is our own interpretation and serves to direct our readers to narrative that explains how we have applied some
of the Principles. In addition, we report on relevant provisions later within the scope of the Governance Report. With many relevant
examples already covered in the Strategic Report our aim is to reduce repetition and demonstrate the integrated spirit of the 2018 Code.
Company purpose
See pages 12, 16-19
Business model
See pages 12-15
Culture
and Values
See page 59 and 69
Strategy
See pages 20-25
Leading an effective
and entrepreneurial
board for long-term
sustainable success
Sustainable
thinking
See pages 25, 55-65
Resource/
capital allocation
See pages 53-54
Stakeholder
engagement
See pages 71 and 94
Effective controls
and frameworks
See pages 82-89
Workforce
practices
See pages 58-60
Our approach to governance
Governance helps us to ensure our shareholders receive a
good return on their investment; behave with integrity; treat our
customers, employees, suppliers and local communities properly;
and respect the environment.
Leading by example
The Board relies on the Executive management team to run the
business. The Board holds this team accountable against targets
and standards. The Board ensures that we have strong and
effective leadership in place to execute the strategic plan.
In the Governance Report we describe the responsibilities of the
Board and its Committees, the key activities during 2018 and the
focus for 2019.
During 2018, the Board approved changes to the Authority Limits
Policy, which sets out controls and authorisation limits on matters
affecting our business.
The ways in which we have addressed compliance with some of
the key elements of the prevailing Code and the 2018 Code, and
our leadership on these matters are highlighted below.
Long-term sustainable success
The Board is focused on long-term corporate and strategic
plans. It engaged in a full review and assessment of market and
technology trends at its strategic meeting in June 2018. As part of
this review, the Board considered the business risks arising from
our strategy for growth.
Effective and entrepreneurial
The Non-Executive Directors provide effective challenge and
review, bringing wide experience, specific expertise and a fresh
objective perspective to major decisions.
The emphasis is on growth and on an entrepreneurial approach
with a strong governance culture. To ensure that the Board
remains effective, in 2018 we engaged Independent Audit Ltd to
carry out an external Board effectiveness evaluation. The process
and actions of this evaluation are detailed on page 81.
70
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Using stakeholder views to shape
decision-making
In 2018, the Remuneration Committee, under the leadership
of Jane Kingston, engaged in a shareholder consultation with
17 of our top shareholders representing over 50% of our total
shareholding. This was a comprehensive exercise which resulted
in helpful and constructive advice from our shareholders and
proxy advisers (ISS, The Investment Association and Glass Lewis)
to help shape both our 2019 Executive remuneration proposals,
explained in Jane Kingston’s Statement on pages 91 to 92, and
our new Remuneration Policy for 2020.
A clear understanding of shareholder views
Our Chair ensures that the Board, as a whole, has a clear
understanding of our shareholder views. He achieves this by
seeking regular engagement with major shareholders outside
formal general meetings to discuss their views on governance and
our performance against strategy. We also encourage Committee
Chairs to talk to shareholders on significant matters related to their
areas of expertise.
Employee whistle-blowing
The Group is committed to promoting a safe and effective culture
in which employees can raise genuine concerns without fear of
reprisals. To this end, and as a matter of best practice, in 2014
the Group adopted a Whistle-blowing Policy. Linked to this was
the implementation of a multi-lingual whistle-blowing helpline,
facilitated by Safecall, to ensure that employees can freely access
an independent third party. The whistle-blowing helpline continues
to be made available throughout the Group and in 2018, five
calls were received from individuals. Each matter was thoroughly
investigated by a relevant management team member and
follow-up actions implemented, where required.
During 2018, management’s response and handling of reported
cases continues to be considered appropriate and satisfactory.
Both the Board and the Audit Committee are involved in the
regular review of whistle-blowing cases.
Identifying and managing conflicts of
interest
Our Board has a Conflicts of Interest Policy and has put in place
procedures for the disclosure and review of any potential or actual
conflicts. During 2018, no conflicts of interest were raised either in
relation to shareholders or in dealings with external consultants,
suppliers, etc.
Further reading
Details on how we engage with our
shareholders, specifically in relation
to remuneration.
See page 94
Engaging with employees
In 2017, we introduced a global employee engagement survey
to capture feedback from employees to ensure we have an
open dialogue about their experience of working for the Group.
Employees gave detailed feedback on their engagement
with the business, views of senior leadership and manager
capability. As a direct result of this engagement process, we
have implemented action plans across all Group companies.
Survey results and action plans were shared with the Group
Executive Committee and the Board on a six-monthly basis to
track and monitor progress.
In 2019, the survey will be expanded to include Chromalox and
Gestra. We have built on the process to encourage greater
participation of all employees and enhance our Values and
culture. The results will be reviewed by the Board in June 2019
and will provide a basis for conversations with teams across
the Group to improve engagement and involve employees in
creating a better place to work.
The Board has also been closely involved in the development
of a Diversity and Inclusion Policy, which includes the
mentoring of talented women to encourage recruitment
and retention of women at an executive level in the Group.
The Board was also involved in the evolution of our Values.
The Policy and our updated Values have been communicated
to all employees.
As illustrated by the Board’s visit in June 2018 to Gestra in
Bremen (see page 77) the Board visits our Group companies
across the world and Directors take time to meet employees
and hear their views. The Board are actively engaged
in assessing further opportunities to increase employee
participation across a complex, global company in line with the
UK Corporate Governance Code.
In addition to the engagement survey and direct face-to-face
meetings between Board Directors and employees, during
2019 we will also comply with the Code requirements by
introducing more forums for employee participation with the
Board, which reflect our global diversity.
Further reading
Sustainability Report.
See page 59
71
Spirax-Sarco Engineering plc Annual Report 2018Governance Report Board of Directors
Collegiate, transparent and willing to table
challenging viewpoints1
Nicholas Anderson BSc Engineering, MBA
Group Chief Executive
Kevin Boyd BEng, CEng, FIET, FCA
Chief Financial Officer
N RK*
RK
Appointed to the Board
March 2012. Appointed Chief Operating Officer
in August 2013 and Group Chief Executive in
January 2014
Areas of experience
International, operational, industrial, sales and
marketing, engineering, strategy, M&A
Background
Before joining the Group in 2011 as Director
EMEA, Nicholas Anderson was Vice-President
of John Crane Asia Pacific (part of Smiths
Group plc), based in Singapore, and President
of John Crane Latin America, based in the USA.
Previously, Nicholas held senior positions with
Alcoa Aluminio in Argentina and the Foseco
Minsep Group plc in Brazil.
Appointed to the Board
May 2016
Areas of experience
Finance and accounting, engineering, pensions,
international, M&A
Background
Before joining the Group in 2016, Kevin Boyd
was Group Finance Director for Oxford
Instruments plc. Prior to that he was Group
Finance Director of Radstone Technology plc
and previously held senior finance positions
within Siroyan Ltd and the TI Group (now Smiths
Group plc). Kevin is a Chartered Engineer, a
Chartered Accountant and a Fellow of the
Institute of Chartered Accountants and the
Institution of Engineering and Technology.
External appointments
Non-Executive Director of EMIS Group plc.
Clive Watson B Comms (Acc), ACA, CTA
Independent Non-Executive Director
& Senior Independent Director
A* N R
Appointed to the Board
July 2009
Areas of experience
Finance, tax and treasury, engineering
Background
Clive Watson held several tax and finance
roles before joining Black & Decker in 1988 as
Director of Tax and Treasury Europe. He was later
appointed Vice-President of Business Planning
and Analysis in the USA. Clive then joined Thorn
Lighting as Group Finance Director before working
for Borealis as Chief Financial Officer and Executive
Vice-President of Business Support. He is a
member of the Institute of Chartered Accountants
and the Chartered Institute of Taxation.
External appointments
Executive Director and Group Finance Director of
Spectris plc, due to step down from the Board no
later than April 2019.
Peter France
Independent Non-Executive Director
A N R
Appointed to the Board
March 2018
Areas of experience
International, operational, industrial, sales and
marketing, engineering
Background
Peter France was Chief Executive Officer of
Rotork plc from 2008 to 2017. He also gained
wide experience in a number of key roles at
Rotork plc from 1989 to 2008 including acting
as Chief Operating Officer and Director of
Rotork South East Asia based in Singapore.
Peter is a Chartered Director of the Institute
of Directors.
External appointments
Chief Executive Officer of ASCO Group Limited.
Jamie Pike MBA, MA, MIMechE
Chair
N*
Appointed to the Board
May 2014
Areas of experience
Senior management, engineering, international
Background
Jamie Pike joined Burmah Castrol in 1991
and was Chief Executive of Burmah Castrol
Chemicals before leading the Foseco buy-out
in 2001 and its subsequent flotation in 2005.
Prior to joining Burmah, he was a partner at Bain
& Company. Jamie was educated at Oxford,
holds an MBA from INSEAD and is a Member of
the Institute of Mechanical Engineers.
External appointments
Chairman of RPC Group .
72
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Neil Daws CEng, FIMechE
Managing Director, Steam Specialties
RK
Appointed to the Board
June 2003
Areas of experience
Manufacturing, engineering, product
development, sales and marketing, broad
operational experience
Background
Neil Daws joined the Group in 1978 and held
positions in production and design engineering
prior to being named as UK Supply Director.
Following this, Neil has held responsibility for
Asia Pacific, Latin America, the Group’s Supply
operations, including the Group’s health, safety
and environmental matters and, more recently,
EMEA.
Jay Whalen BA, MBA
Executive Director Watson-Marlow
Fluid Technology Group
RK
Appointed to the Board
March 2012
Areas of experience
Sales and marketing, engineering, product
development, operational, international
business development
Background
Jay Whalen joined the Group in 1991 as
President of Watson-Marlow Inc. in the USA.
He was named Sales and Marketing Director
of the global Watson-Marlow business in 2002
and in 2010 was appointed to his current Group
position of President, Watson-Marlow Fluid
Technology Group. Prior to joining Watson-
Marlow, Jay was Vice-President Operations for
Harvard Bioscience, Inc.
Andy Robson LLB Law Barrister
Group General Counsel and
Company Secretary
Appointed as Group General
Counsel and Company Secretary
June 2012
Areas of experience
International law, corporate governance,
international business development
including mergers and acquisitions,
business restructuring, information
technology, contract negotiation
Background
Before joining the Group in 2012,
Andy Robson was General Counsel and
Company Secretary of RM Plc, a role he
held for 14 years. Prior to this, Andy was
European General Counsel with Cendant
Corporation headquartered in Baltimore,
USA.
Jane Kingston BA
Independent Non-Executive Director
Trudy Schoolenberg PhD
Independent Non-Executive Director
A N R*
A N R
Appointed to the Board
September 2016
Appointed to the Board
August 2012
Areas of experience
Human Resources, remuneration, international,
engineering
Areas of experience
Engineering, product development, oil
and petrochemical
Background
From 2006 until her retirement in December
2015, Jane Kingston served as Group Human
Resources Director for Compass Group PLC.
Prior to this, she served as Group Human
Resources Director for BPB plc. Jane has
worked in a variety of sectors, including
roles with Blue Circle Industries plc, Enodis
plc and Coats Viyella plc and has significant
international experience.
External appointments
Non-Executive Director of National Express
Group plc and Inchcape plc.
Background
Prior to her most recent position at AkzoNobel,
Trudy Schoolenberg served as Vice-President
of Global Research & Development at Wärtsilä
Oy. Trudy previously held senior management
positions with Royal Dutch Shell plc and
was Head of Strategy for Shell Chemicals.
Until October 2016, Trudy served as Director
of Integrated Supply Chain and Research,
Development and Innovation, Decorative Paints
Division of AkzoNobel.
External appointments
Non-Executive Director of COVA and Low
& Bonar PLC. Non-Executive Director and
Senior Independent Director of Accsys
Technologies plc.
As previously announced, Caroline Johnstone
was appointed as an Independent
Non-Executive Director with effect from
5th March 2019.
Further reading
Read about our Board diversity,
composition, succession
and evaluation.
See pages 78-81
A Audit Committee
N Nomination Committee
R Remuneration Committee
RK Risk Management Committee
* Denotes Committee Chairman
Flag denotes country of citizenship
1 Quote from 2018 external Board evaluation. For more
information see page 81.
73
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 2. Division of responsibilities
The Chair
Independence
Jamie Pike was appointed to lead the Board as Chair at the AGM
on 15th May 2018, following the retirement of Bill Whiteley that
same day. Jamie has been a member of our Board, and our
Senior Independent Director, since May 2014. Having served over
four years on the Board, we consider him to have retained his
independent status.
As part of his commitment to meeting his Chair responsibilities,
Jamie resigned as Chair and Director of Ibstock plc in May 2018.
Responsibility
Jamie’s responsibilities are outlined in the table overleaf. In his
tenure to date we consider him to have upheld the responsibility
of the Chair as described in the Principle of the 2018 Code,
such as his independence, ability to work well with others and
leadership skills.
A balanced Board
Our Board comprises four Executive and four (five, with effect
from 5th March 2019) Non-Executive Directors (excluding the
Chair), which ensures that no one person or group of individuals
dominates the Board’s decision-making. All of our Non-Executive
Directors are considered independent.
Performance
The Chair confirms that, following a formal performance
evaluation, each Director’s performance continues to be effective
and each Director demonstrates commitment to the role.
Non-Executive Directors
Our Non-Executive Directors provide independent challenge
and review, bringing wide experience, specific expertise and
a fresh objective perspective. The Board is confident that the
Non-Executive Directors have sufficient time to meet their Board
responsibilities. External appointments held by our Non-Executive
Directors and full-time Executive Directors are set out on pages 72
to 73 and a summary is provided in the table that follows.
In September 2018, we announced that Peter France had been
appointed Chief Executive Officer of ASCO. This appointment
was discussed and approved by the Board in advance, taking into
consideration an indication of the time expected to be taken as
part of this external appointment. As this is Peter’s only external
appointment, this was approved by the Board.
At year end
No. of other
Non-Executive
roles
No. of other
Executive
roles
Independent Non-Executive Directors
Jamie Pike (Chair)
Peter France
Jane Kingston
Trudy Schoolenberg
Clive Watson
Full-time Executive Directors
Nicholas Anderson
Kevin Boyd
Neil Daws
Jay Whalen
1
–
2
3
–
–
1
–
–
–
1
–
–
1
–
–
–
–
Senior Independent Director
Following Jamie Pike’s appointment to the Chair, Clive Watson
became Senior Independent Director, effective 15th May 2018.
With expertise in finance, tax and treasury and engineering,
the Board is satisfied that Clive has the necessary qualities and
financial expertise for this role.
Non-Executive Director meetings
As per best practice, our Non-Executive Directors met with the
auditor and Willis Towers Watson, independent remuneration
consultants, separately from our Executive Directors.
Division of responsibilities
An overview of the division of responsibilities as set out in the 2018
Code is provided in the table opposite and we comply with all
Principles and provisions.
The responsibilities of the Chair, Group Chief Executive, Senior
Independent Director, Board and Committees are set out in writing
and agreed by the Board. A clear division is made between the
leadership of the Board and Executive leadership.
Group General Counsel and
Company Secretary
The Group General Counsel and Company Secretary supports
the Chair and the Committee Chairs in making sure members
are equipped for informed decision-making and that they
appropriately allocate their time to subjects. All Directors have
access to the advice of the Group General Counsel, who is
responsible for advising the Board on all governance matters.
Both the appointment and removal of the Group General Counsel
is a matter for the whole Board.
74
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018
Division of responsibilities (based on 2018 Code’s Principles F–I)
Chair
Board (key matters)
• Leads the Board
• Responsible for overall effectiveness in directing the Company
• Demonstrates objective judgement
• Promotes a culture of openness and debate
• Facilitates constructive Board relations
• Facilitates effective contribution of all Non-Executive Directors
• Ensures Directors receive accurate, timely, information
• Holds meetings with Non-Executive Directors, without Executive Directors present
• The approval of corporate and strategic business plans
• The approval of the annual and interim results
• Trading updates
• Integrated risk management framework
• Major acquisitions/disposals
• Major capital expenditure
• Director appointments
• Material litigation
• Governance structure
Senior Independent Director
• Provides a sounding board to the Chair
• Serves as an intermediary for the other Directors and shareholders
• Leads annual meeting of Non-Executive Directors to appraise Chair’s performance
Non-Executive Directors
• Provide constructive challenge, strategic guidance and offer specialist advice
• Hold a prime role in appointing and removing Executive Directors
• Scrutinise and hold to account the performance of management and individual Executive
Directors against agreed performance objectives
Group General Counsel and
Company Secretary
• Advises the Board on all governance matters
• Supports the Board to ensure that it has the policies, processes, information, time and resources
it needs for the Board to function effectively and efficiently
• Advises the Board on important legal and regulatory matters
Executive leadership
There is a clear division of responsibilities between the leadership of the Board and our Executive
leadership. Our Group Chief Executive’s roles and responsibilities include: management of
the Group’s short, medium and long-term performance; stewardship of capital, technical and
human resources; corporate and business strategy; internal risk management controls; and
organisational structure.
Governance structure
Group Board
See pages 72-73
Nomination
Committee
Audit
Committee
See pages 78-79
See pages 82-85
Risk
Management
Committee
See pages 86-89
Remuneration
Committee
See pages 90-119
Further reading
Board Committees overview
The Terms of Reference for all Board Committees
are set out in detail on the Group’s website,
www.spiraxsarcoengineering.com, on the Policies
and procedures page, within the Governance
section. These terms are subject to regular review.
www.spiraxsarcoengineering.com
75
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 2. Division of responsibilities
continued
The Board of Directors
The Board relies on Executive management to run the business
and monitor management activities, and holds them accountable
against targets and standards. The Board also approves
long-term corporate and strategic plans after a full review and
assessment of market and technology trends, business drivers
and risks. Having a senior management team that is capable of
executing the strategic plans is a key focus for the Board.
The formal schedule of matters reserved for the
Board’s decision is available on the Group’s website,
www.spiraxsarcoengineering.com, under Governance. The Board
also has an Authority Limits Policy that sets out clearly the primary
responsibilities, controls and authorisation limits on matters
affecting the Group’s business.
Board meetings
The Board meets as often as is necessary to discharge its duties.
In 2018, the Board met seven times. All Directors are expected
to attend all Board meetings and relevant Committee meetings
unless prevented by prior commitments, illness or a conflict of
interest. Directors unable to attend specific Board or Committee
meetings are sent the relevant papers and asked to provide
comments in advance of the meeting to the Chair of the Board
or Committee. In addition, all Board and Committee members
receive the minutes of meetings as a matter of course.
Board attendance 2018*
Board meetings
Attendance
J. Pike
N.J. Anderson
K.J. Boyd1
N.H. Daws
P. France2
J.S. Kingston
J.L. Whalen
G.E. Schoolenberg
C.G. Watson
100%
100%
86%
100%
100%
100%
100%
100%
100%
* W.H. Whiteley attended three meetings prior to his retirement on 15th May 2018.
1 K.J. Boyd absence due to illness.
2 P. France appointed to the Board 6th March 2018.
How the Board spent its time
5%
20%
10%
20%
15%
15%
15%
Strategy
Acquisitions
Operations and risk
Governance
and shareholders
People and succession
Finance
New product
development
76
Board activity 2018
The Board ensures good governance practices are embedded
throughout the Group as they are an integral part of running a
successful business. In the chart on page 77 we have set out how
the Board spent its time during 2018.
The Board agendas are carefully planned to ensure focus on
the Group’s strategic priorities and key monitoring activities, as
well as reviews of significant issues. During 2018, the Board
devoted considerable time to ensuring that the post-acquisition
plans relating to the Gestra and Chromalox businesses were
implemented. This was supported by the Board’s visit to Gestra’s
operation in Bremen in June preceded by the ACHEMA trade
exhibition in Frankfurt, where we were able to see our businesses
in action with our customers against the backcloth of their
industry competitors.
We also updated the strategic plan and strategic risks in June.
One outcome from this update was identifying that HygroMatik did
not fit with the plan and that the timing was right to maximise the
sale price, which was realised with the completion of the sale of
this business in December for £52.3 million.
We monitored the significant investment we are making in
Aflex Hose where we are consolidating our four sites into a
purpose-built facility that will streamline our processes and
prepares us for the growth we are anticipating in this business.
We looked at a number of important finance matters during 2018
including the renewal and extension of our revolving credit facilities
provided by Barclays Bank plc and HSBC plc.
Health & Safety is of fundamental importance to the business and
is considered at each Board meeting. It is also considered in detail
at each Group Executive Committee meeting.
The Board also concentrated its attention on formulating a
proactive Brexit strategy, looking at both the challenges and
opportunities for the Group posed by a UK exit from the EU.
The Board continued to engage with shareholders on governance,
remuneration and trading during the period.
Board focus for 2019
We will continue to support the Executive Committees with their
growth plans across all of our businesses. Key management
presentations and discussions are planned for WMFTG in the USA
and UK and Chromalox and Spirax Sarco in the USA. Time will
be devoted to the Steam Specialties business new product
development function.
We would like to consolidate our position as part of the FTSE 100
through both organic and inorganic growth.
We see many opportunities to build on our success and we look
forward to realising and sharing these with our shareholders as we
effect them through our strategic plan.
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Key Board activities in 2018, by meeting
February
• Draft Annual Report
• General Data Protection Regulation
• Acquisition of small pre-revenue company, with
emphasis on post-acquisition implementation plans
• Business review – EMEA, Asia Pacific (Steam business)
• Management presentation – Americas (WMFTG)
• Appointment of Senior Independent Director
• Deloitte Academy Governance Update
March
• 2017 financial results
• 2017 final dividend
• Review and approval of Annual Report
• Aflex Hose expansion
• Business review – Chromalox
• Management presentation – Southern Europe
(Steam business)
May
• Report by Risk Management Committee
• New ERP system (Steam business)
• Business review – Americas (Steam business)
• Management presentation – Americas (Steam business)
August
• Half-year results
• 2018 interim dividend
• Group litigation report
• Capital markets day review
• Group IS Strategy
• Business review – WMFTG
• Management presentation – Finance (Steam business)
December
• Approval of budget
• External Board effectiveness review
• Draft Annual Report and Circular to shareholders
• 2019 Plan and divisional presentations
• Report by Risk Management Committee including
Brexit, cybersecurity and climate change
June
(Gestra, Bremen, and ACHEMA, Frankfurt)
• Succession planning
• Business and corporate strategy
• Strategic risks
• Business review – Gestra
• Management presentation – Gestra
October
• Divestiture of HygroMatik GmbH
• Hedging programme
• Acquisition target
• Business review – Supply (Steam business)
• Management presentation – India (Steam business)
Standing agenda items
• An Environmental, Health and Safety update is the first operational
matter addressed by the Board at each meeting
• The Group Chief Executive and the Chief Financial Officer report on
monthly, quarterly, bi-annual and annual trading, as appropriate
• The Group General Counsel and Company Secretary regularly
updates the Board on changes to relevant laws and regulations
• Company share performance and shareholder/analyst feedback is
discussed at most Board meetings
Board visit case study
Board visit to ACHEMA 2018, Frankfurt
ACHEMA is the world forum for chemical engineering, process
engineering and biotechnology. Every three years the world’s major fair
for the process industry attracts around 4,000 exhibitors from over 50
different countries to present new products, processes and services
to 170,000 professionals from all over the world. The spectrum ranges
from laboratory equipment, pumps and analytical devices to packaging
machinery, boilers and stirrers through to safety technology, materials
and software. Spirax Sarco, WMFTG, Gestra and Chromalox exhibited,
each tailoring their new products and demonstrations to focused market
sectors. The Board was impressed by the quality of our exhibitions
and it was insightful to meet many of our existing and new customers
face-to-face to understand close up what they are looking for in our
service delivery.
77
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 3. Composition, succession and evaluation
Nomination Committee
Jamie Pike
Chair of Nomination Committee
Committee role and responsibilities
The main role of the Nomination Committee is to recommend
changes to the Board and consider succession planning for the
future. The Committee:
• makes appropriate recommendations to the Board for the
appointment, re-appointment or replacement of Directors;
• reviews the structure and composition of the Board with regard
to the overall balance of skills, knowledge and experience
against current and perceived future requirements of the Group;
• recommends any proposed changes to the Board; and
• considers succession planning arrangements for the Directors
and, more generally, senior executives.
Meetings
The Nomination Committee met four times in the year to address
the following matters:
• Executive Director succession planning;
• re-appointment of Non-Executive Directors; and
• Audit Committee Chair succession.
Members
Our Nomination Committee comprises:
Key Nomination Committee activities 2018
No. of meetings attended/
total no. meetings held*
Attendance
%
February
• Appointment of Senior Independent Director
Jamie Pike1 (Chair)
Nicholas Anderson
Peter France
Jane Kingston
Trudy Schoolenberg
Clive Watson
4/4
4/4
3/3
4/4
4/4
4/4
100%
100%
100%
100%
100%
100%
June
• Executive Director succession planning
• Re-appointment of Non-Executive Directors
* W.H. Whiteley attended one meeting prior to his retirement on 15th May 2018.
1 Appointed Committee Chair 15th May 2018.
How the Committee spent its time
October
• Audit Committee Chair succession – process and schedule
40%
20%
Executive succession
Non-Executive succession
Diversity
December
• Audit Committee Chair succession update
40%
78
Further reading
Our Diversity and Inclusion Policy can be found on our website.
www.spiraxsarcoengineering.com/Governance/Pages/policies-
procedures.aspx
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018
Chair’s review of 2018
Board changes
In March 2018, we welcomed Peter France to the Board and in
May 2018 I took over as Chair. Our rigorous process for managing
both appointments was described on page 76 of the 2017 Annual
Report. Peter France undertook an extensive induction and shares
his thoughts on page 80. Following my appointment as Chair,
Clive Watson took over as Senior Independent Director.
Once again, Korn Ferry was appointed in relation to the
specification, search and evaluation of the new appointments
detailed below. In our latest Non-Executive Director search
we instructed Korn Ferry to include candidates that advanced
both our gender and ethnicity representation. Korn Ferry is an
independent search and recruitment agency and provides no
other services to the Group.
I am delighted that Caroline Johnstone joined the Board as
an Independent Non-Executive Director on 5th March 2019.
Caroline’s financial, people and advisory skills, together with her
international business experience across a range of different
industries, will benefit the further development of the Group.
With Caroline’s appointment, female representation on our Board
increases to 30%.
A new Chair of the Audit Committee is being appointed. The
timing of this appointment will allow for a handover of responsibilities
from Clive Watson, the outgoing Chair, following the conclusion
of his nine-year tenure as a Director. An announcement will be
made in due course regarding this position and the new Senior
Independent Director. Clive shares his reflections on his time with
the Company on page 80.
Managing a diverse pipeline for succession
We strive for greater diversity on our Board and across the Group
and in our succession planning take the following into account:
Diversity and Inclusion Policy
We believe that the Board’s perspective and approach is greatly
enhanced by gender, age and cultural diversity and it is our policy
to consider overall Board balance and diversity when appointing
new Directors. As shown on page 66, the range of nationalities
and experience of our Board is particularly relevant given the
broad international reach of the Group and we will seek to increase
the diversity of our international footprint with future appointments
to the Board.
Diversity and inclusion are key elements in our Group strategic
sustainability project where we undertook the following:
• engaged the wider Executive team on how to increase diversity
and promote inclusion across our organisation by way of
a thought-provoking and stimulating session delivered by
John Uzoma Amaechi, OBE, psychologist and consultant;
• published our new Diversity and Inclusion Policy on our website
(www.spiraxsarcoengineering.com, under Governance) and
shared across the Group;
• reviewed external talent pools to increase the number of
female candidates;
• established an Executive mentoring programme for female
talent with male and female mentors; and
• completed an equal pay audit for all UK employees.
Gender reporting
During 2018, Board gender diversity remained unchanged with
seven males and two females. During 2018, we participated in the
FTSE Women Leaders (Hampton-Alexander) Review. With 22.2%
female representation on our Board and 18% of the combined
Executive Committees and their direct reports being female, we
were ranked 151st in the FTSE 250 for senior management gender
diversity. We recognise that further actions need to be taken to
increase the representation of women.
As a Group we are committed to gender diversity and to achieving
a minimum target of 33% female representation on the Board, the
Group Executive Committee and their direct reports. We ensure
that this target is taken into account in our succession planning
and recruitment and, as previously mentioned, following the
appointment of Caroline Johnstone, at time of publication we have
30% female representation on our Board.
More detailed figures on gender diversity can be found on page
59 in our Sustainability Report.
Committee Focus for 2019
In 2019, we will focus on the implementation of the Board evaluation
actions and diversity at the Board and Executive levels of the Group.
Jamie Pike
Chair of Nomination Committee
79
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 3. Composition, succession and evaluation
continued
Peter France induction
I have enjoyed working with the Spirax-Sarco Engineering plc
Board and other colleagues during the past year, and have
been impressed by the teamwork and strong governance in
evidence across the Group, which I have experienced first-hand
as a member of the Audit Committee. I would like to extend my
thanks to Jamie Pike and my fellow Directors who have made
me extremely welcome in my first year and encouraged me to
bring my experience to bear and to learn from their experience in
equal measure.
Since joining the Board in March 2018, I have had the opportunity
to visit a number of Group companies, from Watson-Marlow’s
operations in Falmouth, UK, to Gestra in Bremen, Germany,
and visited customers with field-based engineers. In all of these
meetings I have felt welcomed by my new colleagues and came
away impressed by the strong customer focus demonstrated
across the business.
As a Board, during 2018, we focused extensively on organic
growth opportunities and also embedding the recent acquisitions,
Gestra and Chromalox. We are committed to taking the Group
forward based on a well-founded and excellently executed
strategic plan. Forward thinking is evident in the workings of
the Nomination Committee where I have seen thoughtful and
thorough succession planning undertaken to ensure long-term
business continuity both for the Board and senior management.
The Group is at an exciting phase of its development and I look
forward to playing a part in its continued success.
Spirax Sarco has a culture and set
of Values reinforcing the highest
integrity in everything it does.”
Clive Watson
Independent Non-Executive Director
Senior Independent Director
80
Spirax Sarco is an exciting business
with strong customer focus, and I
am enjoying every minute.”
Peter France
Independent Non-Executive Director
Clive Watson reflections
Looking back over my nine years as a Non-Executive Director
of Spirax Sarco, it has been an honour and a pleasure to serve
as the Audit Committee Chair and, more recently, as the Senior
Independent Director, overseeing the strengthening of, and
commitment to, a robust internal control framework developed
in response to a successful and profitable growth strategy.
The Group has embraced all good governance practices and, in
many cases, been an early adopter in order to mitigate current
and potential risks. Risk management is now firmly embedded in
day-to-day decision making.
Throughout, the Company has not hesitated to invest in
appropriate resources to maintain the highest standards including,
recently, the appointment of a Head of Internal Audit. In closing, I
would like to emphasise that Spirax Sarco has a culture and set of
Values reinforcing the highest integrity in everything it does. I wish
the Company the very best for the future and extend my great
appreciation for the support provided by my colleagues on the
Board, the Audit Committee and the legal and finance functions.
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Board evaluation
Board evaluation process
In 2018, we commissioned an independently-facilitated Board
effectiveness review conducted by Independent Audit Ltd.
(Independent Audit Ltd provides no other services to the Group.)
Our aim was to capture open and constructive feedback from
Board members which would:
• provide insight into our effectiveness;
• point to actions for improving our performance; and
• establish a benchmark for measuring future progress.
The review was carried out in accordance with the guidance in
the Code. The Board evaluator’s approach involved a Board
observation; one-to-one interviews with all Directors, the Group
General Counsel, Group Human Resources Director and key
advisers, such as Deloitte LLP and Willis Towers Watson; individual
feedback meetings; and a Board discussion. Each participant was
asked to evaluate the Board and its Committees. Subjects covered
included the work of the Board, the Board environment and
the Board’s use of time. Directors were asked for their views
on shareholder engagement and relationships and how these
relationships might be improved. Views were sought on the Board’s
input into strategy discussions, governance and compliance, risk
management and succession planning. Views were also sought on
the Board culture and the relationships with senior management as
well as how new Board members are selected and inducted.
The review was based on a careful analysis of the Board’s
approach to its work, its contribution to the Group’s success and
its preparation for the future.
Strengths
The Board is unanimously seen as having contributed actively and
constructively to the development of the Group. The expertise
and experience of the Board provided much-needed confidence
in the face of some difficult decisions. That the Board was able
to play such a significant role in the acquisitions process also
bears testament to the positive relationships it enjoys and the
atmosphere of trust and respect that these engender. The Board
has a sound grasp of the business and its objectives. The Chair
complements the strengths of the Group Chief Executive. Similarly,
the Non-Executive Directors are knowledgeable, engaged and
bring a diverse range of skills and experience to their roles.
They enjoy the collegiate atmosphere and work extremely well
with the Executive Directors. In line with best practice, the Board
consistently questions itself to avoid any risk of complacency and
to ensure it is fully prepared for the unforeseen.
The Non-Executive Directors challenge the Executive Directors with
regard to both short-term plans and long-term horizon-scanning.
The Non-Executive Directors have a wide experience of other
organisations and industries and therefore have an important role
to play in being able to challenge from a broader perspective.
Constructive questioning is a way for the Executive Directors to
“stress-test” their thoughts and ideas in a supportive environment.
Recommendations
The recommendations by Independent Audit Ltd, which we will
work on throughout 2019 and evaluate our progress at the end of
2019, are set out in the adjacent box.
External evaluation process
Meeting
observation
Review of
information
flow
One-to-one
interviews with
Board members,
Group General
Counsel, Group
HR Director and
key advisers
Briefing
and Board
observation
Results collected, summarised
and evaluated
Feedback to Board
and Board discussion
Feedback
shared with
Chair of
Board and
Committees
Review process
Action plan agreed
1
e
g
a
t
S
2
e
g
a
t
S
3
e
g
a
t
S
4
e
g
a
t
S
5
e
g
a
t
S
Outcome and agreed actions following
the 2018 external Board evaluation
• Actively search for an additional Non-Executive Director
with appropriate international and financial experience
• All Board members and the General Counsel to attend
Board pre-meetings
• Strategy meetings to allow Non-Executive Directors and
executives to collaborate in more “big-picture” discussions
and future planning
• Progress employee engagement initiatives (see page 71)
• Group Chief Executive’s Board report to highlight main
challenges and uncertainties
• Action lists to be adopted by the Board and Committees
81
Spirax-Sarco Engineering plc Annual Report 2018Governance Report
4. Audit, risk and internal control
Committee role and responsibilities
The main roles and responsibilities of the Audit Committee include:
• monitoring the integrity of the Financial Statements of the
Company and any formal announcements relating to the
Company’s financial performance, and reviewing significant
financial reporting judgements contained in them;
• providing advice (where requested by the Board) on whether
the Annual Report, taken as a whole, is fair, balanced and
understandable, and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy;
• in conjunction with the Risk Management Committee and the
Board, reviewing the Company’s internal financial controls and
internal control and risk management systems;
• monitoring and reviewing the effectiveness of the Company’s
internal audit function and making recommendations to
the Board;
• conducting the tender process and making recommendations
to the Board about the appointment, re-appointment and
removal of the external auditor, and approving the remuneration
and terms of engagement of the external auditor;
• reviewing and monitoring the external auditor’s independence
and objectivity;
• reviewing the effectiveness of the external audit process,
taking into consideration relevant UK professional and
regulatory requirements;
• developing and implementing policy on the engagement of the
external auditor to supply non-audit services, ensuring there is
prior approval of non-audit services, considering the impact this
may have on independence, taking into account the relevant
regulations and ethical guidance in this regard, and reporting to
the Board on any improvement or action required; and
• reporting to the Board on how it has discharged
its responsibilities.
Meetings
The Committee met three times during 2018. Relevant members
of the Group’s senior management, including the Head of
Internal Audit, the Chief Financial Officer and the Group Financial
Controller, were also in attendance at these meetings. In line with
recommended practice, the Group Chief Executive attended one
meeting of the Committee (March).
During 2018, the Committee received reports from external
and internal auditors on the major findings of their work and the
progress of management follow-up by way of management
reports. As a safeguard, the Committee holds separate meetings
with the external and internal auditors without management
present to discuss their respective areas and any issues arising
from their audits.
Audit Committee
Clive Watson
Chair of Audit Committee
Members
Our Audit Committee comprises:
No. of meetings attended/
total no. meetings held
Attendance
%
Clive Watson (Chair)
Peter France
Jane Kingston
Jamie Pike1
Trudy Schoolenberg
3/3
3/3
3/3
1/1
3/3
100%
100%
100%
100%
100%
1 Resigned from the Committee on 15th May 2018 on appointment as Chair of the Board.
How the Committee spent its time
5%
30%
10%
10%
15%
15%
15%
Finance and tax reviews
Corporate governance
External audit
Internal audit
Risk management
and controls
Results review
Whistle-blowing
82
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Key Committee activities in 2018
March
• Reviewed the Annual Report including:
– Viability Statement
– Going Concern basis
– that it is fair, balanced and understandable
• Agreed the Internal Audit Strategy and Charter for 2018
• Monitored the Group preparedness for the implementation
of GDPR
• Reviewed the effectiveness of internal controls
August
• Reviewed the half-year results
• Reviewed the auditor interim report
• Reviewed and approved the auditor engagement policy
• On-going review of risk areas such as cybersecurity, GDPR and
whistle-blowing
• Consideration of Audit Committee performance
October
• External audit planning (including review and approval of
audit scope)
• Tax update (reviewed Tax Policy and Tax Strategy)
• Reviewed internal audit process
• Reviewed and approved new Crisis Management Plan
Committee competence
The Terms of Reference for the Committee, which can be found
on the Group’s website, www.spiraxsarcoengineering.com,
under Governance, set out the membership and experience
requirements of the Committee. Collectively, the Committee
is considered by the Board to possess an appropriate level of
independence (it is comprised solely of Non-Executive Directors)
and experience; the Chair has recent and relevant financial
experience and the required competence in accounting and its
members have a depth of financial and commercial experience
in various industries, as well as the industrial engineering sector
in which the Group operates. A more detailed summary of the
qualifications, skills and experience of each Committee member
can be found on pages 72 to 73.
Chair’s review of 2018
2018 saw some changes in the Committee’s membership, with
Peter France joining the Committee on his appointment to the
Board as an Independent Non-Executive Director in March 2018,
and Jamie Pike stepping down as a member of the Committee
following his appointment as Chair of the Board in May 2018.
In addition to its on-going core responsibilities of monitoring
the integrity of the Group’s Financial Statements and the
effectiveness of its controls, in 2018 the Committee was focused
on ensuring the Group was prepared for the implementation of
the General Data Protection Regulation (GDPR), through reviews
of the Group’s cybersecurity regime and data governance
policies and processes. The first anniversary of the Gestra and
Chromalox acquisitions arrived in May and July respectively
and the Committee continued to monitor their integration and
performance to ensure they were proceeding in accordance with
management’s plans and that the financial judgements made
by the Group in applying accounting policies in relation to these
acquisitions remained accurate.
The following matters were of particular note:
Finance team appointments
Following the Group’s appointments of its first Head of Internal
Audit and also Tax Manager in 2017, the Committee noted that in
2018 the Group had further strengthened its Finance team and the
control environment by the appointment of an additional Internal
Audit Manager and another Tax Manager. The Group confirmed
its intention to appoint a third internal auditor in 2019, with the aim
(based on the current size of the Group) being to ultimately have
four internal auditors to cover all of the internal audit activity of
the Group.
Cybersecurity and GDPR preparedness
With GDPR becoming effective in May 2018, the Committee
increased its focus on the Group’s policies and processes
covering the related issues of cybersecurity and data
governance. In particular, the Committee reviewed updates
from management on the work being undertaken by the GDPR
project team and external advisers to ensure compliance with
GDPR within the relevant milestones. All critical elements of the
compliance plan (identified following a gap analysis undertaken
by Ernst & Young LLP during 2018) were completed by the
relevant Group companies ahead of the May 2018 deadline and
all employees have been provided with GDPR awareness training.
The Committee will continue to monitor compliance.
The Committee was pleased to note that the Group had carried
on taking steps to mitigate the risk posed to businesses by online
attacks. Digital security had been greatly increased across the
Group generally and, in addition to new encryption and anti-virus
software being utilised by the Group, cybersecurity training had
been rolled out to the vast majority of employees.
Taxation
The Group Taxation Strategy, which can be found on the Group’s
website, www.spiraxsarcoengineering.com, under Governance,
was published in 2018. The Taxation Strategy sets out the Group’s
approach to tax risk management and governance, tax planning
and relationship with the relevant tax authorities.
The Committee noted that due to the increased size of the Group,
it is now subject to HMRC Senior Accounting Officer review
and in June 2018, a clean certificate was issued by the Senior
Accounting Officer for the year ended 31st December 2017.
Review of effectiveness of internal controls
In its review of the Group’s internal controls, the Committee
considers the effectiveness of all material controls, including
financial, operational and compliance controls and risk
management systems. The Committee continues to consider the
Group to have a strong and effective control environment in place.
Further detail on monitoring effectiveness of internal controls can
be found on pages 87 to 88.
83
Spirax-Sarco Engineering plc Annual Report 2018Governance Report
4. Audit, risk and internal control
continued
Audit Committee continued
Crisis management
A new Crisis Management Plan was established by the Group in
2018. The Plan was reviewed and approved by the Committee
and supplements the Group’s existing Serious Incident
Management Policy and local incident management procedures.
The Plan sets out the responsibilities and actions of the Board and
senior management in the event of an incident that is sufficiently
serious in nature that it is highly likely to attract detrimental
publicity, affect the reputation of the Group or affect its share price.
How this was addressed
Regular cycles of internal and external audits by independent
parties (including the Committee) have been put in place to
review financial information. These audits are objective reviews
on compliance with the Group’s accounting policies. The Group
continues to provide additional resource to its internal audit
function with the recent appointment of a further Internal Audit
Manager (see page 83). The new internal audit plan and budget,
which sets the objectives of visiting every business in the Group
over a five-year period and to audit acquisitions within six months
of completion, was approved by the Committee in 2018.
Whistle-blowing
The Committee was pleased to note that the Whistle-blowing
Policy implemented in 2014 had been successfully rolled out to the
newest members of the Group (Gestra and Chromalox). This roll
out included the Group’s Safecall facility being the confidential
employee whistle-blowing hotline. The Committee received
updates on the use of Safecall at each meeting and noted that,
on the whole, this hotline continued to be used for its intended
purpose by employees. The Committee assessed management’s
responses to the reported cases (of which there were five in 2018)
and considered them to be appropriate and satisfactory.
Significant areas of judgement in the
Financial Statements
After reviewing the presentations and reports from management
and consulting with the auditor, the Committee is satisfied that the
Financial Statements appropriately address the 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, challenged and are
sufficiently robust.
Significant issues
During 2018, the Committee considered and addressed the
following significant issues in relation to the Group’s Financial
Statements and disclosures:
(i) Revenue recognition
In view of the profile of revenue and profit recognition in the final
quarter of the year, the need to focus on any new contracts
and revenue cut-off for certain businesses was highlighted to
ensure the appropriate recognition of revenue for the year ended
31st December 2018.
How this was addressed
The Committee received regular updates on the assessment of
the impact of IFRS 15 (Revenue from Contracts with Customers)
during 2018.
(ii) Pensions
There are judgements and estimates made in selecting
appropriate assumptions in valuing the Group’s defined benefit
pension obligations, including discount ratios, mortality, inflation
and salary increases.
How this was addressed
The Committee considered reports by the Group, including those
from independent external advisers, and is comfortable that the
key assumptions are reasonable.
(iii) Management override of controls
Internal controls are the safeguards put in place by the Group to
protect its financial resources from fraud and abuse by employees.
Management is responsible for ensuring the internal controls are
followed by employees. As such, intervention by management
in the handling of financial information and making decisions
contrary to the internal control policy is a significant, if unlikely, risk.
How these were addressed
The Committee reviewed the 2018 Going Concern and Viability
Statements and were satisfied that these represented accurate
assessments of the Company’s position as at the date of
the Statements.
External audit process
This is the fifth financial year in which the Annual Report and
Financial Statements have been audited by Deloitte LLP,
following their appointment as the Company’s external auditor
as of 20th May 2014. This appointment is subject to on-going
monitoring and will run for a maximum of 10 years before being
tendered. One of the primary responsibilities of the Committee is
to assess the robustness of the external audit process and make
recommendations to the Board in relation to the appointment,
re-appointment or removal of the external auditor. The Committee
took a number of factors into account when evaluating the
effectiveness of the external audit including: the quality and
scope of the planning of the audit (in October 2018, Deloitte
LLP presented their plan for the 2018 audit to the Committee);
and feedback from all audited operating units, the Group Finance
team, senior management and Directors on the audit process
and the quality and experience of the audit partners engaged in
the audit.
As this was their fifth year as auditor, in accordance with the
requirements to rotate the audit partner at least every five years,
the Committee were informed by Deloitte LLP that Mark Mullins
would be stepping down after the close of the 2018 audit and
Andrew Bond will take over responsibility for the audits from
March 2019.
The Group has complied with the provisions of the Competition
and Market Authority (CMA) Order, issued by the CMA in
September 2014, for “The Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee Responsibilities)”.
84
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Audit fees
During 2018, the Committee reviewed and approved the
proposed audit fees and terms of engagement for the 2018 audit
and recommended to the Board that it proposes to shareholders
that Deloitte LLP be re-appointed as the Group’s external auditor
for 2019 at the AGM to be held on 15th May 2019.
Safeguarding independence and objectivity
The Committee recognises that the independence of the external
auditor is an essential part of the audit framework and has
adopted a policy which sets out a framework for determining
whether it is appropriate to engage the Group’s auditor for
non-audit services. This policy states that any expenditure with
the Group’s auditor on non-audit fees should not exceed 70%
of the average audit fees charged in the last three-year period.
During the year, the Group spent £0.1 million on non-audit services
provided by Deloitte LLP (being 7% of the average of Group audit
fees charged over the past three years). Further details can be
found in Note 7 on page 150. No significant non-audit services
were provided by Deloitte LLP.
Auditor payments 2018 £m
Non-audit fees
0.1
Audit fees
1.7
Internal audit
The Committee reviewed the schedule of planned internal audits
undertaken in 2018 and assessed the robustness of the control
framework that is in place to track and monitor progress in
remedying any identified deficiencies. This review ensures that
the Committee is able to give assurances that the Group has an
effective and integrated risk management framework, in addition
to the oversight provided by the Risk Management Committee.
During 2018, there were a total of 26 internal audits performed.
On the whole, the companies audited had an effective control
environment. Where issues were found, remediation actions were
agreed that are tracked to completion and validated before being
closed. Status is reported to the Committee. The internal audit
process is explained in more detail on page 88.
Review of Financial Statements
During 2018, the Committee considered many components
of business performance in order to ensure it has a full
understanding of the operations of the Group. Key matters
considered by the Committee include:
• determining the position adopted in judgement and estimate
areas for pensions;
• risk areas set out in the Risk Management Committee Report;
• receipt of regular strategy reports from the Group Chief
Executive and operational reports from the Divisional Directors;
• requesting members of management to attend Committee
meetings to provide updates on operational and
strategic matters;
• reviews of the budget and operational plan; and
• consideration of judgements and estimates.
Ensuring a fair, balanced and
understandable Annual Report
Audit Committee oversight of the
Annual Report
• Assessed the consistency of the risks and judgements;
• reviewed the Board minutes to ensure issues of significance
were given prominence; and
• arrived at a position where initially the Committee and then
the Board were satisfied with the overall fairness, balance and
clarity of the Annual Report.
Specific actions taken to achieve this included:
• comprehensive guidance for contributors at operational level;
• verification process dealing with the factual content of
the reports;
• consideration of the appropriateness of alternative
performance measures;
• comprehensive reviews undertaken at different levels in the
Group that aim to ensure consistency and overall balance; and
• comprehensive review by the senior management team.
Through these processes and its monitoring of the effectiveness
of controls, internal audit and risk management, the Committee is
able to maintain a good understanding of business performance,
key areas of judgement and decision-making processes within
the Group.
Fair, balanced and understandable
One of the key governance requirements of the Committee is
for the Annual Report to be fair, balanced and understandable.
The co-ordination and review of the Group-wide input into
the Annual Report is a significant exercise performed within
an exacting time frame, which runs alongside the formal audit
process undertaken by the external auditor. The Directors
acknowledge their responsibility for preparing the 2018 Annual
Report and confirm that they consider this document, taken as
a whole, to be fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
position, performance, business model and strategy. An overview
of the processes involved to achieve this are set out in the
table above.
Committee focus for 2019
• Assessment of Financial Statements
• Review of Internal Audits
• On-going monitoring of risks
• The Group’s preparedness for Brexit
• Climate change impact on the Group and the Group’s impact
on climate.
Clive Watson
Chair of Audit Committee
Further reading
Our Going Concern Statement.
Our Viability Statement.
See page 122
See page 89
85
Spirax-Sarco Engineering plc Annual Report 2018Governance Report
4. Audit, risk and internal control
continued
Risk Management Committee
Nicholas Anderson
Chair of Risk Management Committee
Committee role and responsibilities
The Committee oversees the management and control of
significant risks affecting the Group. The Committee ensures
that the Group has risk management policies and procedures,
including those covering project governance, sanctions and
embargoes, crisis management, human rights, business continuity
and business management.
The Committee’s responsibilities include:
• using top-down and bottom-up reviews, understanding the
risks facing the Group;
• determining our appetite for risk;
• accepting and managing within the businesses those
risks which our employees have the skills and expertise to
understand and leverage; and
• identifying appropriate risk mitigation techniques
and countermeasures.
Meetings
The Committee met three times in 2018. A summary of the
Committee’s activities throughout the year is below.
Members
Our Risk Management Committee comprises:
Key Risk Management Committee
activities 2018
No. of meetings attended/
total no. meetings held
Attendance
%
Nicholas Anderson (Chair)
Kevin Boyd
Neil Daws
Jay Whalen
Jim Devine
Mike Sutter
Andy Robson
Dan Harvey1
3/3
3/3
3/3
3/3
3/3
3/3
3/3
1/1
100%
100%
100%
100%
100%
100%
100%
100%
1 Joined the Committee on 1st December 2018
How the Committee spent its time
20%
10%
15%
20%
15%
20%
Internal controls
Review of principal risks
Risk management
framework (including
top-down review)
Anti-bribery
Crisis Management Plan
Internal audit and
tax compliance
April
• Reviewed proposed Crisis Management Plan
• Agreed to key actions related to crisis management
August
• Reviewed the top-down risk summary
• Confirmed risk countermeasures in place at Group
operating companies
December
• Updated and approved the risk register, based on the
top-down review
• Updated the principal risks
• Approved recommendations for Brexit preparedness
• Approved the appointment of the Head of Internal Audit as
a Committee member
86
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Chair’s review of 2018
Summary of key focus areas 2018
In keeping with the goals set for the year, in 2018 the Committee
formalised its Crisis Management Plan. In conjunction with
that process, the Committee undertook the additional tasks of
designating incident officers for each of the businesses, agreeing
to organise media training for senior management and arranging
to place a public relations firm on retainer.
The Committee completed its biennial top-down review of risks,
and updated the Group risk register accordingly. The Committee
also continued to monitor the on-going Brexit negotiations, and
approved specific preparedness actions for a potential “no deal”
Brexit.
Anti-Bribery and Corruption (ABC)
The Group has continued to reinforce the message of zero
tolerance for bribery and corruption within its businesses.
In 2018, that message was strengthened by the improvement
and expansion of our online ABC training. This new ABC training
is hosted by the Spirax Sarco Academy as part of the Group
Essentials training module, which also provides training to
employees on a range of fundamental topics, such as Group
Values, H&S and cybersecurity. The reach of this training has also
been expanded so that each employee with an email address is
required to complete the course.
By the end of 2018, the new training was available in eight key
languages, with an additional eight languages to follow in early
2019. In 2018, 1,346 employees completed the new ABC course,
with an additional 487 employees completing the ABC training
under the existing course.
The Group also uses an independent, third-party whistle-blowing
hotline to enable employees to anonymously report any unethical,
illegal or otherwise concerning conduct. Additionally, in line with
our Gifts, Entertainment and Hospitality Policy, we maintain an
online gift register, where employees record gifts so as to ensure
our conduct is in keeping with our highest ethical expectations
and within the law.
Further updates on whistle-blowing and ABC can be found in our
Sustainability Report on page 60.
Modern Slavery Statement
The Group has updated its Modern Slavery Statement to reflect
the Group’s Values and the interplay between those Values
and our commitment to the mission behind the UK Modern
Slavery Act. The updated Statement also tracks our progress
in incorporating our new acquisitions into our Global Excellence
in Supply Chain Initiative. The 2018 Statement can be found on
the Group’s website, www.spiraxsarcoengineering.com, under
Sustainability (Supply Chain).
Identifying emerging and principal risks
We have a robust risk management process in place through
which we identify, evaluate and manage the principal risks and
emerging risks that could impact the Group’s performance.
During 2018, we reviewed the Group’s exposure to risk using
a top-down approach. Following this process, the Committee
reviewed and confirmed the robustness of the countermeasures
that Group companies have in place to mitigate the principal risks
in the Group risk register. Our principal risks and the results of the
2018 review are set out in the Strategic Report on pages 30 to 33.
Monitoring effectiveness:
(i) Risk management systems
The Committee is responsible for reporting to the Board the risks
facing the Group and the countermeasures related to those risks.
To fulfil that responsibility, the Committee oversees the Group’s
risk management processes and procedures, with reliance on
the Audit Committee for oversight of the Group companies.
Further, the Committee is charged with the on-going monitoring
of sufficient and effective mitigation plans for relevant risks at each
Group operating company and business group.
Each operating company is required to undertake a formal
review, at least once a year, of the risks which impact, or have the
potential to impact, its business. The reviews are consolidated into
Group-wide risk reports which are maintained and reviewed by the
Committee on a regular basis. Additionally, the risk management
processes are monitored on an on-going basis via internal and
external audits of Group companies. Senior managers have full
accountability of the risk management within their businesses.
The governance structure provides three lines of defence in the
Group’s risk management, as illustrated on page 88.
(ii) Internal control systems
Since 2013 the Group has employed a specific on-going review
process for identifying and managing risks faced by the Group.
The process includes assessment of the effectiveness of all
material controls, including financial, operational and compliance
controls, as well as risk management systems. The review
confirms that proper accounting records have been maintained,
that financial information used within the business is reliable and
that the preparation of the Consolidated and Company Financial
Statements and the financial reporting process comply with all
relevant regulatory reporting requirements.
87
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 4. Audit, risk and internal control
continued
Risk Management
Committee continued
Every year, via a self-certification questionnaire, General Managers
and Finance Managers of every Group company are required
to self-certify compliance with the policies, procedures and
minimum requirements for an effective system of internal controls.
The Committee uses this information, as well as information from
the top-down and bottom-up risk review processes, to have
meaningful and on-going oversight of risks across the business.
Whilst internal controls are not an absolute assurance against
material misstatement or loss, the Board believes the regular cycle
of review paired with internal monitoring provides a commercially
sound approach to protect the Group from the risks that are a
necessary part of its operations. As required by the UK Listing
Authority, throughout the year and up to the date of the publication
of the Annual Report, the Group has complied with the Code
provisions on internal controls.
(iii) Internal audit
The Group’s standard policy regarding internal auditing is that
each operating company is audited once every five years (most
more frequently). Operating companies located in higher risk
territories are audited more frequently, and businesses acquired
by the Group are subject to internal audit within six months
of completion.
The internal audit system is a crucial part of the risk management
process. These internal audits are conducted by experienced,
qualified accounting staff from principal operating companies
and a professional auditing firm, BDO International. Additionally,
in 2018 the Head of Internal Audit recruited a full-time team
member to support the function.
Audit reports are made to the Audit Committee and the Board
as a whole. The Committee has ensured compliance with centrally
documented control procedures on such matters as capital
expenditure, information and technology security and legal and
regulatory compliance.
Risk Appetite Statement
Risk is an inherent part of business and, in order to achieve
our business aims, we must accept certain risks. We seek
to implement a balanced approach to risk, ensuring that
our resources are protected while still pursuing opportunities
to accelerate and deliver growth.
The decision to take opportunity-based risks should, to the
greatest extent possible, be deliberate and calculated.
Three lines of defence
First line of defence
• The business is responsible for the identification, control
and management of its own risks
Second line of defence
• The Risk Management Committee, with the Audit
Committee, ensures that the risk and compliance
framework is effective so as to facilitate the monitoring
of risk management with on-going challenge and review
of the risk profile in the business
Third line of defence
• Internal audits provide independent testing and verification of
compliance with policies and procedures and monitoring of
follow-up actions where required.
We aim to confirm that the level of risk is commensurate with
the strategic and economic benefits the risk might bring; we
evaluate our ability to control the risk or mitigate its effects, should
that risk materialise; and we always assess the potential ethical
considerations arising from knowingly accepting some level of risk.
An informed and well-considered process is crucial to any
decision to accept risk. The Committee has undertaken a
thorough evaluation process to determine an appropriate risk
appetite rating for each principal risk. These are set out on in detail
on pages 30 to 33.
In summary, the Group has a very low appetite for risks that could
lead to violations of health, safety and environmental legislation,
or to breaches of legal and regulatory requirements.
In contrast, the Group has a high risk appetite in relation to
economic and political instability; with decades of experience
in successfully managing operations in volatile markets, we have
the control procedures in place to handle the challenges that
come with those risks and we appreciate that without taking risks
in new, albeit sometimes unstable, territories we would miss out
on valuable opportunities for growth.
As an organisation we are risk aware, but not risk averse.
We continually monitor and assess the risks facing the Group
and evaluate our ability to control them and mitigate their effects.
Focusing on our strategic objectives, we evaluate our risk appetite
and decisions to accept risk in a way that will ensure the on-going
financial health of the Group.
88
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Viability Statement
The Directors have assessed the viability of the Group over a
three-year period, taking into account the Group’s current financial
position, business strategy, the Board’s risk appetite and the
potential impacts of the principal risks, outlined on pages 30 to 33
of the Strategic Report, and the Risk Appetite Statement on page
88. Based on this assessment, the Directors confirm that they
have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over
the three-year period to 31st December 2021.
The Board believes that a three-year viability assessment period
is appropriate as the timeframe is covered by the Group’s rolling
financial forecasts; takes into account the nature of the Group’s
principal risks, a number of which are external and have the
potential to impact over short time periods. While the Board has
no reason to believe that the Group will not be viable over a longer
period, given the inherent uncertainty involved, the Board believes
that a three-year period presents readers of the Annual Report
with a reasonable degree of confidence while still providing a
longer-term perspective.
In making their assessment, the Directors completed a robust
assessment of the principal risks facing the Group, as set out
pages 30 to 33 of the Strategic Report, including those that could
threaten its business model, future performance, solvency or
liquidity, and undertook sensitivity and stress testing to determine
the potential impacts of the occurrence of one or more of the
principal risks on sales, profit, margin and cash.
In addition to completing an impact assessment of the principal
risks, the Directors considered the probability of occurrence of
the principal risks, the Company’s ability to control them and
the effectiveness of mitigating actions.
The Group’s resilient business model has proven strong and
defensive in the long term and has enabled the business to
prosper, even in challenging market conditions. The diversity of
our end user markets and customers, broad product range, wide
geographic spread, high replacement revenue streams and large
base of installed equipment worldwide, together with our effective
direct sales business model, enhances the viability of the Group
in the face of adverse economic conditions and/or political
uncertainty, as does our ability to self-generate business through
identifying solutions to our customers’ difficult process challenges
and our ability to adjust our cost base.
Whilst no Board can ever fully foresee all possible risks facing the
business in the future, the Directors are of the view that a robust
assessment was undertaken of the severe but plausible scenarios
that may feasibly impact upon the business over the next three
years. We have also assumed that our various finance facilities
will continue to be available. Furthermore, the Board remains
confident in the Group’s risk management process and the risk
mitigation actions taken to address identified risks.
A number of scenarios were developed from the Group’s
principal risks, and the impact on future viability of the two most
severe but plausible scenarios happening simultaneously, was
assessed. The scenarios being major economic/political instability
and a significant breach of legal and regulatory requirements.
This analysis demonstrated that even in these extreme
circumstances, the Group maintains its viability. In addition
to this impact assessment, the Directors also considered the
probability of occurrence of the principal risks, the Company’s
ability to control them and the effectiveness of mitigating actions.
No viability issues resulted.
Brexit is a focus of the Committee and an update on activity and
actions taken to mitigate the impacts of Brexit on the Group are
detailed in the Strategic Report on page 29. Further disclosure
on actions taken relating to Brexit are included in the Governance
Report on page 69. The risks arising from a “no deal” Brexit were
considered as part of the viability assessment, but the impact on
future viability was not considered as significant.
Whilst the viability of the Group has been assessed over a three-
year period, the Directors have also assessed the prospects of the
Group over the longer term. Disclosures relating to the longer term
are set out on the inside cover of the Annual Report: Engineering
sustainable growth, and in Our business model on pages 12 to 15.
Committee focus for 2019
• Continue to monitor and update preparedness plan for Brexit
• Full assessment of the impact of climate change
• Bottom-up risk review
Nicholas Anderson
Chair of Risk Management Committee
89
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Remuneration Committee
Jane Kingston
Chair of Remuneration Committee
Members
Our Remuneration Committee comprises
Jane Kingston (Chair)
Peter France1
Jamie Pike2
Trudy Schoolenberg
Clive Watson
No. of meetings attended/
total no. meetings held
6/6
5/5
2/2
6/6
6/6
Attendance
%
100
100
100
100
100
1 Appointed to Board and Board Committees on 6th March 2018
2 Resigned from Committee on 15th May 2018 on appointment as Chair of the Board
How the Committee spent its time
5%
40%
10%
10%
10%
10%
15%
Shareholder consultation
Bonus target setting
Bonus achievement
Gender pay gap
Government proposals
PSP target setting
PSP achievement
90
Committee role and responsibilities
The Committee determines the philosophy, principles and policy
of Executive remuneration having regard to the latest legislation,
corporate governance, best practices and the FCA Listing Rules.
The Committee takes account of workforce remuneration and
related policies and the alignment of incentives and rewards with
culture. The Committee’s role has expanded with the introduction
of the UK Corporate Governance Code 2018, which takes effect in
2019. In particular, the Committee will review remuneration policy
and practices that apply to the Group Chief Executive and other
Executive Directors, in addition to the Group Executive Committee.
The main role of the Committee is to determine Executive
remuneration policies, how they are applied and set targets for
the short- and long-term incentive schemes. It also monitors
compliance with the presiding Remuneration Policy.
Key Remuneration Committee activities 2018
February and March
• Annual Report on Remuneration 2017
• Annual bonus – 2017 outcome
• PSP – 2015 outcome
• Annual bonus – 2018 targets
• PSP – 2018 targets
June
• Managing Director, Steam Specialties
promotion remuneration
August
• 2019 Executive remuneration discussion
• Shareholder consultation – strategy, materials, contacts
September/October
• Shareholder consultation feedback
• 2019 Executive remuneration discussion
December
• Proxy adviser feedback
• 2019 Remuneration recommendations for Executive
Directors and the Group Executive Committee
• Executive remuneration regulatory and practices update
• Committee Terms of Reference
• Performance update
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Statement by Committee Chair
Dear shareholder,
On behalf of the Board, I am pleased to present our Remuneration Report for 2018. I confirm that the implementation of Executive
Director remuneration complied fully with our Remuneration Policy approved by shareholders at the AGM in May 2017, and the
Committee has not exercised any discretion in arriving at 2018 reward entitlements.
I would like to thank shareholders for the support they showed for the Annual Report on Remuneration 2017 which received 98.96%
votes in favour at the AGM in May 2018.
2018 Performance-based rewards
The Chair’s Statement on pages 2 to 3, shows that the Company made impressive progress in 2018 with Group revenue up 7% and
adjusted operating profit up 12%, both on an organic basis (contributing to adjusted earnings per share (EPS) growth of 13% and a
return on capital employed (ROCE) of 54.3% as determined under Annual Incentive Plan (AIP) rules)). The Company delivered a total
shareholder return (TSR) of 119.6% for the three years ending 31st December 2018 (as determined under our Performance Share
Plan (PSP)), which is in the top decile of our TSR comparator group. An increase in the total dividend for the year extends our dividend
progress to 51 years.
TSR performance growth
This graph demonstrates the growth in value of a £100 investment in the Company compared to the FTSE 350 Industrial Goods and
Services Supersector from December 2008 to December 2018. This comparison is chosen as it is the supersector within which the
Company is classified and it is a broad equity market index including companies of a similar size, complexity and sector. We have also
shown a comparison relative to the FTSE 100, following the Company’s recent entry into the Index.
i
l
g
n
d
o
h
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
a
V
l
1000
800
600
400
200
0
£865
£312
£221
Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Spirax-Sarco
FTSE 350 Industrial Goods and Services Supersector
FTSE 100
Source: DataStream
The Company continued to demonstrate strong underlying organic sales growth of 7% in the Spirax Sarco Steam Specialties business
and 9% in Watson-Marlow.
It is important to note that, over the past five years, the Executive team has led the Company and our employees in the delivery of upper
quartile performance to shareholders, as measured by organic sales growth, trading profit margins, ROCE, EPS and TSR.
Our Remuneration Policy is designed to ensure that a significant percentage of Executive Director pay is based on the achievement of
demanding performance targets and is, therefore, “at risk”. Maximum payout in the AIP and PSP is only possible as a result of significant
strong performance by the business.
Following feedback from some shareholders, we decided to introduce a cash measure into the 2018 AIP, to the maximum amount
permitted by the Policy.
The Committee has undertaken a robust and full assessment of performance during the year, taking into account both financial and
non-financial measures. Arising from this, payments to Executive Directors under the AIP range from 79.2% to 115.6% of salary and I am
pleased to confirm 100% vesting for the 2016 PSP award. The Committee considers that the remuneration paid to Executive Directors in
2018 (given as a single figure for each Director on page 95) reflects the excellent progress made by the Company during 2018 as well as
over the last three years.
91
Spirax-Sarco Engineering plc Annual Report 2018Governance Report
5. Remuneration
continued
2019 Executive remuneration review
The Executive remuneration review and the accompanying
shareholder consultation were the most important matters
addressed by the Committee in 2018. In undertaking this review
we are seeking to address a historic difficulty caused by (i) very
conservative pay practices and (ii) internal promotions, now
compounded by increased business complexity and scale. As a
result, all four of our Executive Directors were positioned below
the lower quartile for on-target pay (whether looking at (i) base, (ii)
base plus target bonus, or (iii) base, target bonus and target PSP
award), as compared to a set of 15 UK engineering companies
we use regularly for benchmarking and from which we recruit,
along with other cross-industry size-appropriate groups (e.g.
FTSE 70 to 150).
The business has continued to grow organically, increase in
complexity with the acquisitions of Gestra and Chromalox, and
recently entered the FTSE 100 index, all while continuing to deliver
strong and consistent performance.
The Board is concerned that a failure to address the situation
could present a business continuity risk at a crucial time
(integration of acquisitions, challenge of managing a more complex
business with new technology) as well as adversely affecting the
Company’s ability to attract high-calibre executives in the future.
Shareholder consultation
In arriving at our final recommendation we consulted with 17 of
our top shareholders, outlining our challenge and discussing
possible solutions. In aggregate they represented over 50% of our
total shares outstanding, and gave us helpful and constructive
advice. There was extensive support for the need to address the
situation, with almost all of our shareholders preferring a one-off
reset as opposed to a string of changes over time. Additionally,
we met with ISS, The Investment Association and Glass Lewis,
in recognition of their influence on voting outcomes and given
many of our shareholders engage their services.
The Committee reviewed and discussed all of the advice and
feedback received during the consultation. Following these
discussions, we concluded a one-off reset to remuneration within
the confines of our 2017 Remuneration Policy was right for our
shareholders, the Company, our employees, our customers as
well as fair for our Executive Directors.
The final outcome approved by the Committee, details of which
are set out on pages 107 to 109, and our commitments for
the 2020 Remuneration Policy on page 109, incorporate many
additional features based on the feedback received during
the consultation.
Although we recognise that this is a very difficult time and
environment in which to undertake such change, we nevertheless
believe it is necessary before the gap to market grows ever more
severe. We trust that we can count on your support for the final
position (summarised in the table on page 108), which is within the
scope of our current Remuneration Policy and is reasonable as it
aligns our Executives’ remuneration with the lower quartile of the
peer group, despite this Executive team leading the Company in
the delivery of upper quartile performance over the past five years.
Wider workforce environment
I am encouraged by management’s commitment to invest in
employees at all levels. The Committee already receives some
information on regional pay norms and we will continue to develop
this reporting in 2019, taking into account broader information on
workforce pay, policies, practices and diversity to contextualise
the decisions of the Committee under its broader 2019 remit.
UK Corporate Governance Code 2018
The UK Corporate Governance Code 2018 (2018 Code) will
change the scope for the Committee. Going forward, we
will determine the remuneration policy and practices for the
businesses’ Executive Committees, in addition to the Executive
Directors. In setting Executive remuneration, we will look at
workforce remuneration and the alignment of rewards with
culture. We have revised our Terms of Reference to align with the
Committee’s change of scope under the 2018 Code.
Committee focus 2019
• Implement the changes following the Executive
remuneration review
• Develop a new Remuneration Policy for 2020
• Increase the remit to cover the Group Executive Committee
I hope that this provides a useful overview of the activities and
decisions the Committee has taken during 2018.
Jane Kingston
Chair of Remuneration Committee
6th March 2019
Navigating our remuneration information
Statement by Committee Chair
A summary of our key activities and decisions in the year
in the context of our strategic performance
Remuneration at a glance
Company engagement
Annual Report on Remuneration 2018
An overview of our key remuneration elements
How we engage with shareholders on remuneration
and outcomes
Directors’ remuneration, pensions, shareholdings
and service agreements
Page 91-92
Page 93
Page 94
Page 95-109
Remuneration Policy Report 2017
The current Policy approved at the AGM in May 2017
Page 110-119
92
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Remuneration at a glance 2018
How we performed
Remuneration key performance indicator
Group operating profit (£m)
Group cash generation (£m)
Group ROCE (%)
2016-2018 EPS (%)
2016-2018 relative TSR (percentile TSR)
2018
actual
264.9
273.4
54.3
75.3
92nd
2018
threshold
237.3
263.3
48.6
28.6
50th
2018
target
249.8
277.2
51.1
N/A
N/A
2018
maximum
262.2
291.0
53.6
53.2
75th
Remuneration measure
Annual Incentive Plan
Annual Incentive Plan
Annual Incentive Plan
Performance Share Plan
Performance Share Plan
Executive Directors’ remuneration and shareholdings
The Executive team has consistently delivered upper quartile performance to shareholders and this is reflected in the high vesting of both
the annual bonus and LTIP. The Committee is pleased with the work of the Executive team and is confident that this vesting outcome is
reflective of the value delivered to the business.
Executive Director
Single total remuneration figure (£/$000)
Shareholding policy vs actual shareholding (% of salary)
N.J. Anderson
Group Chief Executive
K.J. Boyd1
Chief Financial Officer
2018
2017
704
684
628
660
990
£2,323
2018
200
321
827
£2,173
2017
200
216
2018
458
335
643
£1,438
2018
63
125
2017
446
344
£790
2017
33
125
N.H. Daws2
Executive Director, EMEA/
Managing Director, Steam Specialties
2018
434
262
2017
408
312
582
490
J.L. Whalen3
Executive Director, WMFTG
2018
$696
$445
$722
2017
$676
$461
$581
£1,280
2018
£1,213
2017
$1,863
$1,717
2018
2017
125
125
125
242
125
152
554
447
Fixed
Annual Bonus
LTIP
Shareholding policy
Actual shareholding
1 Joined the Company in May 2016.
2 Executive Director, EMEA (1st January to 31st August 2018) and Managing Director, Steam Specialties (1st September to 31st December 2018).
3 Paid in US dollars. Original dollar value with the exception of Benefits – refer to Benefits table on page 96.
Overview of the Executive Directors’ Remuneration Policy
Base salary
Benefits
Pension
Annual bonus award
Performance Share Plan (PSP)
To enable the Group to
attract, retain and motivate
high-performing Executive
Directors of the calibre
required to meet the Group’s
strategic objectives
To provide market
competitive benefits, and
to enable the Executive
Directors to undertake their
roles through ensuring their
well-being and security
To offer market competitive
levels of pension, and to
attract and retain individuals
with the personal attributes,
skills and experience required
to deliver Group strategy
To incentivise and
reward performance
against selected KPIs
which are directly linked
to business strategy, while
ensuring a significant
proportion of Executive
Director remuneration is
directly linked to business
performance
To incentivise and reward
Executive Directors for
delivering against long-term
Group performance, to align
Executive Directors’ interests
to those of shareholders, and
to retain key Executive talent
Changes at a glance 2018
Executive Directors
Nicholas Anderson
Kevin Boyd
Neil Daws1
Jay Whalen
Base salaries
£543,000
£353,300
£320,400
$484,100
1 To 31st August 2018.
%
2.7
2.7
2.7
3.0
Chair/Non-Executive Directors
Jamie Pike1
Peter France
Jane Kingston
Trudy Schoolenberg
Clive Watson1
1 From 15th May 2018.
Fees
£210,000
£50,300
£60,300
£50,300
£70,300
%
71.3
N/A
2.7
2.7
14.3
93
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Shareholder engagement
Engaging with shareholders
Shareholder feedback
Over the course of four months, we consulted with 17 of our top
shareholders representing 50% of our total shares outstanding.
Additionally, we met with ISS, The Investment Association and
Glass Lewis, given the importance of the views of these proxy
advisers and the engagement of their services by many of our
shareholders. These meetings were primarily face‑to‑face,
all with our Committee Chair and the Group Human
Resources Director.
Consideration of feedback and outcomes
The Remuneration Committee reviewed and discussed all
of the advice and feedback received during the consultation.
Following extensive discussions at both the October and
December meetings, the final outcome approved by the
Committee was modified to take account of the constructive
feedback received. This outcome was communicated to those
who participated and is detailed in this Report on pages 107 to
109 and summarised below.
The Board and the Committee would like to thank all
shareholders and proxy advisers for their feedback and advice.
Many of their suggestions are reflected in our final outcome.
Jim Devine
Group HR Director
Jane Kingston
Chair of Remuneration
Committee
Engaging with Shareholders
In our Annual Report 2017, the Chair mentioned that we were
not proposing any changes to the Remuneration Policy in
2018 or to the way in which we implement that Policy. She also
mentioned that during 2018 we would review our remuneration
arrangements to ensure they continue to drive incremental
performance while appropriately reflecting the changes in the
size, scope, operations and complexity of the Group. As part of
this review, we consulted extensively with our shareholders to
inform our thinking and final decisions.
Summary
We believe our approach of a “one‑off reset” is right for our shareholders, the Company, our employees, our customers as well as
fair for our Executive Directors. We have considered all of the aspects and the stakeholders in making our decision.
Change
Salary
For 2019, a salary increase of 7.7% for the Group Chief
Executive and the Chief Financial Officer, 5% for the Managing
Director, Steam Specialties and 3% for the President, WMFTG.
The country norms for 2019 were 2.9% (UK) and 3% (USA).
Bonus
Maximum bonus opportunity for the Group Chief Executive
only will increase from 125% to 150% which we believe is
appropriate for a company of our size and better aligned with
the custom peer group.
LTIP/PSP and shareholding requirements
The Board believes that the one‑off remuneration reset should
primarily be addressed through variable pay linked to long‑term
performance. Therefore, the PSP values will increase from
150% to 200% for the Group Chief Executive and from 125%
to 175% for the other Executive Directors.
Our commitment
Whilst some Executive Directors’ salary increases are above the
workforce norm, they are strictly within our normal salary policy.
This is accompanied by a commitment not to increase Executive
Directors’ salaries above the workforce norm for the balance of
this Policy and the term of the 2020 Policy.
The Group Chief Executive will defer any bonus, earned in
the financial year ending 2019, above 125% into shares for a
two‑year holding period.
In our 2020 Policy a more conventional bonus deferral will be
implemented, not linked solely to shareholding.
For awards made in 2019 onwards, threshold vesting will reduce
from 25% to 18%.
Shareholding requirements will increase from 200% to 300%
of base salary for the Group Chief Executive and from 125% to
200% for the other Executive Directors.
94
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 5. Remuneration
Annual Report on Remuneration 2018
Strategic alignment
The Committee ensures that the remuneration paid to the Executive Directors, and the Group Executive Committee, is closely aligned
with and reinforces the Group strategy. At their meeting in June 2018 the Board reviewed the strategic plan.
This alignment is achieved by using the strategic plan to set financial and individual strategic objectives for the Executive Directors, and
the Group Executives, and, from this, bonus targets are agreed and approved by the Committee. This process forms part of the annual
Board calendar, with the bonus targets approved in the early part of the financial year. The Group’s strategic themes are set out on
page 20.
1.0 Annual Report on Remuneration 2018
This section sets out the Directors’ remuneration for the financial year ended 31st December 2018.
1.1 Single total figure of remuneration (audited)
Salary/Fees
Benefits1
Annual bonus
PSP2
Pension
ESOP3
Total
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
Executive Directors
N.J. Anderson
£528,000 £543,000
£24,063
£24,828 £660,000 £627,708 £826,648 £990,103 £132,000 £135,750
£1,909
£2,089 £2,172,620
£2,323,478
K.J. Boyd
N.H. Daws
£344,000 £353,300
£15,774
£16,184 £344,000 £335,282
N/A £642,778 £86,000
£88,325
N/A
£2,026
£789,774
£1,437,895
£312,000 £330,933
£18,450
£20,366 £312,000 £261,941 £490,556 £581,558 £78,000
£82,733
£1,909
£2,089 £1,212,915
£1,279,620
J.L. Whalen4
$470,000 $484,100
$50,462
$50,112 $460,600 $445,372 $580,842 $721,614 $155,230 $161,390
N/A
N/A $1,717,134
$1,862,588
Chair and
Non-Executive Directors
W.H. Whiteley5
£175,000
£69,256
P. France6
N/A
£41,401
J.S. Kingston
£59,000
£60,300
J. Pike7
£57,000 £154,534
G.E. Schoolenberg £49,000
£50,300
C.G. Watson7
£59,000
£66,595
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A £175,000
£69,256
N/A
N/A
£41,401
N/A
£59,000
£60,300
N/A
£57,000
£154,534
N/A
£49,000
£50,300
N/A
£59,000
£66,595
1
2
The 2018 Benefits are set out in the table on page 96.
The 2018 column relates to vesting of the 2016 PSP award valued at 6825.0p or $90.9636 for J.L. Whalen. Value converted at the 2018 average dollar/sterling exchange rate of 1.3328.
The 2017 column relates to vesting of the 2015 PSP award valued at 5755.0p or $74.62 for J.L. Whalen. Value converted at the 2017 average dollar/sterling exchange rate of 1.2966.
3 Matching shares awarded during the year based on the mid-market price of the shares on the date of award: 6330.0p for 2018 and 5785.0p for 2017.
4
Paid in US dollars. All elements of J.L. Whalen’s remuneration are shown in US dollars because he lives and works mostly in the USA. Furthermore, converting to sterling is misleading due to
the movement in exchange rates. Original dollar value with the exception of Benefits – refer to Benefits table on page 96.
5 2018 remuneration calculated to date of retirement on 15th May 2018.
6 2018 remuneration calculated from date of appointment on 6th March 2018.
7 J. Pike was appointed Chair and C.G. Watson was appointed Senior Independent Director on 15th May 2018.
Salary/fees
The following table sets out the 2018 base salary with effect from 1st January 2018 for each of the Executive Directors, compared
to 2017.
Executive Directors
N.J. Anderson
K.J. Boyd
N.H. Daws (1st January to 31st August 2018 – Divisional Director, EMEA)
N.H. Daws1 (1st September to 31st December 2018 – Managing Director, Steam Specialties)
J.L. Whalen
2017
£528,000
£344,000
£312,000
–
$470,000
2018
£543,000
£353,300
£320,400
£352,000
$484,100
Increase
2.7%
2.7%
2.7%
10.0%
3.0%
1
This increase complies with the Remuneration Policy 2017 which states that the Committee may award a maximum of country of residence inflation plus 10% where there is a significant
increase in the size and responsibilities of the role.
95
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
In 2018, the UK Executive Directors’ salaries increased by 2.7% and Jay Whalen’s salary increased by 3.0%. Increases for the broader
employee population were on average 2.7% in the UK and 3.0% in the USA, with above average increases available for top performers
in accordance with internal guidelines. The increases for Executive Directors, like those for the broader UK employee population, took
account of both individual performance and market data. Neil Daws’ salary was reviewed again on his promotion, increasing by a further
10.0% due to the significant increase in the size and responsibilities of his new role as Managing Director, Steam Specialties – revenue
responsibility increased by over 100% (£300 million to £700 million) and profit responsibility increased by 300%.
The following table sets out the Policy fees for the Chair and Non-Executive Directors for 2018. Actual fees received, based on role
and date of appointment, are set out in the Single total figure of remuneration table on page 95. Pay for the Chair and Non-Executive
Directors does not vary with performance. Fees for Non-Executive Directors are reviewed annually. The Chair and Non-Executive
Directors did not receive any taxable benefits.
Chair and
Non-Executive Directors
W.H. Whiteley1
J. Pike2
J. Pike1
C.G. Watson3
C.G. Watson2,3
P. France
J.S. Kingston3
G.E. Schoolenberg
Changes during 2018
Retired as Chair
Appointed Chair
Date
15.05.18
15.05.18
Appointed Senior Independent Director
Appointed
15.05.18
06.03.18
Basic fees Additional fees
£185,000
N/A
£10,000
£50,300
£210,000
N/A
£10,000
£50,300
£20,000
£50,300
£50,300
N/A
£10,000
£50,300
N/A
£50,300
2018 Total fees
£185,000
£60,300
£210,000
£60,300
£70,300
£50,300
£60,300
£50,300
1 W.H. Whiteley retired from the Board after the AGM on 15th May 2018. J. Pike was appointed Chair on 15th May 2018.
2
In respect of their duties as Senior Independent Director, J. Pike received £3,699 pro-rated to 15th May 2018 and C.G. Watson received £6,301 pro-rated from 15th May 2018.
3 J.S. Kingston received £10,000 in respect of her role as Chair of the Remuneration Committee and C.G. Watson received £10,000 in respect of his role as Chair of the Audit Committee.
The Chair and Non-Executive Director fees were reviewed at the end of 2017 looking at market data for companies of a similar size,
provided by the Committee’s independent consultant. The basic fee for the Non-Executive Directors was increased by 2.7%, consistent
with the average rate of increase in the UK. As a result of the market review, the Chair’s fee was increased from £185,000 to £210,000
and the Senior Independent Director’s fee was increased from £8,000 to £10,000. This positions fee levels at the market median and
better reflects the expectations and time commitments of the respective roles.
Benefits (excluding pension)
Benefits
Company car and associated running costs or cash
alternative allowance
Private health insurance
Telecommunications and computer equipment
Common benefit – long service payment 3
Mobility-related benefit – tax advice2, 4
Life assurance4
Long-term disability insurance4
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen1, 2
£24,434
£394
–
–
£8,328
£779
£2,226
£15,790
£394
–
–
–
£507
£1,449
£18,274
£394
–
£1,698
–
£475
£1,357
$25,758
$22,282
$2,072
–
$8,160
$695
$1,985
1
Paid in US dollars. All elements of J.L. Whalen’s remuneration are shown in US dollars because he lives and works mostly in the USA. Furthermore, converting to sterling is misleading due to
the movement in exchange rates. Original dollar value.
2 J.L. Whalen’s value converted at the 2018 average dollar/sterling exchange rate of 1.3328.
3 N.H. Daws received a payment (along with eligible UK employees) based on his length of service with the Company. This is a common benefit permitted by the Remuneration Policy 2017.
4 Not taxable therefore not included in the single total figure of remuneration.
Pension
Full details of the pension benefits are set out at section 1.2 on page 103.
Annual bonus
Executive Directors participate in the annual bonus plan, which rewards them for financial performance both at Group level and,
where relevant, the business segment for which they are responsible. Targets are reviewed annually to ensure continuing alignment
with strategy and are agreed at the start of the year. Resulting awards are determined following the end of the financial year by the
Committee, based on performance against these targets.
For the Group Chief Executive, achievement of target performance results in a bonus of 75% of salary, increasing to 125% of salary
for maximum performance. For the other Executive Directors, achievement of target performance results in a bonus of 60% of salary,
increasing to 100% of salary for maximum performance.
96
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Bonus payments are subject to a contractual right for the Company to clawback or apply malus for up to three years following payment.
Circumstances that may result in a clawback or malus include financial misstatement, erroneous calculations determining bonus
payments or gross misconduct.
In accordance with Policy, Executive Directors must use any bonus earned over 60% of base salary or 75% of base salary for the Group
Chief Executive, net of tax, to buy shares until their shareholding guideline has been met. This is, in effect, a bonus deferral mechanism.
The majority of each Executive Director’s bonus opportunity (90%) is based on the achievement of stretching financial performance
targets in areas that directly align with our areas of strategic focus. The remaining 10% is based on the achievement of individual strategic
objectives, tailored to each Director’s areas of responsibility. Performance standards are agreed and communicated at the start of the
year. Financial measures have an established threshold, target and maximum with a sliding scale between each. Individual strategic
measures are subject to three possible achievement levels: fully achieved, partially achieved and not achieved.
The table below sets out the performance measures that each of the Executive Directors’ bonus awards were subject to.
Executive Directors
N.J. Anderson
K.J. Boyd
N.H. Daws1
J.L. Whalen
2018 Measures (% of bonus)
Group operating profit (70%)
Group cash generation (10%)
Group ROCE (10%)
Personal strategic objectives (10%)
Segmental operating profit (50%)
Group operating profit (20%)
Group cash generation (10%)
Group ROCE (10%)
Personal strategic objectives (10%)
1 EMEA operating profit for the period 1st January to 31st August 2018. Steam Specialties business operating profit for the period 1st September to 31st December 2018.
The performance measures are adjusted to reflect certain items including the amortisation of acquisition-related intangible assets and
exceptional reorganisational costs and to exclude any profit contribution and other impacts such as major acquisitions during the period.
2018 was a good year for the Group, which delivered strong organic sales growth, grew earnings per share and increased dividend to
shareholders. The annual bonus payments to Executive Directors ranged between 79.2% and 115.6% of salary. The bonus is payable in
cash where the relevant Executive Director has met the share ownership requirement, otherwise any part of the bonus above target, net
of tax, must be used to buy shares until the shareholding requirement has been met.
The table below summarises the achieved performance in 2018 in respect of each of the measures used in the determination of annual
bonus, together with an indication of actual performance relative to target.
Group operating profit
Group cash generation
Group ROCE
Steam Specialties operating profit2
EMEA operating profit2,3
Watson-Marlow operating profit
Actual
performance1
£264.9m
£273.4m
54.3%
£170.1m
£55.2m
£87.5m
Threshold
£237.3m
£263.3m
48.6%
£147.6m
£52.9m
£79.4m
Target
£249.8m
£277.2m
51.1%
£155.4m
£55.7m
£83.6m
Maximum
£262.2m
£291.0m
53.6%
£163.1m
£58.5m
£87.8m
1
To comply with the annual bonus plan rules these metrics use, as a base, the actual adjusted operating profit of £264,875 for segmental operating profit performance, and exclude centrally
allocated overheads from both the target measure and actual performance.
2 Neil Daws’ segmental operating profit related to EMEA operating profit for the period 1st January to 31st August 2018 and Steam Specialties operating profit for the period 1st September to
31st December 2018.
3 Excludes performance of the UK and French manufacturing units and Gestra, for which N.H. Daws, as Divisional Director, EMEA, was not responsible.
Personal strategic objective assessment
The Executive Directors were each obliged to complete an appraisal self-assessment on their performance against each personal
strategic objective. The Group Chief Executive reviewed this self-assessment with the Executive Director and made his own assessment.
In the case of the Group Chief Executive, the Chair of the Board conducted the assessment. A report was submitted to the Committee
and, at its February 2019 meeting, the Committee reviewed the recommendations and approved a final decision.
The personal strategic objectives for 2018 are detailed on pages 98 to 100.
97
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
Personal strategic
objective 2018
Description
Achievement
Nicholas Anderson
Health, Safety and
Sustainability (HS&S)
Accelerate and embed a step change in the HS&S
performance of the Group, significantly improving the
HS&S awareness and culture. Fast-track the Group’s
Sustainability programme.
Strategy
implementation
Further and materially progress the Customer First
strategy, including the Spirax Sarco Academy and the
Product Lifecycle Management project in the Steam
Specialties business.
Gestra
integration
Ensure successful implementation of the
acquisition integration plans across the Steam
Specialties business.
Chromalox
integration
Ensure successful implementation of the acquisition
integration plans, with particular emphasis on the sales
growth plans.
The actual number of accidents across the Group in 2018 was greater
than in 2017, including “+three day lost time accidents”. However,
there was a steady reduction during 2018 as a result of significant
improvements in training. Gestra and Chromalox were integrated
into the Sustainability programme; Group companies’ involvement in
community projects increased; a Diversity and Inclusion Policy was
rolled out, including a female mentoring programme; and the Group
Carbon Disclosure Project climate change score improved from C to B.
All elements of our business strategy are progressing well, with all
strategy metrics ahead of or on Plan in 2018. This is evidenced by
above-average organic sales growth rates in all priority industry
sectors, channels to market and product families. During 2018
Watson-Marlow completed the purchase of a small pre-revenue
company and the Steam Specialties business completed the divestiture
of HygroMatik GmbH.
Gestra achieved its overall integration objectives in 2018, ending the
year with a strong positive momentum. To date, 10 of the 22 acquisition
integration projects have been successfully completed, with the
remaining progressing as planned. Noteworthy achievements include:
structural re-organisation into sales and supply operating companies
with strengthened management teams; new visual identity launched
at ACHEMA in June 2018; the development of a next-generation boiler
house controls product; and five-year geographic expansion roadmap,
including setting-up an operating company in China to start trading in
April 2019. In 2018, Gestra exceeded its acquisition plan orders, sales
and profit.
Chromalox achieved most of its integration objectives in 2018 and
carries a strong sales growth momentum into 2019. Noteworthy
integration achievements include: re-organisation into sales and
supply operating companies in line with the Group’s operating
model; development of new product ranges for sale outside the USA;
setting-up a new operating company in Brazil, at least three new sales
offices and, in EMEA, two quick response centres; and a cross-selling
strategy jointly defined with the Steam Specialties business.
Chromalox orders and sales exceeded the acquisition plan delivering
full-year orders and sales growth over 2017.
Corporate governance Implement a new enhanced organisational structure by
Q3 2018, separating the roles of Group Chief Executive
and Managing Director, Steam Specialties, embedding
the Group and the businesses’ Executive Committees
and strengthening our talent management and
succession programmes.
During 2018 the roles of Group Chief Executive and Managing Director,
Steam Specialties were separated, with the promotion of Neil Daws
to Managing Director, Steam Specialties and the appointment of
Sean Clay as Divisional Director, EMEA, as announced in July 2018.
New Executive governance procedures were defined. New levels of
authority were established.
98
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Personal strategic
objective 2018
Description
Achievement
Kevin Boyd
Health, Safety
and Sustainability
Corporate M&A
Investor relations
Accelerate and embed a step change in the Health
& Safety performance across the Group’s Finance
function, strengthening HS&S awareness and
culture. Support the implementation of the Group’s
Sustainability programme.
Fully supported the drive for increased focus on HS&S across the
Group including positioning the wider finance leadership team to
identify investment opportunities and improve the safety standards
across Group operations. Hosted investor visits on the Group
sustainability agenda to increase the Group profile with ESG investors.
Participated in the Group diversity action plan, including the female
mentoring programme.
Ensure control over the integration of Gestra and
Chromalox, with special emphasis on the full adoption
and correct application of the Group’s policies by the
acquired companies.
Implemented the full range of internal controls and financial
planning and reporting disciplines across the recent acquisitions.
Actively involved in the successful divestiture of HygroMatik GmbH
resulting in a more focused Steam Specialties business in EMEA and
generating a good return for shareholders.
Develop and improve shareholder relations, keeping
shareholders and the market appropriately informed.
Explore alternatives to further diversify the shareholders’
geographic spread.
Conducted a record number of investor meetings and visits. Met with
potential investors across a range of countries, resulting in increased
shareholdings and a number of new shareholders. Investor relationships
were judged to be very effective and analyst understanding of
Company strategy and performance reflected in an acceptable band of
consensus performance expectations.
Information Technology
and Systems
Materially strengthen and improve the Group’s
IS strategy, with emphasis on improvements to
global cybersecurity and the development of an
investment roadmap.
Led a major investment to improve cybersecurity across the
Group, including our recent acquisitions. Implemented a revised
Group IS structure which is now actively involved in developing our
digital strategy.
Materially strengthen and improve the Group’s
Treasury function, with special emphasis on deploying
a stronger understanding and application of cash
flow management practices across the Group’s
operating companies.
Implemented and strengthened the centralised Group Treasury
function with major improvements made on reporting and forecasting.
Appointed a new Group Treasurer. A range of improvements
implemented in managing cash generation, including a revised
hedging strategy.
Accelerate the implementation of the new Group
Tax Strategy, improving the Group’s corporate tax
position in a sustainable manner.
New organisational structure implemented leading to a reduction in
reliance on external advice. New strategy in place which will improve
performance across the Group. New appointment made to the
Group Tax function.
Treasury
Taxation
Neil Daws
Health, Safety
and Sustainability
Accelerate and embed a step change in the
HS&S performance of the EMEA Division,
strengthening HS&S awareness and culture.
Support the implementation of the Group’s
Sustainability programme.
Customer First strategy Successful strategic implementation with a special
focus on the Oil & Gas strategy, embedding divisional
business development processes and structures,
embedding customer value propositions (CVPs) into
sales processes, advancing the implementation of
the Spirax Sarco Academy and the relevant changes
as a result of the implementation of the employee
engagement action plans.
Improve “on time to request” (OTTR) to a specified
target by December 2018. Improve inventory quality
management to a specified target by September 2018,
sustaining this performance for the balance of 2018.
Reduce the EMEA total surplus stock to a specified
maximum by December 2018.
Customer service
Improved reporting and increased focus throughout the year led to a
14% reduction in lost time accidents in 2018. Additional initiatives that
were implemented included: a safety day on return to work in 2019
focusing on raising awareness across the Group; quarterly themes to
better embed culture change; implementation of Behavioural Based
Safety training; improved capturing of lead indicators; and a more
proactive approach to reviewing risks in sales and service.
The Steam Specialties business Oil & Gas strategy has helped to
facilitate double-digit sales growth across the Steam Specialties
business with outstanding results in China, Korea and the USA.
CVP implementation stepped up in 2018 with EMEA taking a strong
lead in process improvement and training. Conducted regular follow-up
on employee engagement action plans across all operating companies
within the EMEA region.
Overall good progress reaching two out of three targets and improving
the quality and consistency of our measures. OTTR improved
consistently to achieve target. Sales at risk ended the year better than
target. Total surplus stock ended the year better than Plan.
99
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
Personal strategic
objective 2018
Description
Achievement
Neil Daws continued
Gestra integration
Ensure full support for the successful implementation
of the integration plans, with special emphasis on
successful market intelligence co-ordination.
Provided support during the implementation of Gestra’s sectorised
market expansion, which has been well-received by internal and external
stakeholders. Segmental Oil & Gas sales team working alongside
Gestra promoting both brands in the market, leading on whichever best
meets customer needs. Structure implemented at operating company
level to extend market intelligence committee reviews into longer term
strategy sharing, aimed at accelerating sectorisation. Successfully led
the establishment of a new Gestra operating company in China.
Good progress evolving the strategy to define and deliver
business synergies by combining our Steam Specialties and
Chromalox approach. Led a project to size the value of the USA
contractor market.
A new customer relationship management system was successfully
piloted in Egypt. Some minor delays are being experienced with
the project.
In conjunction with the President of Chromalox,
by December 2018, develop an approved project
charter for a heat tracing synergy strategy, leveraging
the Group’s combined capabilities from a projects
and maintenance, repair and operations perspective.
Ensure approval and subsequent implementation
of this new step change project, successfully
completing all necessary activities to ensure a first roll
out in Q1 2019.
Oil & Gas synergies
Enterprise resource
planning system
Jay Whalen
Health, Safety
and Sustainability
Accelerate and embed a step change in the
Health & Safety performance across WMFTG,
strengthening HS&S awareness and culture.
Support the implementation of the Group’s
Sustainability programme.
Significant expansion of HS&S awareness and engagement across
all operating companies; WMFTG’s intranet sustainability site was
further developed to enable full reporting and better performance
management; additional investment in six regional HS&S manager
roles; WMFTG’s HS&S strategy framework and structure developed;
and safety leadership training delivered.
Aflex Hose
Single site consolidation plans submitted for approval
by March 2018 and to be executed as planned by
December 2018. Convert sales to WMFTG direct sales
teams in certain stated countries.
Local authority approval gained for the new greenfield Aflex Hose site.
Construction commenced in January 2019. Sales operations converted
from distribution to direct in France, the United Arab Emirates (UAE),
Korea, Singapore, South Africa and New England, USA.
New
product introduction
Ensure successful and timely launch of specific
innovative, new products.
Acquisitions
Complete acquisition in Q1 2018, oversee the
development of, and approve the new product range.
Territorial expansion
Ensure successful start-up of a new sales company in
the UAE in Q1 2018. Convert representative to direct
sales force in certain stated countries.
The personal strategic objective achievement levels are set out below.
New Flexicon PF7 pump and filler and the Flexicon FPC60 filling
line launched. High capacity Qdos research phase completed with
new product designs in progress and a project mandate approved
in December.
Successfully completed the purchase of a small pre-revenue company
providing the Group with future technologies that will improve current
customer offerings.
New sales company in the UAE established in Q1; completion of
conversion from existing third party sales organisation to direct sales
force in California, USA; and expansion of a direct sales organisation in
Ireland for WMFTG and the BioPure product range.
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen
Performance targets
Fully achieved
3
6
5
3
Partly achieved
2
0
1
2
Not achieved
0
0
0
0
As a result of this performance in 2018, the following bonuses were achieved:
Executive Directors
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen1
Bonus achieved
£627,708
£335,282
£261,941
$445,372
% of bonus
9.5%
10.0%
9.3%
8.4%
Bonus
(% of salary)
115.6%
94.9%
79.2%
92.0%
1
Paid in US dollars. All elements of J.L. Whalen’s remuneration are shown in US dollars because he lives and works mostly in the USA. Furthermore, converting to sterling is misleading due to
the movement in exchange rates. Original dollar value.
100
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018
The following graph provides a six-year summary of bonus outcomes for the Group Chief Executive against the performance of adjusted
Group operating profit and ROCE. This illustrates the strong historical alignment between pay and performance.
2018
2017
2016
2015
2014
2013
54.3%
52.9%
ROCE
264.9
Adjusted Group operating profit (£m)
235.5
Actual bonus as a %
of CEO maximum opportunity
47.9%
180.6
44.1%
44.3%
44.4%
152.4
153.0
151.6
0
25
50
75
100
Actual bonus as a percentage of maximum opportunity
Spirax Sarco Performance Share Plan (PSP)
The Committee makes an annual conditional award of shares to each Executive Director under the PSP. Prior to award, the Committee
reviews the performance targets for each measure to ensure they remain sufficiently stretching. For EPS this includes a review of
analysts’ forecasts.
PSP awards are subject to malus (reduction in the amount of deferred and as yet unpaid compensation) and clawback (reimbursement
of compensation that has already been paid) for up to three years following the award, and can be applied during a holding period.
Circumstances that may result in a clawback or malus adjustment include financial misstatement, erroneous calculations determining
bonus payments or gross misconduct.
For awards made in 2018, as well as those made in 2016 and 2017, vesting is based on two performance conditions measured over a
three-year period, which have been chosen as they are aligned with our strategy:
Performance measure
EPS growth
Relative TSR
Weight
60%
40%
Threshold requirement
Global IP +2% pa1
Median TSR
Maximum requirement
Global IP +8% pa
Upper quartile TSR
1 The Global IP data source is the CHR Metals Global IP Index, providing data that incorporates over 90% of global industrial output.
Performance in line with threshold results in 25% of the award vesting; vesting between threshold and maximum is calculated on a
straight-line basis.
The EPS element of the PSP is based on growth in excess of global industrial production growth rates, often referred to in our industry
as “Global IP”, rather than UK RPI. Global IP is a measure that the Board and management have used for some time as there is well
documented evidence that it is the best predictor of the global and industrial markets within which the Group operates. For these
reasons, Global IP was used in the formulation of the long-term strategic plan and targets for EPS growth approved by the Board. In
setting the initial performance range in 2016, which was intended to be long-term in nature, the Committee reviewed the historical and
projected data (2007 to 2020), including the Group’s performance, market benchmarks and analysts’ consensus. The Committee
remains confident that this range remains sufficiently challenging across various market environments.
The TSR element of the PSP assesses TSR performance relative to a comparator group of companies that comprises the constituents
of the FTSE 350 Industrial Goods and Services Super Sector at the start of the performance period. This is the same sector
classification as Spirax Sarco, and was selected as it objectively provides a sufficiently robust number of companies to compare
performance against, that also operate in the industrial goods and services arena. While the exact number of companies varies from
year-to-year, the comparator group generally has between 50 and 60 companies.
101
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
PSP awards vesting over 2016-2018
In 2016 the Executive Directors received share awards under the PSP, with vesting subject to EPS growth and relative TSR performance.
The following diagrams set out details of the performance measures and targets that applied, along with the actual performance during
the period 1st January 2016 to 31st December 2018.
Relative TSR performance (40% of PSP award)
Over the three-year period to 31st December 2018, the Company delivered an increase in TSR of 119.6%. This ranked in the upper
decile TSR of the comparator group above the level required for full vesting. The comparator group, comprising 56 companies, for the
purpose of measuring relative TSR performance was the FTSE 350 Industrial Goods and Services Supersector constituents at the start
of the performance period.
100%
75%
50%
25%
0%
g
n
i
t
s
e
v
R
S
T
o
t
j
t
c
e
b
u
s
s
e
r
a
h
S
0%
25%
50%
75%
100%
125%
TSR performance*
Threshold
Maximum
Actual
Target
Median TSR
Upper quartile TSR or above
TSR Vesting
18.7%
25%
55.9% 100%
119.6% 100%
* Vesting is calculated based on Spirax Sarco’s TSR relative to the median and upper quartile TSR of the peer group.
EPS growth (60% of PSP award)
Over the three-year period to 31st December 2018, the Company delivered adjusted EPS growth of 75.3%. This equated to growth
of approximately 20.6% per annum over the three years. EPS is derived from the audited Annual Report for the relevant financial year
but adjusted to exclude the items shown separately on the face of the Consolidated Income Statement and augmented following the
acquisitions of Gestra and Chromalox. EPS is based on growth in excess of global industrial production growth rates (see page 101).
100%
75%
50%
25%
0%
g
n
i
t
s
e
v
S
P
E
o
t
j
t
c
e
b
u
s
s
e
r
a
h
S
10%
20%
30%
40%
50%
60%
70%
80%
Point-to-point EPS growth
Threshold
Maximum
Actual
Performance (over 3 years)
28.6%
53.2%
75.3%
Vesting
25.0%
100.0%
100.0%
Actual EPS
75.3
Target – IP+8%
20.0
33.2
Target – IP+2%
12.6
16.0
Growth on 2015 EPS Base
Target Adjustments for Acquisitions
As a result of the very strong Company performance, as measured by relative TSR and EPS growth, 100% of the shares awarded under
the 2016 PSP vested. The Committee considers that this result reflects holistic performance and a positive shareholder experience.
Executive Directors
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen
Award
14,507
9,418
8,521
7,933
Vested
14,507
9,418
8,521
7,933
Lapsed
0
0
0
0
Value on vesting1
£990,103
£642,778
£581,558
£721,614
1 Based on share price at date of vesting, 4th March 2019 (6825.0p or $90.9636 for J.L. Whalen). Value converted at the 2018 average dollar/sterling exchange rate of 1.3328.
102
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018
1.2 Pension (audited)
In lieu of pension benefits, Nicholas Anderson and Kevin Boyd receive 25% of their basic salary in cash which, in the year ended
31st December 2018, amounted to £135,750 and £88,325 respectively.
Neil Daws became a deferred member of an HMRC registered, contributory defined benefit scheme, the Spirax-Sarco Executives’
Retirement Benefits Scheme, with effect from 31st December 2012, and is, therefore, no longer accruing any pension benefits within the
defined benefit scheme. His defined benefit rights in the Scheme at 31st December 2018 were £4,622,000 and his normal retirement
date is 1st January 2025 (age 62½). In lieu of pension benefits, he received 25% of his basic salary in cash which, in the year ended
31st December 2018, amounted to £82,733.
Jay Whalen is a member of the Spirax Sarco Inc. defined benefit plan. The benefit paid under normal retirement from the US defined
benefit plan is a single life annuity equal to the number of years of service multiplied by the sum of 1.0% of pensionable salary up to social
security covered compensation, plus 1.45% of pensionable salary in excess of social security covered compensation. Final average
salary is the average of the highest pensionable pay for any five consecutive years prior to retirement up to a ceiling. Jay Whalen’s final
average salary is higher than the salary ceiling as at 31st December 2018. The plan was frozen effective 31st December 2018 for all
future service and accruals.
Jay Whalen’s defined benefit plan arrangements are as follows:
Executive Director
J.L. Whalen
Age attained at
31.12.18
62
Accrued pension
at 31.12.17
$90,849
Accrued pension
at 31.12.18
$95,830
Change in
accrued pension
during the year
$4,980
Change in
accrued pension
during the year1
$2,912
1 Net of inflation, limited to 0% ie at a rate of 2.28% per annum.
2 The value of pension has been calculated based on a factor of 20 in line with that required under the disclosure regulations.
3 This is a non-contributory plan so J.L. Whalen did not contribute to the defined benefit plan during 2018.
The following additional information is provided:
Change in the
value2 of accrued
pension over the
year net of inflation1
and Director’s own
contributions3
$58,240
• Upon death in service: a spouse’s pension equal to one-half of the member’s pension, based on pensionable service to the date
of death, is payable. After payment of the pension commences the accrued pension shown has no attaching spouse’s pension.
However, at retirement there is an option to reduce the member’s pension to provide for a spouse’s pension after death.
• Early retirement rights: after leaving the service of the Company, Jay Whalen has the right to draw his accrued pension at any time
after his 65th birthday with no reduction. In addition, he has the right to commence his pension earlier if he meets the age and service
requirements, with the pension being reduced. The annual reductions for early retirement are 3% for each year from age 65 to age 60.
• Pension increases: the pension has no guaranteed increases. Spirax Sarco Inc. has the discretion to provide increases.
• Other discretionary benefits: additionally, Jay Whalen benefited from Company contributions to a personal plan (choice of a personal
US defined contribution pension plan or cash in lieu of pension benefits) and to a 401k plan. The total amount contributed by the
Group was $103,150.
1.3 Scheme interests awarded during the financial year (audited)
Spirax Sarco Performance Share Plan (PSP)
All awards were granted under the PSP as a contingent right to receive shares, with the face value calculated as a percentage (150%
for the Group Chief Executive and 125% for the Executive Directors) of base salary, using the share price at date of award (5560.0p).
Awards were made on 4th April 2018.
Executive Director
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen1
PSP award
14,649 shares
7,942 shares
7,203 shares
7,203 shares
Face value
£814,484
£441,575
£400,487
$533,769
Last day of the
performance
period
31.12.20
31.12.20
31.12.20
31.12.20
Vesting at
threshold
performance
25%
25%
25%
25%
1 Value converted at the 2018 average dollar/sterling exchange rate of 1.3328.
For awards made in 2018, vesting is based on two performance conditions measured over a three-year period, which have been chosen
as they are aligned with our strategy. In addition to the three-year vesting period, a two-year holding period applies. These performance
conditions are explained further on page 101.
103
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
Spirax-Sarco Engineering plc Employee Share Ownership Plan (ESOP)
Executive Directors (excluding Jay Whalen who is a US citizen) are eligible to participate in an HMRC approved Share Incentive Plan
known as the ESOP. Nicholas Anderson, Kevin Boyd and Neil Daws are participants.
During the year ended 31st December 2018: Nicholas Anderson and Neil Daws each purchased 33 partnership shares, were each
awarded 33 matching shares and received nine and 14 dividend shares respectively; Kevin Boyd purchased 32 partnership shares, was
awarded 32 matching shares, however he did not qualify for dividend shares. Further information is set out in the table on page 106.
The maximum annual investment in shares is £1,800 (the HMRC limit) for Executive Directors (and eligible UK employees). This can be
matched by the Company on a one-for-one basis for each share that is purchased. Dividends paid can be reinvested as shares.
Shares acquired under the ESOP are not subject to performance measures as the aim of the ESOP is to encourage increased
shareholding in the Company by all eligible UK employees. In 2018, 67.7% of eligible UK employees purchased partnership shares and
were awarded matching shares under the ESOP.
1.4 Payments to past Directors (audited)
There were no payments to former Directors during the year ended 31st December 2018.
1.5 Payments for loss of office (audited)
There were no payments made to Directors for loss of office during the year ended 31st December 2018.
1.6 Statement of Directors’ shareholding and share interests (audited)
Progress towards share ownership guideline
The following chart sets out the Executive Directors’ progress towards the Company’s share ownership guidelines.
In 2016 the guidelines were 125% of base salary for the Group Chief Executive and 100% for the other Executive Directors, over a
maximum period of five years from date of appointment to the Board. Following the approval of the Remuneration Policy at the AGM in
May 2017, the share ownership guidelines were increased to 200% of base salary for the Group Chief Executive and 125% for the other
Executive Directors. This increase applies to the period from 2017. Executive Directors are expected to achieve the increased maximums
within five years.
Progress against the guidelines is illustrated below. The value of the shareholding is taken at 31st December 2018 as a percentage of
2018 base salary. The share price on 31st December 2018 was 6240.0p.
CEO May 2022
target
125%
200%
N.J. Anderson1
320.8%
K.J. Boyd2
62.9%
100%
N.H. Daws
J.L. Whalen
242.3%
554.3%
0
50
100
Group FD May 2021
Group FD May 2021
and other EDs target
and other EDs target
150
200
250
300
350
400
450
500
550
600
Share ownership (% of salary)
CEO January 2021 target /
Group FD and other EDs May 2022 target
1 Target increased from 100% to 125%, with effect from January 2016, and to 200%, with effect from May 2017.
2 Appointed to the Board 11th May 2016. Target increased from 100% to 125% with effect from May 2017*.
* Increased target also applies to other Executive Directors (EDs).
In accordance with Policy, Executive Directors must use the part of bonus over target, net of tax, to buy shares until their shareholding
guideline has been met. This is, in effect, a bonus deferral mechanism. To demonstrate our commitment to this principle, prior to the
introduction of our 2020 Policy our Group Chief Executive has volunteered that any bonus earned above 125% will be subject to this
mechanism for a two-year holding period.
The share ownership guidelines have been met by all Executive Directors except Kevin Boyd. Kevin Boyd has made significant
progress since he joined in May 2016 and will use that part of his bonus over 60% of base salary to buy more shares to reach the
applicable targets.
As noted in the Committee Chair’s Statement on pages 91 to 92, the shareholding guidelines have again been increased, with effect
from January 2019, to 300% for the Group Chief Executive, and 200% for the other Executive Directors.
104
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Outstanding share interests
The following table summarises the total interests of the Directors in shares of the Company as at 31st December 2018. These cover
beneficial and conditional interests. No Director had any dealing in the shares of the Company between 31st December 2018 and
6th March 2019.
W.H. Whiteley5
J. Pike
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen
P. France
J.S. Kingston
G.E. Schoolenberg
C.G. Watson
Beneficial1
11,034
7,396
27,287
3,500
28,381
14,103
980
2,580
2,754
2,446
PSP awards2
N/A
N/A
44,224
25,541
23,144
22,556
N/A
N/A
N/A
N/A
PSP nil-cost
options3
N/A
N/A
0
0
16,735
0
N/A
N/A
N/A
N/A
ESOP shares4
N/A
N/A
626
64
1,018
N/A
N/A
N/A
N/A
N/A
Total 31.12.18
(or date of
retirement
if earlier5)
11,034
7,396
72,137
29,105
69,278
36,659
980
2,580
2,754
2,446
Total
06.03.19
–
7,396
72,137
29,105
69,278
36,659
980
2,580
2,754
2,446
1 Shares include any owned by connected persons.
2 Subject to the performance measures as set out on pages 101 to 102.
3 Explained in table below.
4 Not subject to performance measures.
5 W.H. Whiteley retired from the Board on 15th May 2018.
Spirax Sarco Engineering plc Share Option Schemes (Option Schemes)
No Directors had interests under the Option Schemes.
Spirax Sarco Performance Share Plan (PSP)
The interests of Executive Directors in the PSP are set out below.
Date of award
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen
11.06.151
14,364
0
8,524
7,784
05/11.04.162
14,507
9,418
8,521
7,933
26.05.173
15,068
8,181
7,420
7,420
Balance
01.01.18
43,939
17,599
24,465
23,137
Vested
13.03.181
14,364
0
8,524
7,784
Lapsed
13.03.181
0
0
0
0
Awarded
04.04.184
14,649
7,942
7,203
7,203
Balance
31.12.18
44,224
25,541
23,144
22,556
1
2
3
4
The average mid-market price of the shares on 8th June, 9th June and 10th June 2015 was 3446.0p. 100% of the PSP award vested on 13th March 2018 as the performance measures
applicable were fully met. During the performance period 1st January 2015 to 31st December 2017, the TSR and the EPS performance of the Company resulted in 100% vesting of this
element. The mid-market price of the shares on 29th February 2016 was 4568.0p. The 2015 awards vested in the form of nil cost options (detailed below) for N.J. Anderson and whole shares
for N.H. Daws and J.L. Whalen.
The mid-market price of the shares on 5th April 2016 (N.J. Anderson, N.H. Daws and J.L. Whalen) and 11th April 2016 (K.J. Boyd) was 3550.0p and 3557.0p respectively. The period over
which performance measures are measured is 1st January 2016 to 31st December 2018. Details of the performance measures attached to these PSP awards are set out on pages 101
to 102.
The average mid-market price of the shares on 19th May to 25th May 2017 inclusive was 5256.0p. The period over which performance measures are measured is 1st January 2017 to
31st December 2019. There are two performance measures governing vesting of this PSP award: 40% of the PSP award is subject to a TSR performance measure which requires the
Company to rank at median relative to a comparator group of the constituents of the FTSE 350 Industrial Goods and Services Supersector for 25% of this portion of the PSP award to vest,
increasing to full vesting for ranking at the upper quartile; 60% of the PSP award is subject to an EPS performance measure which requires growth of Global IP +2% per annum for 25% of this
portion of the PSP award to vest, increasing to full vesting for growth of Global IP +8% per annum.
The mid-market price of the shares on 4th April 2018 was 5560.0p. This was applied in determining the number of shares subject to the PSP awards granted on 4th April 2018. The period
over which performance measures are measured is 1st January 2018 to 31st December 2020. Details of the performance measures attached to these PSP awards are set out on page 101.
A two-year post-vesting holding period applies to these awards.
As noted in previous years, the 2010 and 2011 awards that vested in 2013 and 2014 respectively took the form of nil-cost options.
The following table summarises the outstanding options.
N.J. Anderson
N.H. Daws
Subtotal for N.H. Daws
J.L. Whalen
Balance at
01.01.18
–
12,740
3,995
16,735
–
Vested
13.03.18
14,364
Exercised
24.04.18
14,364
–
–
–
–
Balance at
31.12.18
0
12,740
3,995
16,735
–
105
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
Spirax-Sarco Engineering plc Employee Share Ownership Plan (ESOP)
The interests of eligible Executive Directors are set out below.
N.J. Anderson
K.J. Boyd
N.H. Daws
Balance
01.01.18
551
0
938
Partnership shares
purchased1
33
32
33
Matching shares
awarded1
33
32
33
Dividend
shares2
9
0
14
Balance
31.12.18
626
64
1,018
Period of qualifying
conditions3
3 years
3 years
3 years
1
2
3
Partnership shares were purchased, at a price of 5496.6p, and matching shares were awarded on 10th October 2018. The mid-market price of the shares on that date was 6330.0p.
16 dividend shares were received on 25th May 2018, on which date the mid-market price of the shares was 6210.0p. Seven dividend shares were received on 9th November 2018, on which
date the mid-market price of the shares was 6525.0p.
Partnership shares are not subject to qualifying conditions. No matching shares or dividend shares were released from the ESOP or forfeited during the year ended 31st December 2018.
1.7 Directors’ service agreements and letters of appointment
Chair and Non-Executive Directors
The Chair and Non-Executive Directors have letters of appointment with the Company for a period of three years, subject to annual
re-election at the AGM. Appointments may be terminated by the Company or individual with one month’s notice. The appointment
letters for the Chair and Non-Executive Directors provide that no compensation is payable on termination, other than accrued fees
and expenses.
Directors’ terms of service
The table below sets out the dates on which each Director was initially appointed, their latest service agreement or letter of appointment
and their notice period. All Directors are subject to election or re-election (as the case may be) at the AGM, with the exception of
Clive Watson who retires at the end of the meeting.
Executive Director
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen
Chair and Non-Executive Directors
J. Pike
P. France
J.S. Kingston
G.E. Schoolenberg
C.G. Watson
Original
appointment date
15.03.12
11.05.16
01.06.03
15.03.12
Current agreement/
appointment/
re-appointment letter1
13.12.13
26.10.15
25.09.12
17.04.12
01.05.14
06.03.18
01.09.16
01.08.12
17.07.09
15.05.18
05.03.18
16.08.16
12.07.18
12.07.18
Expiry
date
16.01.26
02.09.29
01.07.27
28.05.21
14.05.21
05.03.21
31.08.19
31.07.21
15.05.19
Notice
period
12 months
12 months
12 months
12 months
1 month
1 month
1 month
1 month
1 month
1 All letters of appointment and service agreements are available for inspection at the Group’s headquarters in Cheltenham.
1.8 External Directorships
Kevin Boyd served as a Non-Executive Director at EMIS Group plc during 2018, for which he received and retained total fees of £40,000.
1.9 TSR performance graph
This graph demonstrates the growth in value of a £100 investment in the Company compared to the FTSE 350 Industrial Goods and
Services Supersector from December 2008 to December 2018. This comparison is chosen as it is the supersector within which the
Company is classified and it is a broad equity market index including companies of a similar size, complexity and sector.
l
i
g
n
d
o
h
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
a
V
l
1000
800
600
400
200
0
£865
£312
Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Spirax-Sarco
FTSE 350 Industrial Goods and Services Supersector
Source: DataStream
106
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018
The graph in the Committee Chair’s Statement on page 91 also includes a comparison to the FTSE 100, given the Company’s recent
inclusion to the Index, and shows a similar level of out-performance.
The table below shows the historic levels of the Group Chief Executive’s pay (single figure of total remuneration) and annual variable and
PSP awards as a percentage of maximum.
2018
2017
2016
2015
20141
2013
2012
2011
2010
2009
Single figure
of annual
remuneration
£2,323,478
£2,172,620
£1,610,891
£1,191,137
£1,000,115
£1,593,150
£1,402,668
£1,516,798
£1,720,765
£1,092,229
Annual variable pay
as a percentage of
maximum
92.48%
100.00%
99.20%
61.39%
55.76%
95.24%
31.69%
80.08%
100.00%
37.00%
Value of vested
PSP awards as a
percentage of
maximum
100.00%
100.00%
40.00%
80.33%
33.06%
29.93%
74.60%
100.00%
100.00%
100.00%
1 N.J. Anderson appointed Group Chief Executive in January 2014.
1.10 Percentage change in remuneration of the Group Chief Executive
The following table provides a summary of the 2018 increase in base salary, benefits and bonus for the Group Chief Executive compared
to the average increase for the general UK employee population across the Group in the same period.
Salary
Benefits
Bonus
Group Chief Executive
General employee population
Group Chief Executive
General employee population
Group Chief Executive
General employee population
2018 change
2.7%
2.7%
3.2%
2.7%
-4.9%
2.4%
2017 change
2.5%
2.5%
1.8%
2.5%
3.4%
2.4%
1.11 Relative importance of spend on pay
The table below demonstrates the relative importance of total pay spend relative to total employee numbers, profit before tax (selected
as the best measure of efficiency) and dividends payable in respect of the year.
Total pay spend
Group average headcount
Profit before tax
Dividends payable
2018
£404m
7,403
£289m
£74m
2017
£351m
6,316
£193m
£64m
Change
15.1%
17.2%
49.7%
15.6%
1.12 Changes for 2019
Rationale for changes to Executive Director pay in 2019
In 2019, the Committee has undertaken to adjust Executive Director pay to reflect concerns about historically low levels of pay and the
increasing size and complexity of the Group, generated by both our organic growth over recent years and the acquisition of Gestra and
Chromalox. Over the last five years, the Group has grown rapidly from mid FTSE 250 to FTSE 100, outperforming the FTSE 100 and our
engineering peers, and has increased EPS by 80%. During that same period, our pay levels have fallen behind market due largely to our
historically conservative pay practices and a number of internal promotions.
In order to retain our strong incumbent team, the Committee believes it is important to make a meaningful one-time change, within our
shareholder approved Remuneration Policy. This change helps to ensure that total pay reflects the skills and responsibilities required to fill
the Executive Director roles, and that business continuity is maintained as we work to integrate and drive performance in our acquisitions
and manage a more complex business with new technology.
Shareholder consultation in relation to 2019 implementation
In the second half of 2018, concluding in January 2019, we undertook an extensive consultation process in which we met with 17 of
our top shareholders, representing over 50% of our total shares outstanding. We are grateful for the helpful and constructive advice
we received.
107
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Annual Report on Remuneration 2018 continued
Overview of Executive Director Policy implementation in 2019
The changes approved by the Committee result in situating on target remuneration (base, target bonus, target PSP vesting, and the
combination of each of these elements) approaching median for the Group Chief Executive and at, or below, the lower quartile for the
other Executive Directors. For the purpose of assessing pay levels relative to market, the Committee primarily considered practices in
15 peer companies (Bodycote, Cobham, Halma, IMI, Meggitt, Morgan Advanced Materials, QinetiQ Group, Renishaw, Rotork, RPC
Group, Senior, Smiths Group, Spectris, Ultra Electronics Holdings, and Weir Group). Against this group of UK-listed industrial engineering
peers, Spirax Sarco’s revenue is positioned at median, and above the upper quartile with respect to market capitalisation and one- and
three-year TSR. Accordingly, the Committee determined that a position of approaching median for the Group Chief Executive and lower
quartile for the other Executive Directors was reasonable and appropriate in the context of the market median positioning that we target
for our broader workforce.
The changes are detailed below and are all within our current Policy.
Base salary
Annual bonus (AIP)
LTIP (PSP)
Shareholding
requirement
Policy
maximum
Country
norm Proposed
Policy
max
2018
2019
Policy
max
2018
2019 2018
20191
Inflation +5% or,
in exceptional
circumstances,
inflation +10%
2.9%
2.9%
2.9%
3.0%
7.7% 150% 125% 150% 200% 150% 200% 200% 300%
7.7% 150% 100% 100% 200% 125% 175% 125% 200%
5.0% 150% 100% 100% 200% 125% 175% 125% 200%
3.0% 150% 100% 100% 200% 125% 175% 125% 200%
Executive Director
Group Chief Executive
Chief Financial Officer
Managing Director,
Steam Specialties
President, WMFTG
1 As a matter of practice, this change is with immediate effect and will be formally adopted in our 2020 Policy.
The following points relate to 2019 remuneration:
2019 Annual Bonus
The same performance measures and weights apply in 2019 as was the case in 2018, as they continue to align with our strategic
focus to deliver self-generated growth that outperforms our markets, by improving on what we already do well. As in previous years,
the specific targets associated with each measure that were approved in February 2019 are not disclosed in this Report as they are
considered by the Board to be commercially sensitive. The targets will be retrospectively reported in the Annual Report next year.
Executive Directors
N.J. Anderson
K.J. Boyd
N.H. Daws
J.L. Whalen
2019 Measures (% of bonus)
Group operating profit (70%)
Group cash generation (10%)
Group ROCE (10%)
Personal strategic objectives (10%)
Segmental operating profit (50%)
Group operating profit (20%)
Group cash generation (10%)
Group ROCE (10%)
Personal strategic objectives (10%)
2019 Performance Share Plan Awards
The same performance measures and weights apply in 2019 as was the case in 2018. In light of the increased award levels, the
Committee has reduced the value that can be earned for threshold performance from 25% of the award to 18%. This has the effect of
delivering the same absolute value for threshold performance. In February 2019, the Committee approved the three-year EPS targets,
which remain unchanged at Global IP +2% per annum to Global IP +8% per annum. Having reviewed our own forecasts, analysts’
expectations and performance expectations of our peers, we remain satisfied that to achieve growth of Global IP +2% per annum to
Global IP +8% per annum over the coming three years remains appropriately challenging and exceeds market consensus.
Performance measure
EPS growth
Relative TSR
Weight
60%
40%
Threshold requirement
Global IP +2% pa
Median TSR
Maximum requirement
Global IP +8% pa
Upper quartile TSR
Vesting at threshold
(% of award)
18%
Remuneration Policy in 2020
The Committee is mindful of shareholder feedback around consecutive years of quantum increases and the link between Executive
Director pay and long-term Company performance. Therefore, the Committee has committed to make a number of changes to the
Remuneration Policy in 2020 to further align our Policy with emerging best practices and the expectations of our shareholders.
108
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 We commit to:
• no salary increases for our Executive Directors above the UK or USA (as appropriate) workforce norm during the term of the 2020
Policy (save for a transformational and significant change in the scale of the Group);
• enhance our bonus deferral policy to reflect more conventional market practices as part of the 2020 Policy. Prior to the introduction of
our 2020 Policy, our Group Chief Executive has volunteered, with immediate effect, to defer into shares, for a two-year holding period,
any bonus earned above his current maximum opportunity of 125%;
• formally adopt the increase in shareholding requirements from 200% to 300% of salary for the Group Chief Executive, and from 125%
to 200% of salary for the other Executive Directors. As is the case under our Policy, the Executive Directors will have five years, to May
2025, in which to achieve the increased ownership guideline;
• adopt a post-employment requirement in relation to the level of Company shareholdings that must be maintained by Executive
Directors for a defined period of time; and
• set any new Executive Director pension in line with wider UK workforce opportunity.
Implementation of Non-Executive Director fee policy in 2019
Effective from 1st January 2019, the Non-Executive Director basic fee was increased by 2.9%, which is in line with the average UK
employee salary increase of 2.9%. The Committee Chair and Senior Independent Director’s fees were unchanged.
1.13 Consideration by the Directors of matters relating to Directors’ remuneration
Operation of the Remuneration Committee in 2018
Membership and attendance
Each Committee member is an Independent Non-Executive Director and thus brings independence to all aspects of Board
remuneration and the application of professional advice to matters relating to remuneration.
During 2018, the Committee was chaired by Jane Kingston and the members comprised: Trudy Schoolenberg, Clive Watson,
Jamie Pike (up to his appointment as Chair of the Board on 15th May 2018) and Peter France (with effect from his appointment to the
Board on 6th March 2018).
In 2018, the Committee met six times and all members attended each meeting relative to their Committee membership, with
Peter France attending five meetings (from his appointment on 6th March 2018). On his appointment to Chair of the Board, Jamie Pike
ceased being a formal member of the Committee, but continued to attend meetings at the invitation of the Committee Chair. The Chair
of the Board was independent on appointment and did not formally vote on matters approved by the Committee.
Advisers to the Committee
During 2018, the Committee sought advice and information from Bill Whiteley, the Chair up to 15th May 2018, and Jamie Pike, the Chair
with effect from 15th May 2018; Nicholas Anderson, the Group Chief Executive; and Jim Devine, the Group Human Resources Director.
None of the invitees participated in any discussions regarding their own remuneration or fees. The General Counsel and Company
Secretary acts as Secretary to the Committee.
In addition, the Committee received external advice from Willis Towers Watson, who was appointed by the Committee and provided
material advice to the Committee on various matters such as Executive remuneration levels and structure, performance updates in
respect of the PSP, the Remuneration Report and attendance at Committee meetings. Willis Towers Watson’s fees in respect of these
services totalled £89,100 in 2018. In addition, Willis Towers Watson work with management on other matters relating to remuneration
with the approval of the Committee. A separate advisory team within Willis Towers Watson provides support and advice to management
on pensions and other employee benefit-related matters. The Committee is of the opinion that the advice received is objective and
independent, given that Willis Towers Watson are a signatory to the Remuneration Consultants Group Code of Conduct, the manner in
which advice is delivered and the separate teams that advise management more generally.
In 2018, Baker & McKenzie LLP provided legal advice to the Company (which was available to the Committee). Legal fees relate to
advice provided to the Company and not the Committee, and are charged on a time-cost basis.
1.14 Statement of voting at general meeting
At the AGM in 2017, shareholders approved the Remuneration Policy 2017 (mandatory) and at the AGM in 2018, shareholders approved
the Annual Report on Remuneration 2017 (advisory). The table below shows the results which required a simple majority (i.e. 50%) of the
votes cast to be in favour for the resolutions to be passed.
Remuneration Policy 2017 (2017 AGM)
Annual Report on Remuneration 2017 (2018 AGM)
Votes for
57,778,590
59,612,816
%
95.06
98.96
Votes against
3,005,646
627,896
% Votes withheld
278,674
379,802
4.9
0.3
This Annual Report on Remuneration 2018 has been approved by the Board of Directors of Spirax-Sarco Engineering plc and signed on
its behalf by:
Jane Kingston
Chair of Remuneration Committee
6th March 2019
109
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Remuneration Policy Report 2017
2.0 Remuneration Policy Report 2017
Please note that the Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved
by shareholders at the 2017 AGM. Therefore, as the content remains the same the page numbers, examples and illustrations are
necessarily historical.
2.1 Remuneration Policy
The table below summarises the Remuneration Policy which will take effect, if approved, from the AGM to be held on 9th May 2017.
Purpose and link to
strategy
Element
Operation
Fixed elements of Executive Director remuneration
To enable the Group
Base salary
to attract, retain and
motivate high performing
Executive Directors
of the calibre required
to meet the Group’s
strategic objectives.
the role;
Reviewed annually by the
Committee, taking into account:
• scale, scope and complexity of
Reviews take into
account Company
and individual
performance.
• skills and experience of
the individual;
• wider workforce comparisons;
Performance
measures
Maximum potential value
Pension
To offer market
competitive levels of
pension and benefit.
To attract and retain
individuals with the
personal attributes, skills
and experience required
to deliver Group strategy.
and
• market benchmarking, within
a defined external comparator
group. The Committee uses
this information with caution,
given the limited number of
direct comparators and to
avoid remuneration inflation
as a result of benchmarking
exercises with no
corresponding improvement
in performance.
The Committee considers
the impact of any base
salary increase on the total
remuneration package.
For eligible Executive Directors
who joined the UK Company
before 2001 the Company
provides a UK defined benefits
pension scheme (DB scheme) or
cash alternative allowance.
For UK nationals who joined
the UK Company after 2001
the Company provides a
defined contribution pension
arrangement (DC plan) and/or
contributions to a private pension
and/or a cash allowance.
Executive Directors who have
transferred internally from
overseas may continue to
participate in home country
pension arrangements and/or
receive a cash allowance.
N/A
Ordinarily, salary increases
will not exceed the average
increase awarded to other
Group employees. The
maximum value of any annual
increase in Executive Director
salaries will be capped at
country of residence inflation
plus 5%.
The Committee may award
increases above this level,
subject to a maximum of
country of residence inflation
plus 10%, in circumstances
such as (i) where a new
recruit or promoted Executive
Director’s salary has been set
lower than the market level for
such a role, or (ii) where there
is a significant increase in the
size and responsibilities of the
Executive Director’s role.
For DB scheme as per
actuarial value.
For all other arrangements the
total contribution to all pension
arrangements will comprise no
more than 25% of base salary.
No element other than base
salary is pensionable.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
110
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Performance
measures
N/A
Maximum potential value
The aggregate maximum cash
value of providing all common
benefits will not exceed 20% of
base salary.
N/A
Based on individual
circumstances and subject to
written agreement.
Maximum values will not
exceed the normal market
practice of companies of a
similar size and nature at the
time of relocation.
Purpose and link to
strategy
Element
Operation
Fixed elements of Executive Director remuneration
To provide market
Common
competitive benefits.
benefits
The Company provides common
benefits including:
To enable the Executive
Directors to undertake
their roles through
ensuring their wellbeing
and security.
• Company car and associated
running costs or cash
alternative allowance;
• private health insurance;
telecommunications and
computer equipment;
• life assurance; and
• long term disability insurance.
Variable elements of Executive Director remuneration
Mobility-related
benefits
To ensure that Executive
Directors who have
relocated nationally
or internationally are
compensated for
costs incurred.
The Company will pay all
reasonable expenses for the
Executive Director to relocate on
appointment. Costs will primarily
be dependent on geographical
location and family size.
The Company will pay all
reasonable expenses for
repatriation of the Executive
Director and his/her family to
the original home country at the
end of their assignment and/
or employment.
Executive Directors are
personally responsible for
all taxes and social charges
incurred in the home and host
locations as a result of their
appointment. To ensure that
Executive Directors who relocate
internationally are able to fulfil
their tax obligations in the home
and host countries the Company
will pay for reasonable tax advice
and filing support in relation
to work related income for
international Executive Directors.
Executive Directors are
reimbursed under a Tax Treaty
Adjustment for any double tax
they might be liable for as a result
of being subject to home country
and host country taxation
typically for days worked in the
home location.
Executive Directors are not
entitled to tax equalisation.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
111
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Remuneration Policy Report 2017 continued
Purpose and link to
strategy
Element
Variable elements of Executive Director remuneration
Annual bonus
Operation
Performance
measures
Maximum potential value
150% of salary.
Subject to the
Committee’s
judgement,
performance
measures and
their respective
targets are set at a
Group or divisional
level depending
on the Executive
Director’s role.
Any measure can
be incorporated at
the Committee’s
discretion provided
it is clearly aligned to
the Group’s strategic
objectives, subject to
a maximum of 10%
of bonus opportunity.
The weighting of
each component
will be chosen
specifically to reflect
the Executive
Director’s role.
To incentivise and reward
performance against
selected KPIs which
are directly linked to
business strategy.
To recognise performance
through variable
remuneration and enable
the Company to flexibly
control its cost base
and react to events and
market circumstances.
To ensure a significant
proportion of Executive
Director remuneration
is directly linked to
business performance.
Measures, targets and their
relative weightings are reviewed
regularly by the Committee to
ensure continuing alignment with
strategic objectives and will be
detailed in the relevant Annual
Report on Remuneration.
Bonus is based largely or
entirely on the achievement
of challenging financial
performance measures, which
have been selected to ensure
the Company is focused on its
strategic objectives.
Bonus is delivered in cash.
Executive Directors must use
that part of the bonus over
target (net of tax) to buy shares
until the shareholding guidelines
have been met. Purchase to
be made within 12 months of
bonus receipt.
Bonus is subject to clawback
or malus for up to three
years following payment.
Circumstances include financial
misstatement, erroneous
calculations determining bonus
payments or gross misconduct.
The Committee can adjust some
performance targets to reflect
certain non-operating items such
as the amortisation of acquisition
related intangible assets and
exceptional reorganisational
costs, and to reflect the inclusion
of Associate companies. These
adjustments are mechanical
rather than discretionary.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
112
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Purpose and link to
strategy
Element
Variable elements of Executive Director remuneration
Performance
Share Plan (PSP)
Operation
To incentivise and reward
Executive Directors for
delivery against long term
Group performance.
To align Executive
Directors’ interests to
those of shareholders.
To drive sustainable
Company performance.
To retain key
executive talent.
Employee Share
Ownership Plan
(ESOP)
To offer all eligible UK-
based employees the
opportunity to build a
shareholding in a tax-
efficient way.
To align Executive
Director interests to
those of shareholders.
Performance
measures
Maximum potential value
Vesting is currently
based on two
performance
measures, which
have been chosen
as they are clearly
aligned with our
strategic objectives:
• TSR; and
• EPS growth.
To ensure continued
alignment with
the Company’s
strategic priorities,
the Committee may,
at its discretion, vary
the measures and
their weightings from
time-to-time including
the consideration
of organic
growth measures.
The Committee
reserves the right to
adjust for the effects
of divestments or
major acquisitions
from the EPS results,
to ensure those
results are in line with
the primarily organic
growth principles
that support the
EPS targets.
N/A
200% of salary.
Maximum annual investment
subject to HMRC limits or such
lower sum as determined by
the Board.
Potential 1:1 matching share
award from the Company
and dividend shares (can
be reinvested).
If the ESOP (or an approved
sub plan) is offered outside the
UK, Executive Directors will be
subject to the same limitations
as all other participants.
The Committee makes an annual
conditional award of shares
to each Executive Director.
Annual participation is subject to
Committee approval.
Measures, targets and their
relative weightings are reviewed
regularly by the Committee to
ensure continuing alignment with
strategic objectives and will be
detailed in the relevant Annual
Report on Remuneration.
Performance is measured over a
three-year period, starting at the
beginning of the financial year in
which awards are granted.
An additional two-year post-
vesting holding period will apply.
Awards can vest in the form of
shares, a nil-cost option or cash.
Share awards made from 2012
are subject to clawback or malus
for up to three years following
award. Circumstances include
financial misstatement, erroneous
calculations determining bonus
payments or gross misconduct.
Dividends are not payable on
PSP awards prior to vesting.
Eligible UK Executive Directors
are entitled to participate in an
HMRC approved Share Incentive
Plan known as the ESOP.
Whilst not currently operated,
if in the future employee share
plans are offered outside the
UK, eligible Executive Directors
will be entitled to participate
on the same basis as all other
eligible employees.
Awards granted under the ESOP
are not subject to clawback
or malus.
The ESOP operates over a five-
year period.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
113
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Remuneration Policy Report 2017 continued
Performance
measures
Maximum potential value
N/A
N/A
Purpose and link to
strategy
Element
Variable elements of Executive Director remuneration
Share ownership
guidelines
To provide alignment with
shareholder interests.
Operation
Executive Directors are
required to accumulate, over a
maximum period of five years,
a shareholding in the Company
worth 200% for the Group Chief
Executive, and 125% for the
other Executive Directors, and to
maintain this level of shareholding
whilst the Executive Director
remains on the Board. The five-
year accumulation period is
reset if a higher maximum
share ownership requirement is
introduced but only in respect of
such increased amount.
The aggregate value of fees
paid to the Chairman and Non-
Executive Directors will not
exceed the amount set out in
the Articles of Association.
Chairman and Non-Executive Directors
To attract and retain high
Fees
calibre individuals, with
appropriate experience
or industry related skills,
by offering market
competitive fee levels.
The Chairman is paid a single fee
for all responsibilities.
N/A
The Non-Executive Directors
are paid a basic fee. The
Chairmen of the main Board
Committees and the Senior
Independent Director are paid
an additional fee to reflect their
extra responsibilities.
Fees for the Chairman and
the Non-Executive Directors
are reviewed annually by the
Board, with reference to any
change in the time commitment
required, UK market levels and
the average base salary increase
across the wider workforce.
The Chairman and the Non-
Executive Directors do not
participate in any annual
bonus or incentive plans,
pension schemes, healthcare
arrangements, the Company’s
PSP or ESOP.
The Company repays the
reasonable expenses that the
Chairman and the Non-Executive
Directors incur in carrying out
their duties as Directors.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
114
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 2.2 Notes to the Policy table
Changes to the Remuneration Policy
The proposed changes to the Remuneration Policy are as follows:
• AIP award: increase potential maximum award from 125% to 150% of salary;
• PSP award: increase potential maximum award from 100%-150% of salary to 200% of salary;
• PSP holding period: introduce a two-year post-vesting holding period (currently there is no holding period);
• share ownership requirements: increase share ownership requirements from at least 125% of salary for the Group Chief Executive and
at least 100% of salary for the other Executive Directors to 200% of salary for the Group Chief Executive and 125% of salary for the
other Executive Directors;
• remove the Committee’s discretion to grant one-off awards for recruitment or retention in exceptional circumstances; and
• reserve the Committee’s right to adjust for the effects of divestments or major acquisitions from the EPS results, to ensure those
results are in line with the primarily organic growth principles that support the EPS targets.
Additional details and an explanation of the changes can be found in the Statement by the Chairman of the Committee on pages 85
and 86.
Outstanding incentive awards
Details of outstanding incentive awards granted to Executive Directors prior to the Policy coming into force, including awards granted in
2016, and details of the performance targets are set out on pages 89 to 92 of the Annual Report on Remuneration 2016.
All incentive awards granted prior to this Policy coming into force will continue on their existing terms including the exercise of discretion
to amend such awards.
Remuneration policy for other employees
The Company’s approach to annual salary reviews is consistent across the Group, with consideration given to the scope of the role, level
of experience, responsibility, individual performance and market pay levels. The most senior managers in the business (approximately
80 people globally) participate in bonus arrangements with similar targets, measures and relative weightings to the Executive Directors.
Target and maximum potential values are lower and determined by the grade of the manager’s role. Performance targets are based on
an appropriate combination of Group, divisional and local operating company financial measures. Contractual terms and benefits for the
wider workforce are subject to local employment legislation and best practice.
Measure selection and the target setting process
Measures are selected taking into account the key strategic priorities of the Company, shareholder expectations and factors that sit
within an individual’s span of control.
Targets are set with reference to internal and external forecasts to ensure that they are realistic, yet sufficiently stretching. An appropriate
mix of long- and short-term targets will be used, informed by the nature of the measure.
2.3 External directorships
Directors are permitted to hold external directorships in order to broaden their experience, to the benefit of the Company.
Such appointments are subject to approval by the Board and the Director may retain any fees paid in respect of such directorships.
The Board ensures compliance by Directors with Code provision B.3.
2.4 Approach to recruitment and promotion remuneration
When appointing external hires, promoting executives, or an Executive Director internally, the Committee will continue to act in the best
interests of shareholders when determining remuneration, in line with the stated policy. The main elements of the Remuneration Policy for
Executive Director appointments are:
• Base salary will be set on appointment taking into account the factors set out in the Policy table, but also the individual’s experience.
Depending on an individual’s prior experience, the Committee may set salary below market norms, with the intention that it is realigned
over time, typically two to three years, subject to performance in the role. In this situation, the Committee is permitted to exceed the
“normal” rate of annual salary increase set out in the Policy table.
• On-going annual incentive pay opportunity will not exceed 350% of salary, in line with the maximums stated in the Policy table (up to
150% of salary for annual bonus and an award of up to 200% of salary under the PSP). In the year of appointment an off-cycle award
under the PSP may be made by the Committee to ensure an immediate alignment of individual interests.
• In addition to the standard elements of remuneration, on the appointment of an external candidate, the Committee reserves the right
to buy-out incentive awards that the individual has foregone by accepting the appointment, if appropriate. The terms of such awards
would be informed by the amounts being forfeited and the associated terms (for example the extent to which the outstanding awards
were subject to performance, the vehicles and the associated time horizons). Awards would be made either through the existing share
plans or in accordance with the relevant provisions contained within the Listing Rules.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
115
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Remuneration Policy Report 2017 continued
• When an internal appointment to the Board is made, any pre-existing obligations may be honoured by the Committee and payment
will be permitted under this Remuneration Policy.
• For internal promotions, salary will be capped at that of the incumbent Group Chief Executive.
Details of the remuneration for any new Chairman or Executive Director appointed to the Board will be disclosed on the Group’s website,
www.spiraxsarcoengineering.com.
2.5 Service agreements and termination policy
The Company’s policy on service agreements and termination arrangements for Executive Directors is set out below.
Service agreements are designed to reflect the interests of the Company, as well as the individual concerned. Executive Directors’
service agreements are kept at the Company’s headquarters in Cheltenham.
In accordance with the Code and guidelines issued by institutional investors, Executive Directors have service agreements that are
terminable by either the Company or the Executive Director on 12 months’ notice. In the event of termination or resignation, and subject
to business reasons, the Company would not necessarily hold the Executive Director to his or her full notice period. All Directors are
subject to election (if newly appointed in the year) or re-election at the AGM.
Service agreements set out restrictions on the ability of the Executive Director to participate in businesses competing with those of the
Group or to entice or solicit away from the Group any senior employees or to solicit/deal with clients of the Group or interfere with supply,
in the 12 months following the cessation of employment.
Salary, pension and benefits are included in the agreements and are treated as described in the policy table on pages 100 to 103.
There is no contractual entitlement to payment of an annual bonus or granting of an award under the PSP, until individual participation,
level of award, measures and targets have been set for a particular year.
The Chairman and Non-Executive Directors do not have service agreements but serve the Company under letters of appointment, for
an initial period of three years, subject to annual re-election at the AGM. Appointments may be terminated by the Company or individual
with one month’s notice.
Group Chief Executive and new appointments from 1st January 2013
The details of the service agreements of the Group Chief Executive and for new appointments to the Board are outlined below and
comply with best practice. In the event of a material change in role, function or responsibilities, Executive Directors’ agreements will be
reviewed and will be expected to be updated to meet the requirements outlined below.
Notice period
Termination
12 months by the Executive Director and 12 months by the Company
No payment if Executive Director commits a repudiatory breach of the service agreement or for gross misconduct
or in certain circumstances.
No additional termination payment if notice worked.
If notice only part worked/part on garden leave, payment in respect of unexpired period of notice, otherwise 12
months’ base salary only.
Company discretion to pay in lieu of notice in lump sum or monthly except within 12 months of a change of control,
when a lump sum will be paid.
If paid monthly, payment will be reduced by the value of any salary, fees and benefits, excluding long-term
incentives, earned in new paid employment in that period.
No automatic entitlement to payments under the annual bonus or PSP. See page 106.
Garden leave clause.
Robust post-termination restrictions on confidentiality, non-compete, non-solicitation and non-interference with
customers or suppliers.
Service agreements may be terminated without notice and without payment of compensation on the occurrence of
certain events, such as gross misconduct or financial misstatement.
Bonus payments and PSP awards are subject to clawback or malus for up to three years following award.
Circumstances include financial misstatement, erroneous calculations determining bonus payments or gross
misconduct.
Clawback or
malus
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
116
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Executive Directors’ legacy agreements
Within the legacy agreements of Executive Directors, termination of agreements is subject to a 12 month notice period. Where payment
is made in lieu of notice on termination, the payment of a sum in respect of lost future bonus opportunity (based on an average of the
preceding three years’ bonus payments) is subject to the Committee’s discretion. The Committee has the power to reduce the amount
to reflect performance on the part of the Executive Director that is considered by the Committee to be unsatisfactory. On termination of
such an Executive Director’s service agreement, the Committee will take into account the departing Executive Director’s need to mitigate
his or her loss when determining the amount of bonus. Payment will only be made at the discretion of the Committee after taking into
account individual performance in order to ensure that there will be no “payments for failure”. In any event, payments will be subject to
clawback or malus provisions.
Executive Directors’ service agreements may be terminated without notice and without payment of compensation on the occurrence of
certain events, such as termination for gross misconduct or financial misstatement.
While the Executive Directors’ service agreements include a provision to deal with termination on a change of control, in the event of an
offer being made, shareholders have discretion to accept the offer or not. The decision to recommend acceptance, or not, is a matter for
the Board, and the Committee is of the clear view that the change of control provision within the Executive Directors’ service agreements
would have no influence on the voting pattern of those Executive Directors. Executive Directors’ legacy agreements are summarised in
the table below.
Notice period
Termination
12 months by the Executive Director and 12 months by the Company
No payment if Executive Director commits a repudiatory breach of the service agreement or for gross misconduct
or in certain circumstances.
No additional termination payment if notice worked.
If notice only part worked/part on garden leave, payment in respect of unexpired period of notice.
Otherwise 12 months’ base salary, the value of other benefits, plus the cost of pension credits or contributions for
the period plus the average of the prior three years’ annual bonus payments, with Committee discretion to reduce
the amount of the bonus that would otherwise be calculated, to reflect performance on the part of the Executive
Director that is considered by the Committee to be below the required standards, provided that termination by the
Company does not occur within 12 months of a change of control.
Committee discretion to pay in lump sum or monthly except within 12 months of a change of control when a lump
sum will be paid.
If paid monthly, payment will be reduced by the value of any salary, fees and benefits excluding long-term
incentives, earned in new paid employment in that period.
No automatic entitlement to payments under the current annual bonus or PSP. See page 106.
Garden leave clause.
Clawback or
malus
Robust post-termination restrictions on confidentiality, non-compete, non-solicitation and non-interference with
customers or suppliers.
Bonus payments and PSP awards are subject to clawback or malus for up to three years following award.
Circumstances include financial misstatement, erroneous calculations determining bonus payments or gross
misconduct.
Treatment of leavers under the incentive plans
Whilst it is not an entitlement, it is expected that where an Executive Director is a “good leaver” (ie where the cessation of employment is
due to death, disability, redundancy, retirement or the company business in which he/she works being disposed of or where the ending
of employment is instigated by the Company and is not for cause), payments will be made under the annual bonus plan if performance
targets are met subject to, and in accordance with, the plan rules. If the Executive Director is not a “good leaver” it is expected that no
bonus will be paid.
The treatment of leavers under the PSP is determined in accordance with the shareholder approved PSP rules. Any awards granted
within six months prior to termination (or the giving or receiving of notice) will lapse. Any awards granted six months or longer prior to
termination of employment (but prior to the end of the performance period) will lapse unless the Executive Director is considered to be a
“good leaver”.
In the case of a “good leaver” the award will vest on the termination date, or the normal vesting date, at the Committee’s discretion.
This is subject to the satisfaction of the performance targets at that date and a pro-rata reduction in the number of shares to take
account of the shortening of the performance period.
For awards granted on or after 1st March 2012, if the Executive Director is a “good leaver” where the ending of employment is not for
cause, the number of shares vested may be reduced (including to zero) by the Committee in its absolute discretion.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
117
Spirax-Sarco Engineering plc Annual Report 2018Governance Report 5. Remuneration
Remuneration Policy Report 2017 continued
If an Executive Director ceases employment (or notice is given) on or after the end of the performance period but prior to the date on
which the Committee has determined the extent to which the award has vested, if the Executive Director is a “good leaver”, his/her
award will be preserved and will be treated in the same way as if his/her employment had continued, whereas if the Executive Director is
not a “good leaver”, his/her award will lapse on the earlier of his/her cessation of employment and the giving of notice.
In relation to the ESOP, as an HMRC approved plan, where an Executive Director leaves the treatment will be in line with the approved
plan rules and HMRC guidance.
Change of control
Bonus: if termination occurs within 12 months of a change of control, the Executive Director is entitled to (i) a lump sum payment in lieu of
notice and (ii) receive a full bonus payment calculated by reference to the average of the preceding three years’ bonus payments (without
any reduction for performance).
PSP: the rules provide that in the event of a change of control, outstanding share-based awards will vest to the extent that performance
targets are met at the date of the event. Any such vesting would generally be on a time pro-rated basis. The Committee may, at its
discretion, increase the level of vesting if it believes that exceptional circumstances warrant such treatment.
2.6 Illustrations of application of the Remuneration Policy
Under the Remuneration Policy, a significant portion of remuneration is variable and depends on the Company’s performance.
Below and overleaf we illustrate how the total pay opportunity for the Executive Directors varies under three performance scenarios:
maximum, on target, and below threshold.
The scenarios for 2017, informed by the current application of our pay policy, are as follows:
Element
Fixed pay, benefits and ESOP
Fixed pay and ESOP does not vary with performance and comprises:
• base salary effective 1st January 2017;
• benefits value based on 2016 disclosure;
• pension value (DB 2016: as reported; cash allowance: rate applied to 2017 salary); and
• ESOP participation of up to £1,500 1:1 matching shares for eligible Executive Directors.
Percentage of base salary
Annual bonus (% of salary)
Below threshold
0%
PSP1 (% of salary at award)
0%
On target
75% CEO
60% ED
37.5% CEO
31.25% ED
Maximum
125% CEO
100% ED
150% CEO
125% ED
1
A level of 25% vesting for “on target” performance is equivalent to threshold performance under the PSP, which the Committee believes to be a fair assumption for on target performance
given the approach taken to setting performance targets.
Nicholas Anderson (Group Chief Executive)
Kevin Boyd (Chief Financial Officer)
32%
31%
37%
54%
31%
15%
Maximum
Target
100%
0%
0%
Threshold
£0.69m
£2.14m
Maximum
£1.22m
37%
28%
35%
59%
27%
14%
£1.28m
Target
Threshold
100%
0%
£0.45m
£0.76m
0%
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
Neil Daws (Executive Director, EMEA)
Jay Whalen (Executive Director, WMFTG)
37%
28%
35%
Maximum
£1.11m
59%
27%
14%
Target
£0.69m
Threshold
100%
0%
£0.41m
0%
Maximum
Target
39%
27%
34%
61%
25%
13%
$1.11m
100%
0%
0%
Threshold
$0.68m
$1.74m
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
$0.0m
$0.5m
$1.0m
$1.5m
$2.0m
$2.5m
Fixed
Annual bonus
PSP
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
118
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 2.7 Statement of consideration of employment conditions elsewhere in the Group
When determining the remuneration of Executive Directors, the Committee considers the pay of employees across the Group.
When conducting the annual salary review, the average base salary increase awarded to the UK workforce and senior managers across
the Group provides a key reference point when determining levels of increase for Executive Director remuneration. The Remuneration
Policy was drawn up by the Committee without the need for any consultation with employees.
The Committee also determines the principles and policy of remuneration which shall apply to the Group’s senior managers.
The responsibility for determining precise compensation packages that meet local practice and performance targets lies with the Group
Chief Executive and the responsible Executive Director.
To ensure consistency in Remuneration Policy across the Group and to encourage a performance culture, senior managers participate
in the PSP. The Board believes that share ownership is an effective way of aligning the interests of managers and shareholders and to
strengthen the development of the business.
2.8 Statement of consideration of shareholder views
In developing and reviewing the Company’s Remuneration Policy for Executive Directors and other senior executives, the Committee
seeks and takes into account the range of views of shareholders and institutional shareholder advisers. The Committee Chairman
actively engages with major shareholders and institutional shareholder advisers when appropriate and takes into account their views
when reviewing and implementing the Company’s Remuneration Policy.
The Committee considers shareholder feedback received in relation to the AGM each year and guidance from institutional shareholder
advisers more generally. This feedback, plus any additional feedback received during the year at meetings with shareholders, is
considered as part of the Company’s annual Remuneration Policy review. At the AGM in 2016, the advisory vote on the 2015 Annual
Report on Remuneration received 97.2% in favour. At the AGM in 2014 the Remuneration Policy received 98.5% in favour.
In finalising the 2017 Remuneration Policy the views of shareholders and institutional shareholder advisers have shaped the:
• introduction of an additional two-year post-vesting holding period for PSP grants;
• rebalance of long-term and short-term compensation opportunities by way of the Director’s PSP opportunity now being more
substantive than the AIP;
• agreement to disclose AIP targets retrospectively;
• increase in share ownership requirements;
• removal of the Committee’s discretion to grant one-off awards for recruitment or retention in exceptional circumstances;
• keeping of the PSP performance metrics under review, including the consideration of organic growth measures; and
• reserving of the Committee’s right to adjust for the effects of divestments or major acquisitions from the EPS results, to ensure those
results are in line with the primarily organic growth principles that support the EPS targets.
The Remuneration Policy Report 2017 is reproduced exactly as published in the Annual Report 2016 and as approved by shareholders at the 2017 AGM.
Therefore, as the content remains the same the page numbers, examples and illustrations are necessarily historical.
119
Spirax-Sarco Engineering plc Annual Report 2018Governance Report Regulatory disclosures
Spirax Sarco prides itself on being
a good corporate citizen.”
Andy Robson
General Counsel and Company Secretary
Principal activities
Spirax-Sarco Engineering plc is a multi-national industrial
engineering group that is domiciled and incorporated in the UK
under registration number 596337 and which has expertise in
steam, electrical thermal energy solutions, peristaltic pumping
and fluid path technologies. An overview of our principal
activities, by business, is given on pages 4, 6 to 7 and 12 to 13
of the Strategic Report.
Future development
An indication of likely future developments in the Group is given
in the Strategic Report.
Substantial shareholdings
Sun Life Financial, Inc.
Fiera Capital Corporation
The Capital Group Companies, Inc.
BlackRock, Inc.
APG Groep N.V.
Mawer Investment Management Ltd
The Vanguard Group, Inc.
120
Strategic Report
This is set out on the inside front cover to page 65 of the
Annual Report.
Risk management and principal risks
A description of risk management and the principal risks facing the
business are on pages 28 to 33 and 86 to 89.
Constructive use of AGM
We are delighted when our shareholders attend our AGM.
Those who are unable to attend are encouraged to vote online or
using the proxy card mailed to them.
In 2018, 71.83% of the proxy votes received were lodged
electronically through the CREST system.
At the AGM, the Group Chief Executive will give a short
presentation about the previous year and, more generally,
about current trading and the Group’s future plans. The Chair
and other Board members are available to answer questions
raised by shareholders. Shareholders are invited to vote on the
resolutions by way of a polled vote. The results are announced
instantaneously at the AGM using the Equiniti “Vote Now”
polling system, and on the London Stock Exchange and the
Group’s website, www.spiraxsarcoengineering.com, shortly
after the conclusion of the meeting. Following the AGM the
Board is available to answer questions and meet informally with
individual shareholders.
The Notice of Meeting convening the AGM, to be held on
Wednesday, 15th May 2019, and an explanation of the resolutions
sought, is set out in the Circular posted on our website and sent to
shareholders in the format selected by them.
Results
The Group’s results for the year have been prepared in
accordance with the International Financial Reporting Standards
as adopted by the European Union. They are set out in the
Consolidated Income Statement, which appears on page 133.
Dividend
The Directors are proposing the payment of a final dividend of
71.0p (2017: 62.0p) which, together with the interim dividend
of 29.0p (2017: 25.5p), makes a total distribution for the year of
100.0p (2017: 87.5p). If approved at the AGM, the final dividend will
be paid on 24th May 2019 to shareholders on the register at the
close of business on 26th April 2019.
As at 31.12.18
As at 15.02.19
Number of
Ordinary shares
6,369,176
4,678,819
4,569,526
4,242,880
4,000,000
2,968,363
2,288,146
% of issued
share capital
8.6%
6.4%
6.2%
5.8%
5.4%
4.0%
3.1%
Number of
Ordinary shares
6,408,922
4,637,989
4,704,351
4,165,564
4,000,000
2,966,445
2,303,277
% of issued
share capital
8.7%
6.3%
6.4%
5.7%
5.4%
4.0%
3.1%
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Directors’ interests
The interests of the Directors in the share capital of Spirax-
Sarco Engineering plc as at 31st December 2018 are set out on
page 105.
Share capital
As at 28th February 2019 there were no treasury shares held by
the Company. Details of shares issued during the year are set out
in Note 21 on page 160.
Substantial shareholdings
The voting rights in the table, on page 120, have been determined
in accordance with the requirements of the UK Listing Authority’s
Disclosure and Transparency Rules DTR 5, and represent 3%
or more of the voting rights attached to issued shares in the
Company as at 15th February 2019 and 31st December 2018.
There are no Controlling Founder Shareholders.
Directors’ and Officers’ Insurance
The Company provides Directors’ and Officers’ Insurance for
Board members, Directors of the Group’s operating companies
and senior officers.
The Company has also provided each Director with an indemnity
to the extent permitted by law in respect of the liabilities incurred
as a result of their holding office as a Director of the Company.
Appointment and replacement of Directors
The appointment and replacement of Directors is governed by the
Company’s Articles of Association, the Code, the Companies Act
2006 and related legislation.
All Directors will seek election or re-election (as the case may be)
at the AGM, with the exception of Clive Watson who retires at the
end of the meeting.
The Directors stand for election or re-election on an annual basis
at each AGM, in accordance with the Code. The Board considers
that all Directors standing for election or re-election continue
to perform effectively and demonstrate commitment to their
roles. In addition, the Board considers that all Directors have the
necessary skills and experience, as set out in their biographies on
pages 72 to 73.
Conflicts of interest
Under the Companies Act 2006 and the provisions of the
Company’s Articles of Association, the Board is required to
consider potential conflicts of interest. The Company has
established formal procedures for the disclosure and review of
any conflicts, or potential conflicts, of interest which the Directors
may have and for the authorisation of such matters of conflict by
the Board. To this end the Board considers and, if appropriate,
authorises any conflicts, or potential conflicts, of interest as they
arise and reviews any such authorisation annually.
New Directors are required to declare any conflicts, or potential
conflicts, of interest to the Board at the first Board meeting
after his or her appointment. The Board believes that the
procedures established to deal with conflicts of interest are
operating effectively.
Articles of Association
The Company’s Articles of Association are available from
Companies House in the UK or by writing to the General Counsel
and Company Secretary at the Group’s registered office in
Cheltenham. Amendments to the Articles of Association can only
be made by means of a special resolution at a general meeting of
the shareholders of the Company.
As at 31st December 2018 the Company’s share capital was
made up of Ordinary shares which each carry one vote at general
meetings of the Company. Except as set out in the Articles of
Association or in applicable legislation, there are no restrictions on
the transfer of shares in the Company and there are no restrictions
on the voting rights in the Company’s shares.
The Company is not aware of any agreements entered into
between any shareholders in the Company which restrict the
transfer of shares or the exercise of any voting rights attached to
the shares.
Powers of the Directors and purchase of
own shares
Subject to the provisions of the Articles of Association, the
Directors may exercise all the powers of the Company.
A shareholder’s authority for the purchase by the Company of a
maximum of 10% of its own shares was in existence during the
year. However, the Company did not purchase any of its shares
during that time. This authority expires at the forthcoming AGM
and it is proposed that a similar authority be approved. The total
number of shares in issue as at 31st December 2018 was
73,666,646.
PSP and Employee Benefit Trust (EBT)
The number of shares held in the EBT at 31st December 2018
was 46,249 for the purpose of satisfying the vesting of awards
and options granted to employees under the various Company
schemes. Dividends on shares in the EBT are waived.
Significant contracts
The Company is not a party to any significant agreements that
take effect, alter or terminate upon a change of control of the
Company following a takeover bid.
There are provisions in the Executive Directors’ service
agreements which state that following a takeover or change of
control, if the Executive Director’s employment is terminated then
both salary/benefits and a sum in respect of lost future bonus
opportunity become payable as a lump sum.
The Strategic Report contains all the information required to
comply with Section 414(c) of the Companies Act 2006 and there
are no contractual arrangements that need to be disclosed which
are essential to the business of the Group.
Disclosure of information to the auditor
As at the date of the approval of this Annual Report, as far as
each Director is aware, there is no relevant audit information of
which the Company’s auditor is unaware. Each Director has taken
all such steps as he or she ought to have taken as a Director
in order to make himself/herself aware of any relevant audit
information and to establish that the Company’s auditor is aware
of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of Section 418 of the Companies Act 2006.
121
Spirax-Sarco Engineering plc Annual Report 2018Governance Report Regulatory disclosures
continued
Auditor
The Company’s auditor throughout the period of this Annual
Report was Deloitte LLP, who was appointed on 20th May 2014.
Deloitte LLP has expressed its willingness to continue in office
as auditor and a resolution to re-appoint Deloitte LLP will be
proposed at the forthcoming AGM.
Research and development
The Group continues to devote significant resources to the
research and development and the updating and expansion
of its range of products in order to remain at the forefront of its
world markets. The R&D functions in Cheltenham (Spirax Sarco
Steam Specialties), Falmouth (WMFTG), Bremen (Gestra) and the
Product Development function in Pittsburgh and Utah (Chromalox)
are tasked with improving the Group’s pipeline of new products,
decreasing the time to launch, expanding the Group’s addressable
market and realising additional sales. Further information on
the expenditure on R&D is contained in Note 1 on page 140.
The amount of R&D expenditure capitalised, and the amount
amortised, in the year, are given in Note 14 on page 154.
Treasury and foreign exchange
The Group has in place appropriate treasury policies and
procedures, which are approved by the Board. The treasury
function manages interest rates for both borrowings and cash
deposits for the Group and is also responsible for ensuring there
is sufficient headroom against any banking covenants contained
within its credit facilities, and for ensuring there are appropriate
facilities available to meet the Group’s strategic plans.
In order to mitigate and manage exchange rate risk, the Group
routinely enters into forward contracts and continues to monitor
exchange rate risk in respect of foreign currency exposures.
All these treasury policies and procedures are regularly monitored
and reviewed. It is the Group’s policy not to undertake speculative
transactions which create additional exposures over and above
those arising from normal trading activity.
Political donations
The Group has a policy of not making political donations and no
political donations were made during the year (2017: nil).
Greenhouse gas emissions
Details of our greenhouse gas emissions can be found on
page 63.
Going concern
The Group’s business activities, together with the main trends
and factors likely to affect its future development, performance
and position, and the financial position of the Group, its cash
flows, liquidity position and borrowing facilities, are set out in the
Financial Review on pages 50 to 54. In addition, Note 29 on page
170 includes the Group’s objectives, policies and processes for
managing its capital, its financial risk management objectives, its
financial instruments and hedging activities, its exposures to credit
risk and liquidity risk.
The Group has considerable financial resources together with
contracts with a diverse range of customers and suppliers across
different geographic areas and industries. No one customer
accounts for more than 1% of Group turnover.
122
As a consequence, the Directors believe that the Group is well
placed to manage its business risks successfully.
The Directors, having made appropriate enquiries, consider
that the Company and the Group have adequate resources to
continue in operational existence and that the Directors intend to
do so, for at least one year from the date the Financial Statements
were signed, and that it is appropriate to adopt the going concern
basis in preparing the Annual Report.
Scope of the reporting in this Annual Report
The Board has prepared a Strategic Report (including the
Chair’s Statement, the Group Chief Executive’s Report and the
Group Chief Executive’s Review of Operations) which provides
an overview of the development and performance of the
Group’s business in the year ended 31st December 2018 and
its position at the end of that year, and which covers likely future
developments in the business of the Company and the Group.
For the purposes of compliance with DTR 4.1.5 R(2) and
DTR 4.1.8 R, the required content of the management report can
be found in the Strategic Report and these Regulatory disclosures,
including the sections of the Annual Report incorporated
by reference.
The Strategic Report and the Directors’ Report were approved
by the Board on 6th March 2019. Pages 120 to 122 form the
Directors’ Report for the purposes of the Companies Act 2006.
The Annual Report contains the information required for
compliance with the Companies, Partnerships and Groups (and
Non-Financial Reporting) Regulations 2016.
For the purposes of LR 9.8.4C R, the information required to be
disclosed by LR 9.8.4 R is set out in the following table.
Section Topic
(1)
Interest capitalised
Location
Not applicable
(2)
(4)
(5)
(6)
(7)
(8)
(9)
Publication of unaudited financial information
Not applicable
Details of long-term incentive schemes
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre-emptive issues of equity for cash
Remuneration
Report, pages
101-102
Not applicable
Not applicable
Not applicable
Item (7) in relation to major subsidiary undertakings
Not applicable
Parent participation in a placing by a listed subsidiary Not applicable
(10)
Contracts of significance
Regulatory
Disclosures,
page 121
(11)
(12)
(13)
(14)
Provision of services by a controlling shareholder
Not applicable
Shareholder waivers of dividends
Shareholder waivers of future dividends
Agreements with controlling shareholders
Regulatory
Disclosures,
page 121
Not applicable
Not applicable
Andy Robson
General Counsel and Company Secretary
6th March 2019
Spirax-Sarco Engineering plc
Registered no. 596337
Governance ReportSpirax-Sarco Engineering plc Annual Report 2018 Statement of Directors’ Responsibilities
We ensure our Annual Report is
fair, balanced and understandable
and gives you a true and fair view
of our Group.”
Kevin Boyd
Chief Financial Officer
Board of Directors
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable
laws and regulations.
Company law requires the Directors to prepare consolidated
Group and Parent Company Financial Statements for each
financial year in accordance with IFRS as adopted by the EU
and applicable law.
In addition, by 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
these Financial Statements, the Directors are required to:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
• make an assessment of the Company’s ability to continue as
a going concern.
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 Company and enable them
to ensure that its Financial Statements comply with the
Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Group’s
website, www.spiraxsarcoengineering.com. Legislation in the
UK governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
Cautionary statement
All statements other than statements of historical fact
included in this document, including those regarding the
financial condition, results, operations and businesses of
Spirax-Sarco Engineering plc (its strategy, plans and objectives),
are forward-looking statements. These forward-looking
statements reflect management’s assumptions made on the basis
of information available to it at this time. They involve known and
unknown risks, uncertainties and other important factors which
could cause the actual results, performance or achievements of
Spirax-Sarco Engineering plc to be materially different from future
results, performance or achievements expressed or implied by
such forward-looking statements. Spirax-Sarco Engineering plc
and its Directors accept no liability to third parties in respect of this
Report save as would arise under English law.
Any liability to a person who has demonstrated reliance on any
untrue or misleading statement or omission shall be determined
in accordance with schedule 10A of the Financial Services and
Markets Act 2000. Schedule 10A contains limits on the liability of
the Directors of Spirax-Sarco Engineering plc and their liability is
solely to Spirax-Sarco Engineering plc.
Responsibility statement
We confirm that to the best of our knowledge:
• the Financial Statements, prepared in accordance with IFRS
as adopted by the EU, 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;
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• the Annual Report 2018 taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s performance, business
model and strategy.
This responsibility statement was approved by the Board of
Directors on 6th March 2019 and is signed on its behalf by:
Kevin Boyd
Chief Financial Officer
6th March 2019
123
Spirax-Sarco Engineering plc Annual Report 2018Governance Report Financial Statements
Kevin Boyd,
Chief Financial Officer
John Senior,
Group Financial Controller
In this section
Independent Auditors’ Report
Consolidated Statement of Financial Position
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
125
132
133
134
134
136
137
179
180
181
124
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Independent Auditor’s Report
to the members of Spirax-Sarco Engineering plc
Report on the audit of the Financial Statements
Opinion
In our opinion:
• the Financial Statements of Spirax-Sarco Engineering plc (the Parent Company) and its subsidiaries (the Group) give a true and fair
view of the state of the Group’s and of the Parent Company’s affairs as at 31st December 2018 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 (IFRSs)
as adopted by the European Union;
• the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 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.
We have audited the Financial Statements which comprise:
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated and Parent Company Statements of Financial Position;
• the Consolidated Statement of Cash Flows;
• the Consolidated and Parent Company Statements of Changes in Equity; and
• the related Notes 1 to 30 to the Consolidated Financial Statements and 1 to 11 for the Parent Company Financial Statements.
The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and
IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent
Company Financial Statements is applicable law and United Kingdom Accounting Standards, including FRS 101 (Reduced Disclosure
Framework), (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the Financial Statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of
the Financial Statements in the UK, including the Financial Reporting Council’s (the FRC’s) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-
audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Revenue recognition in relation to cut off for certain components and revenue recognition on any
significant new and/or one-off contracts.
• Defined benefit pension liability valuation focusing on the judgements and assumptions made
by management.
Materiality
Scoping
Within this report, any new key audit matters are identified with
same as the prior year are identified with
.
and any key audit matters which are the
The materiality that we used for the Group Financial Statements was £11.4m (2017: £9.6m) which was
determined on the basis of 5% of profit before tax adjusted for certain one off gains in the year including
£47.4m gain on disposal of subsidiary, £6.5m gain on disposal of property and £6.0m past service cost credit
from freezing of the pension scheme benefits in the US scheme (2017: 5% of statutory profit before tax).
We focused our Group audit scope primarily on the audit work at 28 components. These components
represent the principal business units and account for 93% of the Group’s net assets, 73% of the Group’s
revenue and 80% of the Group’s profit before tax.
Significant changes
in our approach
Last year our report included an acquisition accounting key audit matter focussing on the valuation of
intangible assets arising for two acquisitions made in 2017. As there were no material acquisitions in 2018,
this matter is not included in our report. There have been no material adjustments made to the 2017
acquisition accounting and it is not considered to be a key audit matter for the Group Financial Statements.
125
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Independent Auditor’s Report
continued
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the Directors’ statement on page 122 of the Governance Report about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s and Company’s ability to continue to do so over
a period of at least twelve months from the date of approval of the Financial Statements.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We considered as part of our risk assessment the nature of the Group, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting
framework and the system of internal control. We evaluated the Directors’ assessment of the Group’s
ability to continue as a going concern, including challenging the underlying data and key assumptions
used to make the assessment, and evaluated the Directors’ plans for future actions in relation to their
going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to that
statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in the
evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue as a going
concern, we are required to state whether we have anything material to add or draw attention to in
relation to:
• the disclosures on pages 28 to 33 that describe the principal risks and explain how they are being
managed or mitigated;
• the Directors’ confirmation on page 89 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity; or
• the Directors’ explanation on page 89 as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We are also required to report whether the Directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3)
is materially inconsistent with our knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial
Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in
the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Revenue recognition
Key audit matter
description
The Group generates revenue primarily from the sale of goods with revenue being recognised on delivery or
despatch. There is a significant risk due to the potential for fraud through possible manipulation of revenue.
We have identified two key areas of focus in relation to cut off for revenue recognition. These areas of
focus are:
• Potential overstatement of revenue within certain components where a significantly higher proportion of
annual revenue is recognised in December 2018 compared to the rest of the year. The key audit matter for
these components focuses on the recognition of revenue by reference to the contracted shipping terms
and the transfer of control for product despatches and deliveries spanning year end.
• There is a focus on any significant new and/or one-off contracts spanning the year end to determine
whether any specific alternative revenue recognition policies are required to ensure revenue has been
recorded within the appropriate period.
Refer to Note 1 for the Group’s revenue recognition policy and the significant issues section of the Audit
Committee Report on page 84.
126
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 How the
scope of
our audit
responded to
the key audit
matter
In response to the key audit matter described above, we performed a risk assessment across the Group to identify
specific areas of risk, focussing our testing accordingly. Our audit response consisted of several procedures including
those summarised below.
We performed walkthroughs to understand the adequacy of the design and implementation of the controls relating to
the revenue cycle. At significant components, we mapped the end-to-end controls and processes in place.
We reviewed the product despatch cycle and revenue recognition profile across the year end period and sampled a
selection of items confirming the date of transfer of control was in line with the revenue recognition date in accordance
with the terms of trade with customers. We focused our procedures on those components with a higher than average
volume of trade in December 2018.
We audited a sample of contracts spanning the year end, challenging the performance obligation and the associated
revenue recognition.
Key
observations
From the work performed above we are satisfied that there are no material cut-off errors and revenue recognition for
significant new contracts is appropriate.
Defined benefit pension liability valuation
Key audit
matter
description
At 31st December 2018 the gross retirement benefit liability recognised in the Consolidated Statement of Financial
Position was £526.1m (2017: £543.0m). There is a risk of material misstatement relating to the judgements made
by management in valuing the defined benefit pension liabilities including the use of key model input assumptions
specifically the discount rate, mortality assumption and inflation rate. These variables can have a material impact in
calculating the quantum of the retirement benefit liability.
Refer to Note 1 for the Group’s policy on defined benefit plans, Note 24 for the financial disclosure including the key
estimates and assumptions used in the defined benefit pension plan valuation and the significant issues section of the
Audit Committee Report on page 84.
How the
scope of
our audit
responded to
the key audit
matter
We used our internal actuarial specialists to assess the key assumptions applied in determining the pension obligations
for the five main pension schemes (three in the UK, one in Germany and one in the USA), and determined whether
the key assumptions are reasonable. Testing covered 96.9% (2017: 97.1%) of defined benefit pension liabilities.
For each of the five schemes, we challenged management’s key assumptions by reference to illustrative benchmark
rates, sensitising any difference between management’s rates and the illustrative benchmark rates. Additionally we
benchmarked the key assumptions against other listed companies to check for any outliers in the data used.
Key
observations
From the work performed above we are satisfied that the key assumptions applied in respect of the valuation of the
schemes’ liabilities are appropriate.
127
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Independent Auditor’s Report
continued
Our application of materiality
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group Financial Statements
Parent Company Financial Statements
Materiality
£11.4m (2017: £9.6m)
£4.2m (2017: £3.9m)
Basis for determining materiality 5% of statutory profit before tax adjusted for a
£47.4m gain on disposal of subsidiary, a £6.5m
gain on disposal of property and a £6.0m past
service cost credit from freezing of pension
scheme benefits in the USA (2017: 5% of
statutory profit before tax).
Parent Company materiality equates to 5% of
profit before tax, which is capped at 40% of
Group materiality
Rationale for the benchmark
applied
We have adjusted the statutory profit before tax
for certain adjusted measure gains recognised
in the current year when determining materiality
as this is considered to be a key benchmark
used by investors.
In determining our final materiality based on our
professional judgement we have considered
net assets as the appropriate measure given
the Parent Company is primarily a holding
company for the Group. We then capped
materiality at the highest component materiality
for the Group.
Adjusted PBT £228.9m
Adjusted PBT
Group materiality
Group materiality
£11.4m
Component
materiality range
£4.2m to £3.2m
Audit Committee
reporting threshold
£0.5m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £530,000
(2017: £490,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the Financial Statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily
on the audit work at 28 (2017: 28) components. 25 (2017: 25) of these were subject to a full audit, whilst the remaining 3 components
(2017: 3 components) were subject to specified audit procedures where the extent of our testing was based on our assessment of the
risks of material misstatement and of the materiality of the Group’s operations at those components. These components represent
the principal business units and account for 93% (2017: 86%) of the Group’s net assets, 73% (2017: 70%) of the Group’s revenue and
80% (2017: 78%) of the Group’s profit before tax. They were also selected to provide an appropriate basis for undertaking audit work
to address the risks of material misstatement identified above. Our audit work at the components was executed at levels of materiality
applicable to each individual entity which were lower than Group materiality and ranged from £3.2m to £4.2m (2017: £2.9m to £3.9m).
At the Parent Company level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion
that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not
subject to audit or audit of specified account balances.
The Group audit team continued to follow a programme of planned visits that has been designed so that a senior member of the Group
audit team visits each of the key components where the Group audit scope was focused on a rotational basis and the most significant
of them at least once a year. In the current year and prior year we visited the UK, USA, China and South Korean components. As part of
these visits, meetings were held with both component management and the component audit team. For all components, we held close
calls after they reported into us and as deemed necessary, reviewed their work papers.
128
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 27%
2%
Revenue
71%
Full audit scope
Specified audit
procedures
Review at
Group level
20%
6%
Profit before
tax
74%
Full audit scope
Specified audit
procedures
Review at
Group level
7%
7%
Total assets
86%
Full audit scope
Specified audit
procedures
Review at
Group level
Other information
The Directors are responsible for the other information. The other information comprises the information
included in the Annual Report, other than the Financial Statements and our Auditor’s Report thereon.
Our opinion on the Financial Statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
We have nothing to
report in respect of
these matters.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the Financial Statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the Financial Statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements
of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the Directors that they consider the Annual
Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the Financial
Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary
to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic
alternative but to do so.
129
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements
Independent Auditor’s Report
continued
Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our Auditor’s Report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, our procedures included the following:
• enquiring of management, internal audit and the Audit Committee, including obtaining and reviewing supporting documentation,
concerning the Group’s policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
o the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team, including significant and material component audit teams in UK, USA, China and South
Korea, and involving relevant internal specialists, including tax, pensions and IT regarding how and where fraud might occur in
the Financial Statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the
following areas:
o manipulation of assumptions used to value defined benefit pension liabilities (identified as a key audit matter);
o manipulation of revenue recognition to improve performance (identified as a key audit matter);
• obtaining an understanding of the legal and regulatory framework that the Group operates in, focusing on those laws and
regulations that had a direct effect on the Financial Statements or that had a fundamental effect on the operations of the Group.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation
and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified the following as key audit matters:
• cut off for revenue recognition in certain components and accounting for contracts spanning year end; and
• valuation of defined benefits pension liability focussing on management judgements and assumptions used in valuation.
The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we
performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the Financial Statement disclosures and testing to supporting documentation to assess compliance with relevant laws
and regulations discussed above;
• enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with HMRC; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams in UK, USA, China and South Korea, and remained alert to any indications
of fraud or non-compliance with laws and regulations throughout the audit.
130
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are
prepared is consistent with the Financial Statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• 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 are not in agreement with the accounting records and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’
remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in
agreement with the accounting records and returns.
We have nothing to
report in respect of
these matters.
We have nothing to
report in respect of
these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Directors and subsequently at the Annual General
Meeting on 11th May 2014 to audit the Financial Statements for the year ending 31st December 2014 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is five years, covering the
years ending 31st December 2014 to 31st December 2018.
Consistency of the Audit Report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Mark Mullins FCA
Senior Statutory Auditor
for and on behalf of Deloitte LLP
Statutory Auditor
London
6th March 2019
131
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Consolidated Statement of Financial Position
at 31st December 2018
Assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Prepayments
Investment in Associate
Deferred tax assets
Current assets
Inventories
Trade receivables
Other current assets
Taxation recoverable
Cash and cash equivalents
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Provisions
Bank overdrafts
Short-term borrowings
Current portion of long-term borrowings
Current tax payable
Net current assets
Non-current liabilities
Long-term borrowings
Deferred tax liabilities
Post-retirement benefits
Provisions
Long-term payables
Total liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Equity shareholders’ funds
Non-controlling interest
Total equity
Total equity and liabilities
Notes
2018
£m
2017
£m
13
14
14
12
15
16
29
17
25
18
20
25
25
25
25
15
24
20
2/3
21
21
230.8
368.0
277.2
6.2
–
41.3
923.5
160.6
245.1
32.9
4.6
187.1
630.3
1,553.8
167.0
5.0
0.4
15.7
41.5
23.7
253.3
377.0
365.3
76.8
85.1
3.7
2.7
533.6
786.9
766.9
19.8
77.8
22.2
646.0
765.8
1.1
766.9
1,553.8
227.5
351.3
280.0
6.1
–
36.4
901.3
145.4
237.5
27.5
12.7
152.1
575.2
1,476.5
147.1
6.7
0.5
20.0
49.3
23.1
246.7
328.5
455.9
73.3
85.6
3.2
2.3
620.3
867.0
609.5
19.8
75.1
19.3
494.2
608.4
1.1
609.5
1,476.5
These Financial Statements of Spirax-Sarco Engineering plc, company number 00596337 were approved by the Board of Directors and
authorised for issue on 6th March 2019 and signed on its behalf by:
N.J. Anderson
K.J. Boyd Directors
132
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Consolidated Income Statement
for the year ended 31st December 2018
Notes
3
4
2/3
6
7
9
2/10
11
Revenue
Operating costs
Operating profit
Financial expenses
Financial income
Net financing expense
Share of profit of Associate
Profit before taxation
Taxation
Profit for the period
Attributable to:
Equity shareholders
Non-controlling interest
Profit for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Dividends
Dividends per share
Dividends paid during the year
(per share)
Adjustments
2018
£m
–
34.2
34.2
–
–
–
–
34.2
5.0
39.2
39.2
–
39.2
Adjusted
2018
£m
1,153.3
(888.4)
264.9
(11.4)
1.1
(10.3)
–
254.6
(70.4)
184.2
183.9
0.3
184.2
250.0p
249.1p
Adjustments
2017
£m
–
(36.6)
(36.6)
–
–
–
–
(36.6)
32.1
(4.5)
(4.5)
–
(4.5)
Adjusted
2017
£m
998.7
(763.2)
235.5
(8.1)
1.7
(6.4)
–
229.1
(66.7)
162.4
162.1
0.3
162.4
220.5p
219.7p
Total
2018
£m
1,153.3
(854.2)
299.1
(11.4)
1.1
(10.3)
–
288.8
(65.4)
223.4
223.1
0.3
223.4
303.1p
302.0p
100.0p
91.0p
Total
2017
£m
998.7
(799.8)
198.9
(8.1)
1.7
(6.4)
–
192.5
(34.6)
157.9
157.6
0.3
157.9
214.4p
213.6p
87.5p
79.0p
Adjusted figures exclude certain items, as set out and explained in the Financial Review and as detailed in Notes 2 and 3. All amounts
relate to continuing operations.
The Notes on pages 137 to 177 form an integral part of the Financial Statements.
133
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Consolidated Statement of Comprehensive Income
for the year ended 31st December 2018
Profit for the year
Items that will not be reclassified to profit or loss:
Remeasurement (loss)/gain on post-retirement benefits
Deferred tax on remeasurement loss/(gain) and the impact of change in tax rate on post-
retirement benefits
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
Non-controlling interest foreign exchange translation differences
(Loss)/profit on cash flow hedges net of tax
Total comprehensive income for the year
Attributable to:
Equity shareholders
Non-controlling interest
Total comprehensive income for the year
Notes
24
24
21
29
2018
£m
223.4
(5.9)
1.2
(4.7)
4.2
–
(0.1)
4.1
222.8
222.5
0.3
222.8
Consolidated Statement of Changes in Equity
for the year ended 31st December 2018
Share
capital
£m
19.8
–
19.8
–
–
–
–
–
–
–
Balance at 1st January 2018
Adoption of IFRS 15
Balance at 1st January 2018
(restated)
Profit for the year
Other comprehensive
(expense)/income:
Foreign exchange translation differences
Remeasurement loss on
post-retirement benefits
Deferred tax on remeasurement loss on
post-retirement benefits
Loss on cash flow hedges reserve
Total other comprehensive income/
(expense) for the year
Total comprehensive income for the
year
Contributions by and distributions to
owners of the Company:
Dividends paid
Equity settled share plans net of tax
Issue of share capital
Employee Benefit Trust shares
Balance at 31st December 2018
Share
premium
account
£m
75.1
–
Other
reserves
£m
19.3
–
Retained
earnings
£m
494.2
0.7
Equity
shareholders’
funds
£m
608.4
0.7
Non-
controlling
interest
£m
1.1
–
75.1
–
19.3
–
494.9
223.1
609.1
223.1
1.1
0.3
–
–
–
–
–
–
4.2
–
–
(0.1)
4.1
4.1
–
–
–
(1.2)
22.2
–
(5.9)
1.2
–
(4.7)
4.2
(5.9)
1.2
(0.1)
(0.6)
–
–
–
–
–
218.4
222.5
0.3
222.8
(67.0)
(0.3)
–
–
646.0
(67.0)
(0.3)
2.7
(1.2)
765.8
(0.3)
–
–
–
1.1
(67.3)
(0.3)
2.7
(1.2)
766.9
–
–
–
–
19.8
–
–
2.7
–
77.8
Included in foreign exchange translation differences is £0.3m for historic currency translation gains transferred to the income statement
relating to the disposal of a subsidiary (see Note 28). Other reserves represent the Group’s Translation, Cash flow hedges, Capital
redemption and Employee Benefit Trust reserves (see Note 21). The non-controlling interest is a 2.5% share of Spirax-Sarco (Korea) Ltd
held by employee shareholders.
134
2017
£m
157.9
11.8
(5.1)
6.7
(27.4)
0.1
0.2
(27.1)
137.5
137.1
0.4
137.5
Total
equity
£m
609.5
0.7
610.2
223.4
4.2
(5.9)
1.2
(0.1)
(0.6)
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Consolidated Statement of Changes in Equity
for the year ended 31st December 2017
Balance at 1st January 2017
Profit for the year
Other comprehensive
(expense)/income:
Foreign exchange translation
differences
Remeasurement gain on
post-retirement benefits
Deferred tax on remeasurement gain
on post-retirement benefits
Profit on cash flow hedges reserve
Total other comprehensive
(expense)/income for the year
Total comprehensive (expense)/
income for the year
Contributions by and distributions to
owners of the Company:
Dividends paid
Equity settled share plans net of tax
Issue of share capital
Employee Benefit Trust shares
Balance at 31st December 2017
Share
capital
£m
19.8
–
Share
premium
account
£m
72.7
–
Other
reserves
£m
44.6
–
Retained
earnings
£m
386.3
157.6
Equity
shareholders’
funds
£m
523.4
157.6
Non-
controlling
interest
£m
1.0
0.3
Total
equity
£m
524.4
157.9
–
–
–
–
–
–
–
–
–
–
19.8
–
–
–
–
–
–
–
–
2.4
–
75.1
(27.4)
–
(27.4)
0.1
(27.3)
–
–
0.2
(27.2)
11.8
11.8
(5.1)
–
6.7
(5.1)
0.2
(20.5)
(27.2)
164.3
137.1
–
–
–
1.9
19.3
(58.1)
1.7
–
–
494.2
(58.1)
1.7
2.4
1.9
608.4
–
–
–
0.1
0.4
(0.3)
–
–
–
1.1
11.8
(5.1)
0.2
(20.4)
137.5
(58.4)
1.7
2.4
1.9
609.5
135
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Consolidated Statement of Cash Flows
for the year ended 31st December 2018
Cash flows from operating activities
Profit before taxation
Depreciation, amortisation and impairment
Profit on disposal of fixed assets
Profit on disposal of subsidiary
Acquisition related fair value adjustments to inventory/exchange gain on acquisition funding
Cash payments to the pension schemes less than the charge to operating profit
Equity settled share plans
Net finance expense
Operating cash flow before changes in working capital and provisions
Change in trade and other receivables
Change in inventories
Change in provisions
Change in trade and other payables
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of software and other intangibles
Development expenditure capitalised
Disposal of subsidiary
Acquisition of businesses net of cash acquired
Interest received
Net cash from/(used) in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Employee Benefit Trust share purchase
Repaid borrowings
New borrowings
Repayment of finance lease liabilities
Dividends paid (including minorities)
Net cash (used in)/from financing activities
Net change in cash and cash equivalents
Net cash and cash equivalents at beginning of period
Exchange movement
Net cash and cash equivalents at end of period
Borrowings and finance leases
Net debt at end of period
Notes
3/4
7
28
2
24
6
28
27
21
25
25
25
25
25
25
2018
£m
288.8
58.1
(8.6)
(47.4)
–
(10.1)
5.7
10.3
296.8
(16.0)
(15.5)
0.8
8.1
274.2
(7.7)
(61.6)
204.9
(33.5)
11.9
(8.3)
(1.6)
51.5
(2.7)
1.1
18.4
1.8
(6.7)
(111.6)
0.1
–
(67.3)
(183.7)
39.6
151.6
(4.5)
186.7
(422.5)
(235.8)
2017
£m
192.5
54.2
(1.0)
–
4.7
0.1
4.6
6.4
261.5
(21.7)
(10.2)
1.2
(2.3)
228.5
(8.1)
(61.0)
159.4
(29.7)
3.4
(5.8)
(2.9)
–
(342.6)
1.7
(375.9)
2.4
–
(415.9)
714.4
(0.1)
(58.4)
242.4
25.9
118.8
6.9
151.6
(525.2)
(373.6)
136
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Notes to the Consolidated Financial Statements
1 Accounting policies
Basis of preparation
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) that have been
adopted by the European Union (EU).
The preparation of Financial Statements in conformity with IFRS
requires the Directors to apply IAS 1 and make judgements,
estimates and assumptions about the carrying amounts of
assets and liabilities that are not apparent from other sources.
The estimates and associated assumptions are based on historical
experiences and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
Critical judgements in applying the Group’s
accounting policies
The Directors have concluded that no critical judgements, apart
from those involving estimations (which are dealt with separately
below) have been made in the process of applying the Group’s
accounting policies.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key
sources of estimation uncertainty at the reporting period that
may have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial
year, are outlined below.
(i)
Post-retirement benefits
The Group’s defined benefit obligation is assessed by
selecting key assumptions. The selection of mortality rates,
inflation and pay increases are key sources of estimation
uncertainty which could lead to material adjustment in
the defined benefit obligation within the next financial
year. These assumptions are set with close reference to
market conditions.
The Group’s defined benefit obligation is discounted at a rate
set by reference to market yields at the end of the reporting
period on high quality corporate bonds. The most significant
criteria considered for the selection of bonds include the issue
size of the corporate bonds, quality of the bonds and the
identification of outliers which are excluded.
The assumptions selected and associated sensitivity analysis
are disclosed in Note 24.
The possibility of a “no deal” Brexit has created economic
uncertainties for business. The Group’s Risk Management
Committee has taken action to mitigate these uncertainties as
outlined on page 29. The group has prepared for the application
of tariffs for goods moving in and out of Europe as disclosed in
the Governance Report on page 69. However we are also poised
to take advantage of opportunities that are presented and to
mitigate any adverse trading impact on the Group. The Group’s
view is that this doesn’t represent a material estimation uncertainty.
The Group has considerable financial resources together with a
diverse range of products and customers across wide geographic
areas and industries. As a consequence, the Directors believe that
the Group is well placed to manage its business risks successfully.
Further information on the Group’s business activities,
performance and position, together with the financial position of
the Group, its capital structure and cash flow are included in the
Strategic Report from the inside front cover to page 65. In addition,
Note 29 to the Financial Statements discloses details of the
Group’s financial risk management and credit facilities.
The Consolidated Financial Statements are presented in pounds
sterling, which is the Company’s functional currency, rounded to
the nearest one hundred thousand.
The Group’s Income Statement includes an adjustment column
where certain items are included. Details of the items included and
the reasons why they are included are disclosed in Note 2.
New standards adopted in the current year
The Group adopted IFRS 15 (Revenue from Contracts with
Customers) using the modified retrospective approach on 1st
January 2018. Comparative information has not been restated.
IFRS 15 establishes a single five-step model for recognising
revenue from contracts with customers and supersedes IAS 18
(Revenue) and IAS 11 (Construction Contracts).
IFRS 15 introduces principles to allocate the transaction price
to performance obligations and recognise revenue as those
performance obligations are satisfied and control of the goods
or services are transferred to the customer.
The impact of adoption of IFRS 15 on these Financial
Statements is:
• At 1st January 2018 an increase in opening retained earnings
of £0.7m;
• For the 12 months ending 31st December 2018 an increase
in revenue of £0.9m, increase in operating costs of £0.4m,
increase in profit before tax of £0.5m, increase in taxation of
£0.1m and increase in profit after tax for the period of £0.4m;
and
• At 31st December 2018 an increase in contract assets of £3.3m,
reduction in inventories of £2.1m and an increase in current tax
payable of £0.1m.
IFRS 9 (Financial Instruments) was adopted on 1st January
2018, replacing IAS 39 (Financial Instruments: Recognition and
Measurement). IFRS 9 includes requirements for the classification
and measurement of financial instruments, impairment of financial
assets and hedge accounting.
An assessment was performed and the adoption of IFRS 9 has
not had a material impact on the financial results of the Group.
The assessment included an analysis of the Group’s hedge
accounting policy and existing hedge accounting relationships,
and it was determined that those relationships designated under
IAS 39 are still effective under IFRS 9. The Group has adopted the
simplified approach to recognise lifetime expected credit losses
for trade receivables and contract assets as permitted by IFRS 9.
The change in approach has not had a material impact on the
trade receivables provision.
137
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements
Notes to the Consolidated Financial Statements
continued
1 Accounting policies continued
In addition to IFRS 15 and IFRS 9 during the current year the
Group has applied a number of amendments to IFRS issued
by the International Accounting Standards Board (IASB).
Their adoption has not had a material impact on the disclosures
or on the amounts reported in these Financial Statements.
The following amendments were applied:
• IFRS 2 (amendments): Classification and Measurement of
Share-based Payment Transactions;
• IAS 40 (amendments): Transfers of Investment Property
• Annual improvements to IFRS 2014-2016 Cycle;
• IAS 28 (amendments): Investments in Associate and Joint
Ventures; and
• IFRIC 22: Foreign Currency Transactions and
Advance Consideration.
Otherwise the accounting policies set out below have been
applied consistently to both years presented in these Consolidated
Financial Statements.
New standards and interpretations not yet adopted
At the date of authorisation of these Financial Statements, the
Group has not applied the following new and revised IFRS that
have been issued but are not yet effective (and in some cases had
not yet been adopted by the EU):
• IFRS 16: Leases;
• IFRS 17: Insurance Contracts;
• IFRS 9 (amendments): Prepayment Features with
Negative Compensation;
• IAS 28 (amendments): Long-term Interests in Associates and
Joint Ventures;
• IAS 19 (amendments): Plan Amendment, Curtailment
or Settlement;
• IFRS 10 and IAS 28 (amendments): Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
• Annual Improvements: Amendments to IFRS 3 Business
Combinations, IFRS 11 Joint Arrangements, IAS 12 Income
Taxes and IAS 23 Borrowing Costs; and
• IFRIC 23: Uncertainty Over Income Tax Treatments.
The Directors do not expect that the adoption of the Standards
listed above will have a material impact on the Financial
Statements of the Group in future periods, except as noted below
in relation to IFRS 16.
IFRS 16 introduces new requirements for lessee and lessor
accounting, with the distinction between operating lease and
finance lease no longer applying for lessees. Under IFRS 16, a
lessee is required to recognise assets and liabilities for all leases
with a term of more than 12 months, unless the underlying asset
is of a low value when new. The new standard also requires
depreciation of the asset to be recognised separately from the
interest expense on the lease liability. As at 31st December 2018,
the Group had total operating lease obligations of £39.8m and
an operating lease charge of £11.2m for the year ended 31st
December 2018. The date of initial application of IFRS 16 for the
Group is 1st January 2019.
The Group expects to apply the modified retrospective approach
for transition and, therefore, comparative information will not be
restated. As a result, the difference between the asset and liability
recognised on 1st January 2019 will be shown as an adjustment
to opening retained earnings.
As a result of using the modified retrospective approach for
transition, the Group plan to elect to use the following transition
practical expedients:
a)
b)
c)
The definition of a lease in accordance with IAS 17 and IFRIC 4
will continue to be applied to leases entered or changed before
1st January 2019, and as a result we will not reassess whether
a contract is or contains a lease on transition.
Leases with a determined lease term of less than 12 months
remaining from 1st January 2019 will be treated as short term.
Initial direct costs will be excluded from the measurement of
the right-of-use asset for all leases entered into or changed
before 1st January 2019.
Furthermore, the Group also plans to elect to make use of the
following exemptions provided by IFRS 16:
a)
b)
Leases with a determined lease term of 12 months of less from
the commencement of the lease will be treated as short term
and therefore not included in the right-of-use asset or lease
liability. Instead, lease costs will be recognised on a straight line
basis across the life of the lease.
Leases for which the underlying asset is of low value when
new will be exempt from the requirements to value a right-
of-use asset and lease liability. Instead, lease costs will be
recognised on a straight line basis across the life of the lease.
To apply this exemption, a threshold of £5,000 has been
utilised to define “low value”.
c)
Lease and non-lease components will not be separated, and
therefore each lease component and any associated non-
lease component will be accounted for as a single component.
d) Where applicable, IFRS 16 will be applied to a portfolio of
leases with similar characteristics.
An assessment of the impact of transitioning to IFRS 16 on 1st
January 2019 has been completed. The estimated impact on the
Financial Statements on transitioning is as follows:
Statement of Financial Position:
a)
Right-of-use assets will be capitalised, totalling approximately
£36m. The majority of this value (£28m) results from leased
property where the Group leases a number of office and
warehouse sites in a number of geographical locations.
The remaining £8m is largely made up of leased motor
vehicles, where the Group makes use of leasing cars for
sales and service engineers at a number of operating
company locations.
b)
Lease liabilities will be recognised totalling approximately
£40m, split between £10m relating to amounts due within
12 months from 1st January 2019 and £30m relating to
amounts due after 1st January 2020.
138
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 1 Accounting policies continued
c)
As a result of the Group using the modified-retrospective
approach, all property lease assets were valued as if IFRS
16 had always applied since the commencement of those
leases. This led to a difference between the right-of-use asset
capitalised and the corresponding lease liability. The difference
between these values of approximately £4m will be recognised
as an adjustment to opening retained earnings.
Income Statement:
a)
The impacts on the Income Statement are expected to
result in an increase in operating profit of approximately £1m
compared to the operating profit had IAS 17 continued to
apply. This is made up of a reduction in operating lease rentals
of approximately £11m offset by a depreciation charge of
approximately £10m. Once taking into account an additional
£1m of expected lease liability interest, the overall impact on
profit before tax in 2019 is expected to be nil.
b)
The total expense relating to exempt leases (being short term,
low value or variable lease payments not included in the lease
liability) is expected to be approximately £2m.
Foreign currency
(i) On consolidation
The assets and liabilities of foreign operations are translated
into sterling at exchange rates ruling at the date of the
Consolidated Statement of Financial Position (closing rate).
The revenues, expenses and cash flows of foreign operations
are translated into sterling at average rates of exchange ruling
during the year. Where the Notes to the Group Consolidated
Financial Statements include tables reconciling movements
between opening and closing balances, opening and closing
assets and liabilities are translated at closing rates and
revenue, expenses and all other movements translated at
average rates, with the exchange differences arising being
disclosed separately.
Exchange differences arising from the translation of the assets
and liabilities of foreign operations are taken to a separate
translation reserve within equity. They are recycled and
recognised in the Income Statement upon disposal of the
operation. In respect of all foreign operations, any differences
that have arisen before 1st January 2004, the date of transition
to IFRS, are not presented as a separate component of equity.
Statement of Cash Flows:
(ii) Foreign currency transactions
a)
Net cash inflow from operating activities is expected to
increase by approximately £10m as a result of the principal
payments made on lease liabilities being reclassified from cash
generated from operations to financing activities
b) Net cash outflow from financing activities is expected to
increase by approximately £10m as a result of the above
c) There is no impact on the net change in cash and cash
equivalents as a result of IFRS 16
Basis of accounting
(i) Subsidiaries
The Group Consolidated Financial Statements include the
results of the Company and all its subsidiary undertakings.
Subsidiaries are 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. In assessing control, potential
voting rights that presently are exercisable or convertible are
taken into account. The Financial Statements of subsidiaries
are included in the Consolidated Financial Statements
from the date that control commences until the date that
control ceases.
(ii) Associates
Associates are those entities for which the Group has
significant influence, but not control, over the financial and
operating policies. The Financial Statements include the
Group’s share of the total recognised income and expense of
Associates on an equity accounted basis, from the date that
significant influence commenced until the date that significant
influence ceases.
(iii) Transactions eliminated on consolidation
Intra Group balances, and any unrealised gains and losses or
income and expenses arising from intra Group transactions,
are eliminated in preparing the Group Consolidated Financial
Statements. Unrealised gains arising from transactions with
Associates are eliminated to the extent of the Group’s interest
in the entity.
Transactions in foreign currencies are translated to the
respective currencies of the Group entities at the foreign
exchange rate at the date of the transaction. Monetary assets
and liabilities at the date of the Statement of Financial Position
denominated in a currency other than the functional currency
of the entity are translated at the foreign exchange rate ruling at
that date. Foreign exchange differences arising on translation
are recognised in the Income Statement. Non-monetary
assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at
fair value are translated at foreign exchange rates ruling at the
dates fair value was determined.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a highly probable forecasted
transaction, the effective part of any gain or loss on the derivative
financial instrument is recognised in other comprehensive income
and presented in the cash flow hedges reserve. The associated
gain or loss is removed from equity and recognised in the Income
Statement in the period in which the transaction to which it
relates occurs.
Net investment hedge accounting
The Group uses foreign currency denominated borrowings as a
hedge against translation exposure on the Group’s net investment
in overseas companies. Where the hedge is fully effective at
hedging, the variability in the net assets of such companies
caused by changes in exchange rates and the changes in value
of the borrowings are recognised in the Consolidated Statement
of Comprehensive Income and accumulated in the translation
reserve. The ineffective part of any changes in value caused by
changes in exchange rates is recognised in the Consolidated
Income Statement.
139
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements
Notes to the Consolidated Financial Statements
continued
1 Accounting policies continued
Other financial liabilities
Other financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs. Other financial
liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on
an effective yield basis. The effective interest method is a method
of calculating the amortised cost of the financial liability and of
allocating interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or,
where appropriate, a shorter period, to the net carrying amount on
initial recognition.
Property, plant and equipment
Items of property, plant and equipment are stated at cost or
deemed cost, less accumulated depreciation.
Certain items of property, plant and equipment that had been
revalued to fair value prior to 1st January 2004, the date of
transition to IFRS, are measured on the basis of deemed cost,
being the revalued amount at the date of that revaluation.
Depreciation is charged to the Income Statement on a straight-line
basis at rates which write down the value of assets to their residual
values over their estimated useful lives. Land is not depreciated.
(ii) Research and development
Expenditure on R&D is charged to the Income Statement in
the period in which it is incurred except that development
expenditure is capitalised where the development costs
relate to new or substantially improved products that are
subsequently to be released for sale and will generate future
economic benefits. The expenditure capitalised includes
staff costs and related expenses. Capitalised development
expenditure is stated at cost less accumulated amortisation
(see below) and any impairment losses.
(iii) Other intangible assets
Intangible assets other than goodwill that are acquired by the
Group are stated at cost less accumulated amortisation (see
below) and any impairment losses. Annual impairment tests
are performed on acquired intangible assets by comparing the
carrying value with the recoverable amount, being the higher
of the fair value less cost to sell and value in use, discounted
at an appropriate discount rate, of future cash flows in respect
of intangible assets for the relevant cash generating unit.
More detail is given in Note 14.
(iv) Amortisation
Amortisation is charged to the Income Statement on a
straight-line basis over the estimated useful lives of intangible
assets, other than goodwill, from the date they are available for
use. Goodwill is tested for impairment annually. The principal
amortisation rates are as follows:
The principal rates are as follows:
Freehold buildings
Plant and machinery
Office furniture and fittings
Office equipment
Motor vehicles
Tooling and patterns
The depreciation rates are reassessed annually.
1.5-3.3%
10-12.5%
10%
12.5-33.3%
20%
10%
Capitalised development costs
ERP systems and software
Brand names and trademarks
Manufacturing designs and core technology
Non-compete undertakings
Customer relationships
20%
12-20%
5-33%
6-50%
20-50%
6-33%
Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories includes expenditure incurred in
acquiring the inventories, production or conversion costs and
other costs in bringing them to their existing location and condition.
In the case of manufactured inventories and work in progress, cost
includes an appropriate share of production overheads based
on normal operating capacity. Cost also includes transfers from
equity of any gain or loss on qualifying cash flow hedges of foreign
currency purchases of inventories.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with an original maturity usually of three months or less.
Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included as a
component of cash and cash equivalents for the purpose of the
Statement of Cash Flows.
Going concern
The statement on the going concern assumption is included within
the Governance Report on page 122.
Business Combinations
Acquisitions of subsidiaries and businesses are accounted for
using the acquisition method of accounting. Identified assets
acquired and liabilities assumed are measured at their respective
acquisition date fair values. The excess of the fair value of the
consideration given over the fair value of the identifiable net assets
acquired is recorded as goodwill. Acquisition related costs are
expensed as incurred. The operating results of the acquired
business are reflected in the Group’s Consolidated Financial
Statements after the date of acquisition.
Intangible assets
(i) Goodwill
Goodwill represents the difference between the cost of the
acquisition and the fair value of the net identifiable assets
acquired. Goodwill is stated at cost less any accumulated
impairment losses. Goodwill is allocated to cash-generating
units and is not amortised but is tested annually for impairment
(see Note 14 for more detail). In respect of acquisitions prior
to 1st January 2004, goodwill is included on the basis of its
deemed cost, which represents the amount recorded under
previous UK Generally Accepted Accounting Practice (GAAP).
140
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018
Revenue
Revenue recognised from the 1st January 2018 is recognised
under IFRS 15 (Revenue from Contracts with Customers).
Revenue is recognised when control of the goods or services
transfers to the customer.
The Group applies the following five step framework when
recognising revenue.
Step 1: Identify the contracts with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance
obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a
performance obligation.
The criteria the Group uses to identify the performance obligations
within a contract are:
•
•
the customer must be able to benefit from the goods or
services either on its own or in combination with other
resources available to the customer; and
the entity’s promise to transfer the good or service to the
customer is separable from other promises in the contract.
The transaction price is the value that the Group expects to be
entitled to from the customer and includes discounts, rebates,
credits, price concessions, incentives, performance bonuses,
penalties and liquidated damages, but is not reduced for bad
debts. It is net of any Value Added Tax (VAT) and other sales-
related taxes. Variable consideration that is dependent on certain
events is included in the transaction price when it is “highly
probable” that the variable consideration will occur.
Revenue is recognised over time as the product is being
manufactured or a service being provided if any of the following
criteria are met:
1)
2)
The Group is creating a bespoke item which doesn’t have an
alternative use to the Group (i.e. we would incur a significant
loss to re-work and/or sell to another customer) and the entity
has a right to payment for work completed to date including a
reasonable profit.
The customer controls the asset that is being created or
enhanced during the manufacturing process i.e. the customer
has the right to significantly modify and dictate how the
product is built during construction.
3)
Services provided where the customer simultaneously
receives and consumes the benefits provided by the Group’s
performance as the Group performs.
1 Accounting policies continued
Alternative performance measures
The Group reports under International Financial Reporting
Standards (IFRS) and also uses alternative performance measures
where the Board believe that they help to effectively monitor the
performance of the Group, users of the Financial Statements
might find them informative and an aid to comparison with our
peers. Certain alternative performance measures also form a
meaningful element of Executive Directors’ annual bonuses.
A definition of the alternative performance measures included
in the Annual Report and a reconciliation to the closest IFRS
equivalent are disclosed in Note 2.
Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension
plans are recognised as an expense in the Income Statement
as incurred.
(ii) Defined benefit plans
The costs of providing pensions under defined benefit
schemes are calculated in accordance with the advice of
qualified actuaries and spread over the period during which
benefit is expected to be derived from the employees’
services. The Group’s net obligation or surplus in respect of
defined benefit pensions is calculated separately for each plan
by estimating the amount of future benefit that employees
have earned in return for their service in the current and prior
periods. Past service costs are recognised straight away.
That benefit is discounted at rates reflecting the yields on
AA credit rated corporate bonds that have maturity dates
approximating the terms of the Group’s obligations to
determine its present value. Pension scheme assets are
measured at fair value at the Statement of Financial Position
date. Actuarial gains and losses, differences between the
expected and actual returns, and the effect of changes in
actuarial assumptions are recognised in the Statement of
Comprehensive Income in the year they arise. Any scheme
surplus (to the extent it is considered recoverable under the
provisions of IFRIC 14) or deficit is recognised in full in the
Statement of Financial Position.
The cost of other post-employment liabilities are calculated in
a similar way to defined benefit pension schemes and spread
over the period which benefit is expected to be derived from
the employees’ services, in accordance with the advice of
qualified actuaries.
(iii) Employee share plans
Incentives in the form of shares are provided to employees
under share option and share award schemes. The fair value
of these options and awards at their date of grant is charged
to the Income Statement over the relevant vesting periods with
a corresponding increase in equity. The value of the charge is
adjusted to reflect expected and actual levels of options and
share awards vesting.
(iv) Long-term share incentive plans
The fair value of awards is measured at the date of grant
and the cost spread over the vesting period. The amount
recognised as an expense is not adjusted to reflect market
based performance conditions, but is adjusted for non-market
based performance conditions.
141
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements
Notes to the Consolidated Financial Statements
continued
1 Accounting policies continued
Judgement is made when determining if a product is bespoke
and the value of revenue to recognise over time as products are
being manufactured. However due to the low value of orders for
bespoke items in progress at the 31st December 2018 where we
have a right to payment of costs plus a reasonable profit this is not
considered a significant judgement.
The value of revenue to be recognised over time for goods being
manufactured is calculated using a cost based input approach.
This is considered a faithful depiction of the transfer of the goods
as the costs incurred, total costs expected to be incurred and
order value are known.
The value of revenue to be recognised over time for services
being provided is calculated based on the value to the customer
transferred to date as a proportion of the total value of the service
being provided.
If the criteria to recognise revenue over time is not met then
revenue is recognised at a point in time when the customer
obtains control of the asset and the performance obligation is
satisfied. The customer obtains control of the asset when the
customer can direct the use of the asset and obtain the benefits
from the asset.
Factors the Group considers when determining the point in
time when control of the asset has passed to the customer and
revenue recognised include:
1. The Group has a right to payment;
2. Legal title is transferred to the customer;
3. Physical possession of the asset has been transferred to
the customer;
4. The customer has the significant risks and rewards of
ownership; and
5. The customer has accepted the asset.
Control normally passes and revenue recognised when the goods
are either despatched or delivered to the customer (in accordance
with the terms and conditions of the sale) or the installation and
testing is completed.
A large proportion of the Group’s revenue qualifies for recognition
on despatch or delivery of the goods to the customer as this is
when the performance obligation is satisfied. This is normally the
trigger point for raising an invoice per the terms and conditions of
the order. Therefore invoicing for a large proportion of the Group’s
revenue occurs at the same time as when the performance
obligation is satisfied. Contract assets at 31st December 2018
were £4.9m (0.4% of total revenue).
All revenue recognised by the Group is generated through
contracts with customers.
When the unavoidable costs of fulfilling the contract exceed
the revenue to be recognised the contract is loss making and
the expected loss is recognised in the Consolidated Income
Statement immediately.
Warranties that give assurance that a product meets agreed-upon
specifications are accounted for as a cost provision and do not
impact the timing and value of revenue. The Group does not have
any material warranties that promises more than just providing
assurance that a product meets agreed-upon specifications.
Costs of obtaining a contract, that are only incurred because the
contract was obtained, are capitalised and expensed at a later
date. At 31st December 2018 no costs of obtaining a contract
were capitalised. All other assets recognised to fulfil a contract are
within the scope of other accounting standards and policies.
Leases
(i) Operating leases
Payments made under operating leases are charged to the
Income Statement on a straight-line basis over the term of
the lease.
(ii) Finance leases
Leases where the Group assumes substantially all of the risks
and rewards of ownership are classified as finance leases as if
the asset had been purchased outright. Assets acquired under
finance leases are recognised as assets of the Group and the
capital and interest elements of the leasing commitments are
shown as obligations in creditors. Depreciation is charged on
a consistent basis with similar owned assets or over the lease
term if shorter. The interest element of the lease payment is
charged to the Income Statement on a basis which produces
a consistent rate of charge over the period of the liability.
Taxation
The tax charge comprises current and deferred tax. Income tax
expense is recognised in the Income Statement unless it relates
to items recognised directly in equity or in other comprehensive
income, when it is also recognised in equity or other
comprehensive income respectively. Current tax is the expected
tax payable on the profit for the year and any adjustments in
respect of previous years using tax rates enacted or substantively
enacted at the reporting date. Tax positions are reviewed to
assess whether a provision should be made on prevailing
circumstances. Tax provisions are included within Current taxation
payable. Deferred tax is provided on temporary differences arising
between the tax base of assets and liabilities, and their carrying
amounts in the Financial Statements. Deferred tax assets are
recognised to the extent that it is probable that future taxable
profits will be available against which the asset can be utilised.
Deferred tax is provided using rates of tax that have been enacted
or substantively enacted at the date of the Statement of Financial
Position or the date that the temporary differences are expected to
reverse. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the
related tax benefit will be realised.
Share capital and repurchased shares
When share capital recognised as equity is repurchased,
the amount of the consideration paid, including directly
attributable costs, is recognised as a deduction from equity.
Repurchased shares are classified as treasury shares or placed in
an Employee Benefit Trust and are presented as a deduction from
total equity.
Share-based benefits granted to subsidiary
employees
The Company grants share-based benefits over its own
Ordinary shares directly to employees of subsidiary companies.
These employees provide services to the subsidiary companies.
The cost of these shares is not recharged and therefore the fair
value of the share options granted is recognised as a capital
contribution to the subsidiary companies. This is accounted for as
an increase in investments with a corresponding increase in a non-
distributable component of equity.
142
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018
2 Alternative performance measures
The Group reports under International Financial Reporting Standards (IFRS) and also uses alternative performance measures where
the Board believes that they help to effectively monitor the performance of the Group, users of the Financial Statements might find
them informative and an aid to comparison with our peers. Certain alternative performance measures also form a meaningful element
of Executive Directors’ annual bonuses. Please see the Annual Report on Remuneration 2018 on pages 95 to 109 for further detail.
A definition of the alternative performance measures and a reconciliation to the closest IFRS equivalent are disclosed below.
Adjusted operating profit
Adjusted operating profit excludes items that are considered to be significant in nature and/or quantum and where treatment as an
adjusted item provides stakeholders with additional useful information to assess the period-on-period trading performance of the Group
and an aid to comparison with our peers. The Group excludes such items which management have defined as:
impairment of goodwill;
reversal of acquisition related fair value adjustments to inventory;
• amortisation and impairment of acquisition-related intangible assets;
•
• costs associated with acquisitions and disposal;
•
• changes in deferred consideration payable on acquisitions;
• profit or loss on disposal of subsidiary;
restructuring costs;
•
foreign exchange gains and losses on borrowings;
•
• significant profits or losses on disposal of property; and
• significant plan amendments and/or legal rulings requiring a past service cost or credit for post-retirement benefit plans.
A reconciliation between operating profit as reported under IFRS and adjusted operating profit is given below.
Operating profit as reported under IFRS
Amortisation of acquisition-related intangible assets
Impairment of goodwill
Acquisition related items
Reversal of acquisition related fair value adjustments to inventory
Foreign exchange gain on borrowings
Profit on disposal of subsidiary
Profit on disposal of property
Equalising guaranteed minimum pensions for the UK post-retirement benefit plans
Post-retirement benefit plan in the USA being frozen to future accrual
Adjusted operating profit
The related tax effects of the above are included as adjustments in taxation as disclosed in Note 9.
Adjusted earnings per share
Profit for the period attributable to equity holders as reported under IFRS (£m)
Items excluded from adjusted operating profit disclosed above (£m)
Tax effects on adjusted items (£m)
Tax effects of the change in US tax rate (£m)
Adjusted profit for the period attributable to equity holders (£m)
Weighted average shares in issue (million)
Basic adjusted earnings per share
Diluted weighted average shares in issue (million)
Diluted adjusted earnings per share
2018
£m
299.1
25.2
–
(0.2)
–
–
(47.4)
(6.5)
0.7
(6.0)
264.9
2018
£m
223.1
(34.2)
(5.0)
–
183.9
73.6
250.0p
73.8
249.1p
2017
£m
198.9
18.4
3.2
10.3
7.2
(2.5)
–
–
–
–
235.5
2017
£m
157.6
36.6
(7.7)
(24.4)
162.1
73.5
220.5p
73.8
219.7p
Basic adjusted earnings per share is defined as adjusted profit for the period attributable to equity holders divided by the weighted
average number of shares in issue. Diluted adjusted earnings per share is defined as adjusted profit for the period attributable to equity
holders divided by the diluted weighted average number of shares in issue.
Basic and diluted EPS calculated on an IFRS profit basis are included in Note 10.
Further details on the tax effects of the change in US tax rate are included in Note 9.
143
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
2 Alternative performance measures continued
Adjusted cash flow
A reconciliation showing the items that bridge between net cash from operating activities as reported under IFRS to an adjusted basis is
given below.
Net cash from operating activities as reported under IFRS
Acquisition and disposal costs
Net capital expenditure excluding acquired intangibles from acquisitions
Movement in provisions
Tax paid
Interest paid
Adjusted net cash from operating activities
2018
£m
204.9
0.2
(31.5)
(0.8)
61.6
7.7
242.1
2017
£m
159.4
10.3
(35.0)
(1.2)
61.0
8.1
202.6
Adjusted cash conversion in 2018 is 91% (2017: 86%). Cash conversion is calculated as adjusted net cash from operating activities
divided by adjusted operating profit.
The adjusted cash flow is included in the Financial Review on page 54.
Return on capital employed (ROCE)
This key performance indicator measures effective management of fixed assets and working capital relative to the profitability of the
business. ROCE is calculated as adjusted operating profit divided by average capital employed. Average capital employed is based on
capital employed at 31st December 2018 and 31st December 2017 at reported exchange rates. More information on ROCE can be
found in the Capital Employed and ROCE sections of the Financial Review on page 53.
2018
£m
2017
£m
230.8
6.2
160.6
245.1
32.9
4.6
(172.0)
(23.7)
484.5
482.2
299.1
(34.2)
264.9
227.5
6.1
145.4
237.5
27.5
12.7
(153.8)
(23.1)
479.8
444.9
198.9
36.6
235.5
54.9%
52.9%
An analysis of the components is as follows:
Property, plant and equipment
Prepayments
Inventories
Trade receivables
Other current assets
Tax recoverable
Trade, other payables and current provisions
Current tax payable
Capital employed
Average capital employed
Operating profit
Adjustments (see adjusted operating profit on page 143)
Adjusted operating profit
Return on capital employed
144
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 2 Alternative performance measures continued
A reconciliation of capital employed to net assets as reported under IFRS and disclosed on the Consolidated Statement of Financial
Position is given below.
Capital employed
Goodwill and other intangible assets
Post-retirement benefits
Net deferred tax
Non-current provisions and long-term payables
Net debt
Net assets as reported under IFRS
2018
£m
484.5
645.2
(85.1)
(35.5)
(6.4)
(235.8)
766.9
2017
£m
479.8
631.3
(85.6)
(36.9)
(5.5)
(373.6)
609.5
Net debt to earnings before interest, tax, depreciation and amortisation (EBITDA)
To assess the size of the net debt balance relative to the size of the earnings for the Group, we analyse net debt as a proportion of
earnings before interest, tax, depreciation and amortisation (EBITDA). The net debt to EBITDA ratio is calculated as follows:
Adjusted operating profit
Depreciation and amortisation of property, plant and equipment, software and development
Earnings before interest, tax, depreciation and amortisation
Net debt
Net debt to EBITDA
The components of net debt are disclosed in Note 25.
2018
£m
264.9
32.9
297.8
235.8
0.8
2017
£m
235.5
32.6
268.1
373.6
1.4
Organic measures
As we are a multi-national group of companies, which trade in a large number of foreign currencies and regularly acquire and sometimes
dispose of companies, we also refer to organic performance measures throughout the Annual Report. These strip out the effects of
the movement of foreign currency exchange rates and of acquisitions and disposals. The Board believes that this allows users of the
accounts to gain a further understanding of how the Group has performed.
Exchange translation movements are assessed by re-translating prior period reported values to current period exchange rates.
Exchange transaction impacts on operating profit are assessed on the basis of transactions being at constant currency between years.
Any acquisitions and disposals that occurred in either the current period or prior period are excluded from the results of both the prior
and current period at current period exchange rates.
A reconciliation of the movement in revenue and adjusted operating profit compared to the prior period is given below.
Revenue
Adjusted operating profit
Adjusted operating margin
2017 Base 2017 M&A
2017 Exchange
£872.1m £126.6m £998.7m (£21.4m)
£214.1m £21.4m £235.5m
(£9.7m)
23.6%
Organic
M&A
2018
£62.8m £113.2m £1,153.3m
£25.5m £13.6m £264.9m
Organic Reported
+7% +15%
+12% +12%
23.0% +120 bps -60 bps
The reconciliation for each segment is included in the Strategic Report.
145
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
3 Segmental reporting
As required by IFRS 8 (Operating Segments), the following segmental information is presented in a consistent format with management
information considered by the Board.
Analysis by location of operation
2018
Europe, Middle East & Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate expenses
Intra Group
Total
Net finance expense
Share of profit of Associate
Profit before tax
2017
Europe, Middle East & Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate expenses
Intra Group
Total
Net finance expense
Share of profit of Associate
Profit before tax
Gross
revenue
£m
390.8
238.2
Inter-segment
revenue
£m
46.4
5.5
164.1
793.1
154.6
265.2
1,212.9
(59.6)
1,153.3
7.7
59.6
–
–
59.6
(59.6)
–
Total
operating
profit
£m
111.5
69.9
41.1
222.5
12.1
77.5
(13.0)
299.1
Adjusted
operating
profit
£m
69.3
63.9
36.9
170.1
22.8
84.8
(12.8)
264.9
Adjusted
operating
margin
%
20.1%
27.5%
23.6%
23.2%
14.7%
32.0%
23.0%
Revenue
£m
344.4
232.7
156.4
733.5
154.6
265.2
1,153.3
1,153.3
299.1
264.9
23.0%
Gross
revenue
£m
348.9
223.1
159.4
731.4
75.1
248.2
Inter-segment
revenue
£m
43.6
5.1
7.3
56.0
–
–
1,054.7
(56.0)
998.7
56.0
(56.0)
–
(10.3)
–
288.8
(10.3)
–
254.6
Total
operating
profit
£m
58.7
56.3
26.0
141.0
4.0
74.8
(20.9)
198.9
Adjusted
operating
profit
£m
66.1
56.9
31.6
154.6
13.8
80.3
(13.2)
235.5
Adjusted
operating
margin
%
21.7%
26.1%
20.8%
22.9%
18.4%
32.4%
23.6%
Revenue
£m
305.3
218.0
152.1
675.4
75.1
248.2
998.7
998.7
198.9
235.5
23.6%
(6.4)
–
192.5
(6.4)
–
229.1
Net revenue generated by Group companies based in the USA is £288.8m (2017: £222.6m), in China is £118.5m (2017: 103.1m), in the
UK is £103.7m (2017: £95.3m), in Germany is £118.0m and the rest of the world is £524.3m (2017: £577.7m).
146
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 3 Segmental reporting continued
The total operating profit for the period includes certain items, as analysed below:
2018
Europe, Middle East &
Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate expenses
Total
2017
Amortisation of
acquisition-related
intangible assets
£m
Profit on
disposal of
subsidiary and
property
£m
Acquisition
related items
£m
Equalising GMP for
the UK pension plans
£m
USA pension plan
frozen to future
accrual
£m
(4.4)
(0.5)
(1.8)
(6.7)
(10.7)
(7.8)
–
(25.2)
47.4
6.5
–
53.9
–
–
–
53.9
(0.1)
–
–
(0.1)
–
0.5
(0.2)
0.2
(0.7)
–
–
(0.7)
–
–
–
(0.7)
–
–
6.0
6.0
–
–
–
6.0
Europe, Middle East & Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate expenses
Total
Amortisation
of acquisition-related
intangible assets
£m
(3.6)
(0.6)
(2.3)
(6.5)
(6.4)
(5.5)
–
(18.4)
Impairment
of goodwill
£m
–
–
(3.2)
(3.2)
–
–
–
(3.2)
Acquisition
costs
£m
–
–
(0.1)
(0.1)
–
–
(10.2)
(10.3)
Reversal of acquisition
related fair value
adjustments to inventory
£m
(3.8)
–
–
(3.8)
(3.4)
–
–
(7.2)
Foreign exchange
gain on borrowings
£m
–
–
–
–
–
–
2.5
2.5
Total
£m
42.2
6.0
4.2
52.4
(10.7)
(7.3)
(0.2)
34.2
Total
£m
(7.4)
(0.6)
(5.6)
(13.6)
(9.8)
(5.5)
(7.7)
(36.6)
147
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
3 Segmental reporting continued
Net financing income and expense
Europe, Middle East & Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Corporate
Total net financing expense
Net assets
Europe, Middle East & Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Liabilities
Net deferred tax
Net current tax payable
Net debt
Net assets
2017
£m
(1.0)
0.1
(0.8)
(1.7)
–
(0.1)
(4.6)
(6.4)
2017
Liabilities
£m
(112.4)
(36.9)
(41.6)
(190.9)
(23.3)
(30.6)
(244.8)
2018
£m
(1.1)
–
(0.8)
(1.9)
–
(0.1)
(8.3)
(10.3)
2017
Assets
£m
400.6
162.6
112.2
675.4
386.7
213.1
1,275.2
(244.8)
(36.9)
(10.4)
(373.6)
609.5
2018
Liabilities
£m
(115.0)
(41.6)
(39.3)
(195.9)
(28.9)
(38.7)
(263.5)
2018
Assets
£m
407.6
162.2
113.8
683.6
409.3
227.9
1,320.8
(263.5)
(35.5)
(19.1)
(235.8)
766.9
Non-current assets in the UK were £157.1m (2017: £154.3m), in the USA were £393.5m (2017: £376.1m) and in Germany were £169.4m
(2017: 173.0m).
Capital additions, depreciation, amortisation and impairment
2018
Europe, Middle East & Africa
Asia Pacific
Americas
Steam Specialties
Chromalox
Watson-Marlow
Group total
Capital
additions
£m
18.5
4.9
4.5
27.9
6.0
18.6
52.5
2018
Depreciation,
amortisation
and impairment
£m
17.1
7.1
5.9
30.1
13.6
14.4
58.1
2017
Capital
additions
£m
81.9
8.2
4.2
94.3
183.3
7.9
285.5
2017
Depreciation
and
amortisation
£m
16.7
7.9
9.8
34.4
8.2
11.6
54.2
Capital additions include property, plant and equipment of £33.5m (2017: £56.3m), of which £0.2m (2017: £26.6m) was from acquisitions
in the period, and other intangible assets of £19.0m (2017: £229.2m) of which £9.1m (2017: £218.7m) relates to acquired intangibles from
acquisitions in the period. Capital additions split between the UK and rest of the world are UK £20.1m (2017: £16.6m) and rest of the
world £32.4m (2017: £268.9m).
148
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018
4 Operating costs
Cost of inventories recognised as an expense
Staff costs (Note 5)
Depreciation, amortisation and impairment
Other operating charges
Total operating costs
2018
Adjusted
£m
278.0
409.2
32.9
168.3
888.4
2018
Adjustments
£m
–
(5.3)
25.2
(54.1)
(34.2)
2018
Total
£m
278.0
403.9
58.1
114.2
854.2
2017
Adjusted
£m
237.3
351.1
32.6
142.2
763.2
2017
Adjustments
£m
7.2
–
21.6
7.8
36.6
2017
Total
£m
244.5
351.1
54.2
150.0
799.8
Total depreciation, amortisation and impairment includes amortisation of acquisition-related intangible assets of £25.2m (2017: £18.4m)
and impairment of goodwill of £nil (2017: £3.2m). Total other operating charges include acquisition related items of £0.2m (2017: £10.3m),
a foreign exchange gain on borrowings of £nil (2017: £2.5m), profit on the sale of businesses of £47.4m (2017: £nil) and profit on disposal
of property of £6.5m (2017: £nil). Total staff costs include a £6.0m credit in relation to the post-retirement benefit plan in the USA being
frozen to future accrual and a charge of £0.7m for equalising guaranteed minimum pensions (GMP) for the UK post-retirement benefit
plans. Total cost of inventories recognised as an expense includes the reversal of acquisition related fair value adjustments to inventory
£nil (2017: £7.2m). Operating costs include exchange difference benefits of £3.9m (2017: £1.0m).
5 Staff costs and numbers
The aggregate payroll costs of persons employed by the Group were as follows:
Wages and salaries
Social security costs
Other pension costs
Total payroll costs
2018
£m
325.9
58.7
19.3
403.9
2017
£m
275.6
54.4
21.1
351.1
In 2018 other pension costs include £6.0m of income recognised as a result of the post-retirement benefit plan in the USA being frozen
to future accrual, as well as a £0.7m charge due to equalising guaranteed minimum pensions for the UK post-retirement benefit plans.
See Note 2 for further details.
The average number of persons employed by the Group (including Directors) during the year was as follows:
United Kingdom
Overseas
Group average
6 Net financing income and expense
Financial expenses:
Bank and other borrowing interest payable
Net interest on pension scheme liabilities
Financial income:
Bank interest receivable
Net financing expense
Net pension scheme financial expense
Net bank interest
Net financing expense
2018
1,875
5,528
7,403
2018
£m
(9.4)
(2.0)
(11.4)
1.1
(10.3)
(2.0)
(8.3)
(10.3)
2017
1,790
4,526
6,316
2017
£m
(5.6)
(2.5)
(8.1)
1.7
(6.4)
(2.5)
(3.9)
(6.4)
149
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements
Notes to the Consolidated Financial Statements
continued
7 Profit before taxation
Profit before taxation is shown after charging:
Depreciation of owned tangible fixed assets
Depreciation of tangible fixed assets held under finance leases
Hire of plant and machinery
Profit on disposal of property, plant and equipment
Other operating leases
Research and development
Auditor’s remuneration
Audit of these Financial Statements
Amounts receivable by the Company’s auditor and its Associates in respect of:
Audit of Financial Statements of subsidiaries of the Company
Total audit fees
Audit-related assurance services - Interim review
All other services
Total non-audit fees
Total auditor's remuneration
2018
£m
26.5
0.1
0.7
8.6
10.5
10.8
2018
£m
0.2
1.5
1.7
0.1
–
0.1
1.8
2017
£m
25.1
0.2
2.4
1.0
8.6
11.5
2017
£m
0.2
1.5
1.7
0.1
0.2
0.3
2.0
8 Directors’ emoluments
Directors represent the key management personnel of the Group under the terms of IAS 24 (Related Party Disclosures).
Total remuneration is shown below.
Further details of salaries and short-term benefits, post-retirement benefits, share plans and long-term share incentive plans are shown in
the Annual Report on Remuneration 2018 on pages 95 to 109. The share-based payments charge comprises a charge in relation to the
Performance Share Plan and the Employee Share Ownership Plan (as described in Note 24).
Salaries and short-term benefits
Post-retirement benefits
Share-based payments
Total Directors' remuneration
2018
£m
3.7
0.4
1.3
5.4
2017
£m
3.7
0.4
1.1
5.2
150
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 9 Taxation
Analysis of charge in period
UK corporation tax:
Current tax on income for the period
Adjustments in respect of prior periods
Foreign tax:
Current tax on income for the period
Adjustments in respect of prior periods
Total current tax charge
Deferred tax – UK
Deferred tax – Foreign
Tax on profit on ordinary activities
Reconciliation of effective tax rate
2018
Adjusted
£m
2018
Adjustments
£m
2018
Total
£m
2017
Adjusted
£m
2017
Adjustments
£m
7.6
0.4
8.0
58.5
0.9
59.4
67.4
0.1
2.9
70.4
–
–
–
0.3
–
0.3
0.3
–
(5.3)
(5.0)
2018
Adjusted
£m
2018
Adjustments
£m
7.6
0.4
8.0
58.8
0.9
59.7
67.7
0.1
(2.4)
65.4
2018
Total
£m
5.6
(0.7)
4.9
59.7
0.5
60.2
65.1
0.1
1.5
66.7
–
–
–
–
–
–
–
–
(32.1)
(32.1)
2017
Adjusted
£m
2017
Adjustments
£m
Profit before tax and share of profit
of Associate
Expected tax at blended rate
Increased withholding tax on overseas
dividends
Benefit of financing structures
Non-deductible expenditure
Over provided in prior years
Other reconciling items
Total tax in income statement
Effective tax rate
254.6
67.3
34.2
6.5
288.8
73.8
229.1
65.0
4.3
(3.6)
2.1
(1.0)
1.3
70.4
27.6%
–
–
–
–
(11.5)
(5.0)
(14.6%)
4.3
(3.6)
2.1
(1.0)
(10.2)
65.4
22.6%
3.5
(4.1)
2.5
(1.9)
1.7
66.7
29.1%
(36.6)
(10.4)
–
–
–
–
(21.7)
(32.1)
87.8%
2017
Total
£m
5.6
(0.7)
4.9
59.7
0.5
60.2
65.1
0.1
(30.6)
34.6
2017
Total
£m
192.5
54.6
3.5
(4.1)
2.5
(1.9)
(20.0)
34.6
18.0%
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. The blended tax rate is calculated using each subsidiary company’s headline tax rate as a
proportion of its respective profit.
The Group’s tax charge includes a credit of £5.0m in relation to certain items excluded from adjusted operating profit as detailed in
Note 2. The tax impacts of these items are:
• amortisation of acquisition-related intangible assets (£6.6m tax credit);
• post-retirement benefit plan in the USA being frozen to future accrual (£1.4m tax charge);
• profit on disposal of subsidiary (£0.3m tax charge); and
• equalising guaranteed minimum pensions (GMP) for the UK post-retirement benefit plans (£0.1m tax credit).
Excluding these adjustments the tax on profit and the effective tax rate are £70.4m and 27.6% respectively.
The other reconciling items credit of £11.5m arises from the sale of the German subsidiary Hygromatik GmbH (£10.4m), where 5% of the
chargeable gain arising is subject to tax in Germany and from the sale of the Singapore property (£1.1m), the gain on which is exempt
from tax in Singapore.
A reduction in the US federal tax rate from 35% to 21%, effective from 1st January 2018, was enacted as part of the US Tax Cuts
and Jobs Act on 22nd December 2017. As a result the US deferred tax assets and liabilities at 31st December 2017 were calculated
based on the future blended federal and state tax rate, with a federal tax element of 21%. This resulted in a deferred tax credit to the
Consolidated Income Statement of £24.4m; this is included within the overall credit of £32.1m.
The UK corporation tax rate reduced from 20% to 19% on 1st April 2017. A further reduction to 17% (effective from 1st April 2020) was
substantially enacted on 15th September 2016. This will reduce the Group’s future current tax charge accordingly.
151
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
9 Taxation continued
The UK deferred tax assets and liabilities at 31st December 2018 have been calculated based upon rates of 19% and 17% in respect of
deferred tax expected to reverse before 1st April 2020 and after this date respectively.
The Group is aware of the on-going review by the European Commission into the UK Controlled Foreign Company (CFC) rules that exempts
certain transactions by multinational groups from a full CFC apportionment. Due to the uncertainty of the outcome of this review no provision
for any UK corporation tax has been recognised at the date of the Statement of Financial Position, however the potential contingent liability is
estimated at approximately £7.1m.
No UK tax (after double tax relief for underlying tax) is expected to be payable on the future remittance of the retained earnings of overseas subsidiaries.
The effective tax rate is calculated as a percentage of profit before tax and share of profit of Associate.
10 Earnings per share
Profit attributable to equity shareholders (£m)
Weighted average shares in issue (million)
Dilution (million)
Diluted weighted average shares in issue (million)
Basic earnings per share
Diluted earnings per share
Basic and diluted earnings per share calculated on an adjusted profit basis are included in Note 2.
The dilution is in respect of unexercised share options and the Performance Share Plan.
11 Dividends
Amounts paid in the year:
Final dividend for the year ended 31st December 2017 of 62.0p (2016: 53.5p) per share
Interim dividend for the year ended 31st December 2018 of 29.0p (2017: 25.5p) per share
Total dividends paid
Amounts arising in respect of the year:
Interim dividend for the year ended 31st December 2018 of 29.0p (2017: 25.5p) per share
Proposed final dividend for the year ended 31st December 2018 of 71.0p (2017: 62.0p) per share
Total dividends arising
2018
223.1
73.6
0.2
73.8
303.1p
302.0p
2017
157.6
73.5
0.3
73.8
214.4p
213.6p
2018
£m
45.7
21.3
67.0
21.3
52.3
73.6
2017
£m
39.3
18.8
58.1
18.8
45.6
64.4
The proposed dividend is subject to approval in 2019. It is therefore not included as a liability in these Financial Statements. No scrip
alternative to the cash dividend is being offered in respect of the proposed final dividend for the year ended 31st December 2018.
12 Investment in Associate
Cost of investment
Share of equity
Total investment in Associate
Summarised financial information:
Revenue
Profit/(loss) for the period
Current assets
Non-current assets
Current and non-current liabilities
Associate
2018
£m
1.4
(1.4)
–
Associate
2017
£m
1.4
(1.4)
–
1.5
–
0.5
0.2
0.5
1.1
–
0.3
0.2
0.7
Details of the Group’s Associate at 31st December 2018 and 31st December 2017 is as follows:
Name of Associate
Econotherm (UK) Ltd
Country of incorporation
and operation
UK
Proportion of ownership interest and
voting power held
26.3%
Principal
activity
Manufacturing and selling
During 2018, the proportion of ownership held by the Group in Econotherm was reduced from 38.9% to 26.3%.
152
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 13 Property, plant and equipment
2018
Cost:
At 1st January 2018
Exchange adjustments
Additions
Transfers
Disposals
Disposal of subsidiary
At 31st December 2018
Depreciation:
At 1st January 2018
Exchange adjustments
Charged in year
Transfers
Disposals
Disposal of subsidiary
At 31st December 2018
Net book value:
At 31st December 2018
Freehold
land and
buildings
£m
Leasehold
land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings,
tools and
equipment
£m
138.8
1.1
139.9
4.5
(5.3)
(3.0)
(2.0)
134.1
29.8
0.3
30.1
2.9
(0.6)
(1.3)
(1.2)
29.9
37.7
0.1
37.8
1.4
–
(0.2)
–
39.0
5.7
–
5.7
1.4
–
(0.2)
–
6.9
164.9
0.5
165.4
18.6
3.8
(8.6)
(0.7)
178.5
103.0
0.2
103.2
14.4
0.4
(7.5)
(0.5)
110.0
73.4
(0.3)
73.1
9.0
0.3
(2.2)
(1.4)
78.8
48.8
(0.1)
48.7
7.9
(1.0)
(1.7)
(1.1)
52.8
Total
£m
414.8
1.4
416.2
33.5
(1.2)
(14.0)
(4.1)
430.4
187.3
0.4
187.7
26.6
(1.2)
(10.7)
(2.8)
199.6
104.2
32.1
68.5
26.0
230.8
The total amount of transfers relates to property, plant and equipment transferred to other intangible assets (see Note 14).
2017
Cost:
At 1st January 2017
Exchange adjustments
Acquisitions
Additions
Disposals
At 31st December 2017
Depreciation:
At 1st January 2017
Exchange adjustments
Charged in year
Disposals
At 31st December 2017
Net book value:
At 31st December 2017
Freehold
land and
buildings
£m
Leasehold
land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings,
tools and
equipment
£m
122.4
(0.7)
121.7
14.2
2.9
–
138.8
27.4
(0.2)
27.2
2.6
–
29.8
36.8
(1.0)
35.8
0.4
2.9
(1.4)
37.7
4.9
(0.1)
4.8
1.5
(0.6)
5.7
150.1
(3.0)
147.1
8.4
14.4
(5.0)
164.9
94.8
(1.2)
93.6
13.7
(4.3)
103.0
64.9
(1.0)
63.9
3.6
9.5
(3.6)
73.4
45.3
(0.5)
44.8
7.5
(3.5)
48.8
Total
£m
374.2
(5.7)
368.5
26.6
29.7
(10.0)
414.8
172.4
(2.0)
170.4
25.3
(8.4)
187.3
109.0
32.0
61.9
24.6
227.5
Included in the above are finance leases with a net book value of £0.3m (2017: £0.3m) and assets under construction of £8.1m
(2017: £6.2m). In 2018 additions from acquisitions were £0.2m and are shown within additions.
153
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
14 Goodwill and other intangible assets
2018
Cost:
At 1st January 2018
Exchange and other adjustments
Acquisitions
Additions
Transfers from property, plant and equipment
Disposals
At 31st December 2018
Amortisation and impairment:
At 1st January 2018
Exchange adjustments
Amortisation and impairment
Transfers from property, plant and equipment
Disposals
At 31st December 2018
Net book value:
At 31st December 2018
2017
Cost:
At 1st January 2017
Exchange and other adjustments
Acquisitions
Additions
Disposals
At 31st December 2017
Amortisation and impairment:
At 1st January 2017
Exchange adjustments
Amortisation and impairment
Disposals
At 31st December 2017
Net book value:
At 31st December 2017
Acquired
intangibles
£m
Development
costs
£m
Computer
software
£m
Total
intangibles
£m
Goodwill
£m
300.6
10.9
311.5
9.1
–
–
–
320.6
49.8
1.2
51.0
25.2
–
–
76.2
26.6
(0.1)
26.5
–
1.6
0.2
(7.1)
21.2
20.3
(0.1)
20.2
1.2
0.2
(6.8)
14.8
56.9
0.6
57.5
–
8.3
1.0
(0.2)
66.6
34.0
0.3
34.3
5.1
1.0
(0.2)
40.2
384.1
11.4
395.5
9.1
9.9
1.2
(7.3)
408.4
104.1
1.4
105.5
31.5
1.2
(7.0)
131.2
355.3
12.4
367.7
2.0
2.2
–
–
371.9
4.0
(0.1)
3.9
–
–
–
3.9
244.4
6.4
26.4
277.2
368.0
Acquired
intangibles
£m
Development
costs
£m
Computer
software
£m
Total
intangibles
£m
Goodwill
£m
86.2
(4.3)
81.9
218.7
–
–
300.6
31.9
(0.5)
31.4
18.4
–
49.8
24.6
–
24.6
–
2.9
(0.9)
26.6
17.8
–
17.8
3.0
(0.5)
20.3
49.9
(0.4)
49.5
1.8
5.8
(0.2)
56.9
29.8
–
29.8
4.3
(0.1)
34.0
160.7
(4.7)
156.0
220.5
8.7
(1.1)
384.1
79.5
(0.5)
79.0
25.7
(0.6)
104.1
89.4
(3.2)
86.2
268.0
1.1
–
355.3
0.9
(0.1)
0.8
3.2
–
4.0
250.8
6.3
22.9
280.0
351.3
Development
All capitalised development costs arise from internal product development.
154
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 14 Goodwill and other intangible assets continued
Acquired intangibles
The disclosure by class of acquired intangible assets is shown in the tables below.
2018
Cost:
At 1st January 2018
Exchange and other adjustments
Additions
At 31st December 2018
Amortisation and impairment:
At 1st January 2018
Exchange adjustments
Amortisation and impairment
At 31st December 2018
Net book value:
At 31st December 2018
Customer
relationships
£m
Brand names
and
trademarks
£m
Manufacturing
designs and
core
technology
£m
Non-compete
undertakings
and other
£m
Total
acquired
intangibles
£m
54.9
1.0
55.9
1.2
57.1
19.8
0.3
20.1
5.0
25.1
32.0
179.1
8.2
187.3
–
187.3
10.9
0.4
11.3
10.0
21.3
166.0
50.0
1.4
51.4
4.6
56.0
8.6
0.3
8.9
5.3
14.2
41.8
16.6
0.3
16.9
3.3
20.2
10.5
0.2
10.7
4.9
15.6
300.6
10.9
311.5
9.1
320.6
49.8
1.2
51.0
25.2
76.2
4.6
244.4
Customer relationships are amortised over their useful economic lives in line with the accounting policies disclosed in Note 1. There are
no individually material items within this balance.
Brand names and trademark assets are amortised over their useful economic lives in line with the accounting policies disclosed in
Note 1. Within this balance individually material balances relate to Chromalox £125.4m (2017: £124.5) and Gestra £32.5m (2017: £34.5m).
The remaining amortisation period is 18.5 years and 13.3 years respectively.
Manufacturing designs and core technology are amortised over their useful economic lives in line with the accounting policies disclosed
in Note 1. Within this balance individually material balances relate to Chromalox £15.1m (2017: £15.8m), Gestra £12.3m (2017: £13.1) and
Aflex £9.4m (2017: £10.2m). The remaining amortisation period is 13.5 years for Chromalox and Gestra and 11 years for Aflex.
Non-compete undertakings are amortised over their useful economic lives in line with the accounting policies disclosed in Note 1.
There are no individually material items within this balance.
155
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
14 Goodwill and other intangible assets continued
2017
Cost:
At 1st January 2017
Exchange and other adjustments
Additions
At 31st December 2017
Amortisation and impairment:
At 1st January 2017
Exchange adjustments
Amortisation and impairment
At 31st December 2017
Net book value:
At 31st December 2017
Customer
relationships
£m
Brand names
and
trademarks
£m
Manufacturing
designs and
core
technology
£m
Non-compete
undertakings
and other
£m
Total
acquired
intangibles
£m
38.3
(0.1)
38.2
16.7
54.9
15.6
–
15.6
4.2
19.8
35.1
15.3
(3.5)
11.8
167.3
179.1
5.0
(0.3)
4.7
6.2
10.9
19.8
(0.1)
19.7
30.3
50.0
5.6
–
5.6
3.0
8.6
12.8
(0.6)
12.2
4.4
16.6
5.7
(0.2)
5.5
5.0
10.5
86.2
(4.3)
81.9
218.7
300.6
31.9
(0.5)
31.4
18.4
49.8
168.2
41.4
6.1
250.8
Impairment
In accordance with the requirements of IAS 36 (Impairment of Assets), goodwill is allocated to the Group’s cash-generating units, or
groups of cash-generating units, that are expected to benefit from the synergies of the business combination that gave rise to the
goodwill as analysed in the table below.
Chromalox
Gestra
Aflex
Other cash-generating units
Total goodwill
2018
Goodwill
£m
183.0
96.9
27.1
61.0
368.0
2017
Goodwill
£m
170.2
95.8
27.1
58.2
351.3
The goodwill balance has been tested for annual impairment on the following basis:
• the carrying values of goodwill have been assessed by reference to value in use. These have been estimated using cash flows based
on forecast information for the next financial year which have been approved by the Board. In the case of recent acquisitions detailed
four year forecasts are also used;
• the key assumptions on which the impairment tests are based are the discount and growth rates and the forecast cash flows;
• pre-tax discount rates range from 10-15% (2017: 10-16%);
• short-term growth rates vary between 2-8% depending on detailed forecasts (2017: 2-8%). The short-term is defined as not more than
five years; and
• long-term growth rates are set using IMF forecasts and vary between 0.8-3.0% (2017: 0.8-5.0%).
No impairments were identified as a result of this exercise.
The principal value in use assumptions for the three largest goodwill balances were as follows:
Cash-generating unit
Chromalox
Gestra
Aflex
Pre-tax
discount rate
10.6%
11.4%
Short-term
growth rate
5.5-6.1%
3.8-5.3%
9.6% 8.0-12.0%
Long-term
growth rate
2.5%
2.5%
2.5%
The results of the Group’s impairment tests are dependent upon estimates, 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 reasonably possible
sensitivities in isolation:
156
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 14 Goodwill and other intangible assets continued
Key assumption change:
A 1.0 % increase in the pre-tax discount rate applied to each cash-generating unit;
A 1.0 % reduction in the short and long term growth rates used in the cash flow projections
For each cash generating unit, the Directors do not consider that there are any reasonably possible sensitivities for the business that
could arise in the next 12 months that would result in an impairment charge being recognised.
15 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Accelerated capital allowances
Provisions
Losses
Inventory
Pensions
Other temporary differences
Tax assets/(liabilities)
2018
Assets
£m
0.5
2.4
3.0
6.2
19.4
9.8
41.3
2017
Assets
£m
0.7
3.1
2.7
5.9
19.8
4.2
36.4
2018
Liabilities
£m
(7.3)
–
–
(1.8)
(0.6)
(67.1)
(76.8)
2017
Liabilities
£m
(6.0)
–
–
(1.5)
(0.8)
(65.0)
(73.3)
2018
Net
£m
(6.8)
2.4
3.0
4.4
18.8
(57.3)
(35.5)
2017
Net
£m
(5.3)
3.1
2.7
4.4
19.0
(60.8)
(36.9)
Movement in deferred tax during the year 2018
Accelerated capital allowances
Provisions
Losses
Inventory
Pensions
Other temporary differences
Group total
1st January
2018
£m
(5.3)
3.1
2.7
4.4
19.0
(60.8)
(36.9)
Recognised in
income
£m
(1.5)
(0.4)
0.3
0.4
(1.9)
6.5
3.4
Recognised in
OCI
£m
(0.3)
(0.3)
–
(0.4)
1.7
(1.3)
(0.6)
Recognised in
equity
£m
0.3
–
–
–
–
0.1
0.4
Acquisitions
£m
–
–
–
–
–
(1.8)
(1.8)
31st December
2018
£m
(6.8)
2.4
3.0
4.4
18.8
(57.3)
(35.5)
Movement in deferred tax during the year 2017
Accelerated capital allowances
Provisions
Losses
Inventory
Pensions
Other temporary differences
Group total
1st January
2017
£m
(2.1)
2.8
1.0
1.7
23.4
(11.8)
15.0
Recognised in
income
£m
(3.4)
(0.9)
1.7
2.4
0.6
30.1
30.5
Recognised in
OCI
£m
0.2
0.7
–
0.3
(5.6)
1.5
(2.9)
Recognised in
equity
£m
–
–
–
–
–
0.3
0.3
Acquisitions
£m
–
0.5
–
–
0.6
(80.9)
(79.8)
31st December
2017
£m
(5.3)
3.1
2.7
4.4
19.0
(60.8)
(36.9)
At the date of the Statement of Financial Position, the Group has deductible temporary differences, unused tax losses and unused tax credits
of £9.9m (2017: £8.4m) available for offset against future profits. A deferred tax asset has been recognised in respect of £3.0m (2017: £2.7m).
No deferred tax asset has been recognised in respect of the remaining £6.9m (2017: £5.7m) as it is not considered probable that there will be
future taxable profits available against which the relevant deduction can be offset. The losses may be carried forward indefinitely.
Deferred tax of £1.7m recognised in the Consolidated Statement of Comprehensive Income (page 134) comprises £1.2m associated
with the remeasurement of defined benefit obligations and £0.5m relating to exchange movements. Other temporary differences mostly
consist of deferred tax liabilities recognised on acquired intangibles from acquisitions.
A reduction in the US federal tax rate from 35% to 21%, effective from 1st January 2018, was enacted as part of the US Tax Cuts and
Jobs Act on 22nd December 2017. As a result, the US deferred tax assets and liabilities at 31st December 2017 were calculated based
on the future blended federal and state tax rate, with a federal tax element of 21%. This resulted in a reduction in the net deferred tax
liability of £21.9m of which £24.4m was recognised as a credit in the income statement and £2.5m recognised as a debit in OCI.
157
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements
Notes to the Consolidated Financial Statements
continued
16 Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
Total inventories
2018
£m
53.0
25.7
81.9
160.6
2017
£m
47.9
24.0
73.5
145.4
The write-down of inventories recognised as an expense during the year in respect of continuing operations was £3.5m (2017: £1.3m).
This comprises a cost of £4.8m (2017: £3.3m) to write-down inventory to net realisable value reduced by £1.3m (2017: £2.0m) for reversal
of previous write-down reassessed as a result of customer demand.
The value of inventories expected to be recovered after more than 12 months is £11.2m (2017: £12.1m).
There is no material difference between the Statement of Financial Position value of inventories and their replacement cost. None of the
inventory has been pledged as security.
17 Other current assets
Other receivables
Contract assets
Prepayments
Total other current assets
Contract assets relate to revenue recognised that has not yet been invoiced to the customer.
18 Trade and other payables
Trade payables
Contract liabilities
Social security
Other payables
Accruals
Total trade and other payables
2018
£m
14.9
4.9
13.1
32.9
2018
£m
57.4
3.5
5.1
43.0
58.0
167.0
2017
£m
13.1
0.2
14.2
27.5
2017
£m
51.3
3.1
4.0
36.7
52.0
147.1
Contract liabilities relate to advance payments received from customers which has not yet been recognised as revenue.
£3.0m of the contract liabilities at 31st December 2017 was recognised as revenue during 2018 (2017: £2.1m).
19 Obligations under finance leases
Amount payable:
Within one year
One to five years inclusive
Less future finance charges
Total obligations under finance leases
Finance lease obligations are further disclosed in Note 29.
Minimum lease payments
2017
£m
2018
£m
Present value lease payment
2017
£m
2018
£m
0.2
0.1
0.3
–
0.3
0.2
0.1
0.3
–
0.3
0.2
0.1
0.3
–
0.3
0.2
0.1
0.3
–
0.3
158
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 20 Provisions
2018
At 1st January 2018
Additional provision in the year
Utilised or released during the year
Exchange adjustments
At 31st December 2018
2017
At 1st January 2017
Additional provision in the year
Utilised or released during the year
Exchange adjustments
At 31st December 2017
Current provisions
Non-current provisions
Total provisions
Product
warranty
£m
3.8
0.2
(0.5)
0.1
3.6
Product
warranty
£m
2.0
2.1
(0.6)
0.3
3.8
Legal,
contractual
and other
£m
6.1
2.3
(3.4)
0.1
5.1
Legal,
contractual
and other
£m
2.2
5.2
(1.0)
(0.3)
6.1
2018
£m
5.0
3.7
8.7
Total
£m
9.9
2.5
(3.9)
0.2
8.7
Total
£m
4.2
7.3
(1.6)
–
9.9
2017
£m
6.7
3.2
9.9
Product warranty
Product warranty provisions reflect commitments made to customers on the sale of goods in the ordinary course of business. These are
expected to be incurred in the next three years.
Legal, contractual and other
Legal, contractual and other provisions mainly comprise amounts provided against open legal and contractual disputes arising
from trade and employment. These costs are based on past experience of similar items and other known factors and represent
management’s best estimate of the likely outcome. The Group has taken action to enforce its rights and protect its intellectual property
rights around the world.
Reflecting the inherent uncertainty within many legal proceedings, the timing and amount of the outflows could differ significantly from
the amount provided. Management does not expect that the outcome of such proceedings, either individually or in aggregate, will have
a material adverse effect on the Group’s financial condition or results of operations. Of the total legal, contractual and other provisions at
31st December 2018 £3.3m (2017: £4.2m) has been included within current and £1.8m within non-current provisions (2017: £1.9m).
159
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
21 Called up share capital and reserves
Ordinary shares of 26 12/13p (2017: 26 12/13p) each:
Authorised 111,428,571 (2017: 111,428,571)
Allotted, called up and fully paid 73,666,646 (2017: 73,600,195)
2018
£m
30.0
19.8
2017
£m
30.0
19.8
In 2018 66,451 shares with a nominal value of £17,890 were issued in connection with the Group’s Employee Share Schemes with
external consideration of £1.8m received by the Group. An additional £0.9m was received from Group companies.
At 31st December 2018 46,249 shares were held in an Employee Benefit Trust and available for use in connection with the Group’s
Employee Share Schemes.
134 senior employees of the Group have been granted options on Ordinary shares under the Share Option Scheme and Performance
Share Plan (details in Note 24).
Other reserves in the Consolidated Statement of Changes in Equity on pages 134 to 135 are made up as follows:
Translation reserve
Cash flow hedges reserve
Capital redemption reserve
Employee Benefit Trust reserve
Total other reserves
1st January
2018
£m
18.7
0.1
1.8
(1.3)
19.3
Change
in year
£m
4.2
(0.1)
–
(1.2)
2.9
31st December
2018
£m
22.9
–
1.8
(2.5)
22.2
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements
of foreign subsidiaries, including gains or losses on net investment hedges. On disposal accumulated exchange differences are recycled
to the Income Statement.
Cash flow hedges reserve
The reserve records the cumulative net change in the fair value of forward exchange contracts where they are designated as effective
cash flow hedge relationships.
Capital redemption reserve
This reserve records the historical repurchase of the Group’s own shares.
Employee Benefit Trust reserve
The Group has an Employee Benefit Trust which is used to purchase, hold and issue shares in connection with the Group’s employee
share schemes. The shares held in Trust are recorded in this separate reserve.
22 Capital commitments and contingent liabilities
Capital expenditure contracted for but not provided
2018
£m
4.1
2017
£m
5.5
All capital commitments are related to property, plant and equipment. The Group has no material contingent liabilities at 31st December
2018 (no material contingent liabilities existed at 31 December 2017) but does have a non-material contingent liability in relation to tax
estimated at approximately £7.1m (2017: £4.5m). See Note 9 for further details.
23 Operating lease obligations
Commitments under non-cancellable leases due as follows:
Within 1 year
1–5 years inclusive
After 5 years
Total operating lease obligations
Operating leases are primarily in respect of property, plant and equipment.
160
2018
£m
11.3
25.1
3.4
39.8
2017
£m
8.9
18.6
3.3
30.8
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 24 Employee benefits
Retirement benefit obligations
The Group operates a wide range of retirement benefit arrangements, which are established in accordance with local conditions
and practices within the countries concerned. These include funded defined contribution and funded and unfunded defined
benefit schemes.
Defined contribution arrangements
The majority of the retirement benefit arrangements operated by the Group are of a defined contribution structure, where the employer
contribution and resulting Income Statement charge is fixed at a set level or is a set percentage of employee’s pay. Contributions made
to defined contribution schemes and charged to the Income Statement totalled £14.3m (2017: £10.9m). In the UK, following the closure
of the defined benefit schemes to new entrants, the main scheme for new employees is a defined contribution scheme.
Defined benefit arrangements
The Group operates several funded defined benefit retirement schemes where the benefits are based on employees’ length of service.
Whilst the Group’s primary schemes are in the UK, it also operates other material benefit schemes in the USA as well as less material
schemes elsewhere. In funded arrangements, the assets of defined benefit schemes are held in separate trustee-administered funds or
similar structures in the countries concerned.
UK defined benefit arrangements
The defined benefit schemes in the UK account for approximately half of the Group’s net liability for defined retirement benefit schemes.
Spirax-Sarco operates three UK schemes: the Spirax-Sarco Employees Pension Fund, the Spirax-Sarco Executives’ Retirement
Benefits Scheme and the Watson-Marlow Pension Fund. These are all final salary pension schemes. The UK schemes are closed
to new members but are open to future accrual. There is a mix of different inflation-dependent pension increases (in payment and
deferment) which vary from member to member according to their membership history and which scheme they are a member of.
All three schemes have been set up under UK law and are governed by a Trustee committee, which is responsible for the scheme’s
investments, administration and management. A funding valuation is carried out for the Trustees of each scheme every three years by an
independent firm of actuaries. Depending on the outcome of that valuation a schedule of future contributions is negotiated with Spirax
Sarco. Further information on the contribution commitments is shown in the Financial Review on page 53.
During 2018 an assessment of the estimated impact of equalising for the effects of unequal Guaranteed Minimum Pensions (GMP) was
performed resulting in a past service cost of £0.7m recognised in the Consolidated Income Statement.
US defined benefit schemes
The Group operates a pension scheme in the USA, which is closed to new entrants. During 2018 the pension scheme was frozen to
future accrual, which led to a reduction in the Defined Benefit Obligation as benefits are no longer linked to salary increases. This plan
amendment was recognised as a past service credit, of £6.0m, in the Consolidated Income Statement during 2018. The pension
scheme defines the pension in terms of the highest average pensionable pay for any five consecutive years prior to retirement.
No pension increases (in payment and deferment) are offered by this scheme. It also operates a post-retirement medical plan in the USA,
which is unfunded, as is typical for these plans.
Principal risks
The pension schemes create a number of risk exposures. Annual increase in benefits are, to a varying extent from scheme to scheme,
dependent on inflation so the main uncertainties affecting the level of benefits payable are future inflation levels (including the impact of
inflation on future salary increases) and the actual longevity of the membership. Benefits payable will also be influenced by a range of
other factors including member decisions on matters such as when to retire and the possibility to draw benefits in different forms. A key
risk is that additional contributions are required if the investment returns fall short of those anticipated when setting the contributions to
the pension schemes. All pension schemes are regulated by the relevant jurisdictions. These include extensive legislation and regulatory
mechanisms that are subject to change and may impact on the Group’s pension schemes. The IAS 19 liability measurement known
as Defined Benefit Obligation (DBO) and the Service Cost are sensitive to the actuarial assumptions made on a range of demographic
and financial matters that are used to project the expected benefit payments, the most important of these assumptions being the future
inflation and salary growth levels and the assumptions made about life expectation. The DBO and Service Cost are also very sensitive
to the IAS 19 discount rate, which determines the discounted value of the projected benefit payments. The discount rate depends on
market yields on high-quality corporate bonds. Investment strategies are set with funding rather than IAS 19 considerations in mind and
do not seek to provide a specific hedge against the IAS 19 measurement of DBO. As a result the difference between the market value of
the assets and the IAS 19 DBO may be volatile. Further information on the investment strategy for the UK schemes can be found in the
Financial Review on page 53.
Sensitivity analysis to changes in discount rate and inflation are included on page 165.
161
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
24 Employee benefits continued
The financial assumptions used at 31st December were:
Rate of increase in salaries
Rate of increase in pensions
Rate of price inflation
Discount rate
Medical trend rate
Assumptions weighted by value of liabilities % per annum
UK pensions
2018
%
2.7
2.9
3.2
2.7
n/a
2017
%
2.6
2.9
3.1
2.4
n/a
Overseas pensions
and medical
2018
%
2.8
1.7
1.9
3.7
5.0
2017
%
3.3
1.7
2.3
3.2
5.0
The mortality assumptions for the material defined benefit schemes at 31st December 2018 and 31st December 2017 were:
Spirax-Sarco Employees Pension
Fund
At 31st December 2018: 97% of SAPS S2 base table, with 2017 CMI Core Projection
model from 2007, with a long-term trend of 1.25% p.a.
Spirax-Sarco Executives’ Retirement
Benefits Scheme
Watson-Marlow Pension Fund
US Pension Scheme
At 31st December 2017: 97% of SAPS S2 base table, with 2016 CMI Core Projection
model from 2007, with a long-term trend of 1.25% p.a.
At 31st December 2018: 85% of SAPS S2 light base table for males and 96% of SAPS S2
base table for females, with 2017 CMI Core Projection model from 2007, with a long-term
trend of 1.25% p.a.
At 31st December 2017: 85% of SAPS S2 light base table for males and 96% of SAPS S2
base table for females, with 2016 CMI Core Projection model from 2007, with a long-term
trend of 1.25% p.a.
At 31st December 2018: 96% of SAPS S2 base table, with 2017 CMI Core Projection
model from 2007, subject to a long-term trend of 1.25% p.a.
At 31st December 2017: 120% of SAPS S2 base table, with 2016 CMI Core Projection
model from 2007, subject to a long-term trend of 1.50% p.a.
At 31st December 2018: SOA RP-2014 Blue Collar Mortality adjusted back to 2006 with
Mortality Improvement Scale MP2018.
At 31st December 2017: RP-2014 Blue Collar x 110% adjusted back to 2006 with MP-16
Improvement Scale x 0.75
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the
timescale covered, may not necessarily be borne out in practice.
The amounts recognised in the Consolidated Statement of Financial Position are determined as follows:
Fair value of schemes’ assets
Present value of funded schemes’ liabilities
(Deficit) in the funded schemes
Present value of unfunded schemes’
liabilities
Retirement benefit liability recognised in
the Consolidated Statement of Financial
Position
Related deferred tax asset
Net pension liability
UK pensions
2018
£m
387.4
(428.3)
(40.9)
2017
£m
403.6
(443.0)
(39.4)
Overseas pensions
and medical
2018
£m
53.6
(73.6)
(20.0)
2017
£m
53.8
(76.2)
(22.4)
Total
2018
£m
441.0
(501.9)
(60.9)
2017
£m
457.4
(519.2)
(61.8)
–
–
(24.2)
(23.8)
(24.2)
(23.8)
(40.9)
7.0
(33.9)
(39.4)
6.7
(32.7)
(44.2)
11.8
(32.4)
(46.2)
12.3
(33.9)
(85.1)
18.8
(66.3)
(85.6)
19.0
(66.6)
162
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 24 Employee benefits continued
Fair value of scheme assets
Equities
Bonds
Other
Total market value in aggregate
2018
£m
118.2
245.8
23.4
387.4
UK pensions
2017
£m
146.3
242.0
15.3
403.6
Overseas pensions
and medical
2017
£m
30.9
13.0
9.9
53.8
2018
£m
27.8
13.9
11.9
53.6
2018
£m
146.0
259.7
35.3
441.0
Total
2017
£m
177.2
255.0
25.2
457.4
At 31st December 2018 £91.0m (2017: £97.7m) of scheme assets have a quoted market price in an active market of which £40.9m
(2017: £46.8m) relates to UK pensions and £50.1m (2017: £50.9m) relates to overseas pensions and medical.
The actual return on plan assets was a reduction of £15.8 million (2017: an increase of £41.3 million).
The movements in the defined benefit obligation (DBO) recognised in the Consolidated Statement of Financial Position during the
year were:
Defined benefit obligation at beginning
of year
Current service cost
Past service (cost)/credit
Interest cost
Contributions by members
Remeasurement gain/(loss)
Actual benefit payments
Acquisitions and disposals
Experience (loss)/gain
Currency (loss)/gain
Defined benefit obligation at end
of year
UK pensions
2018
£m
(443.0)
(7.1)
(0.7)
(10.5)
(0.2)
20.4
14.1
–
(1.3)
–
2017
£m
(426.1)
(7.4)
–
(10.7)
(0.2)
(4.1)
13.1
–
(7.6)
–
Overseas pensions
and medical
2018
£m
2017
£m
Total
2018
£m
(100.0)
(3.2)
6.0
(3.0)
–
1.6
4.1
0.2
0.7
(4.2)
(94.2)
(2.9)
0.1
(3.2)
–
(5.5)
3.8
(1.7)
(0.9)
4.5
(543.0)
(10.3)
5.3
(13.5)
(0.2)
22.0
18.2
0.2
(0.6)
(4.2)
2017
£m
(520.3)
(10.3)
0.1
(13.9)
(0.2)
(9.6)
16.9
(1.7)
(8.5)
4.5
(428.3)
(443.0)
(97.8)
(100.0)
(526.1)
(543.0)
The movements in the fair value of plan assets during the year were:
Value of assets at beginning of year
Expected return on assets
Remeasurement (loss)/gain
Contributions paid by employer
Contributions paid by members
Actual benefit payments
Disposals
Currency gain/(loss)
Value of assets at end of year
UK pensions
2018
£m
403.6
9.6
(22.6)
10.7
0.2
(14.1)
–
–
387.4
2017
£m
375.8
9.5
24.9
6.3
0.2
(13.1)
–
–
403.6
Overseas pensions
and medical
2018
£m
53.8
1.9
(4.7)
4.2
–
(4.1)
(0.1)
2.6
53.6
2017
£m
50.3
1.9
5.0
3.8
–
(3.8)
–
(3.4)
53.8
Total
2018
£m
457.4
11.5
(27.3)
14.9
0.2
(18.2)
(0.1)
2.6
441.0
2017
£m
426.1
11.4
29.9
10.1
0.2
(16.9)
–
(3.4)
457.4
The estimated employer contributions to be made in 2019 are £12.8m.
163
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
24 Employee benefits continued
The history of experience adjustments is as follows:
Defined benefit obligation at end of year
Fair value of schemes’ assets
Retirement benefit liability recognised in the Statement
of Financial Position
Experience adjustment on schemes’ liabilities
As a percentage of schemes’ liabilities
Experience adjustment on schemes’ assets
As a percentage of schemes’ assets
2018
£m
(526.1)
441.0
(85.1)
(0.6)
0.1%
(27.3)
6.2%
2017
£m
(543.0)
457.4
(85.6)
(8.5)
1.6%
29.9
6.5%
2016
£m
(520.3)
426.1
(94.2)
1.6
0.3%
66.0
15.5%
2015
£m
(419.6)
345.9
(73.7)
2.4
0.6%
(7.2)
2.1%
2014
£m
(426.9)
351.1
(75.8)
11.0
2.6%
21.8
6.2%
The expense recognised in the Group Income Statement was as follows:
Current service cost
Past service (cost)/credit
Net interest on schemes’ liabilities
Total expense recognised in
Income Statement
UK pensions
2018
£m
(7.1)
(0.7)
(0.9)
(8.7)
2017
£m
(7.4)
–
(1.2)
(8.6)
Overseas pensions
and medical
2018
£m
(3.2)
6.0
(1.1)
1.7
2017
£m
(2.9)
0.1
(1.3)
(4.1)
The expense is recognised in the following line items in the Consolidated Income Statement:
Operating costs
Net financing expense
Total expense recognised in Income Statement
The gain or loss recognised in the Statement of Comprehensive Income (OCI) was as follows:
Total
2018
£m
(10.3)
5.3
(2.0)
(7.0)
2018
£m
(5.0)
(2.0)
(7.0)
Remeasurement effects recognised in OCI:
Due to experience on DBO
Due to demographic assumption changes in DBO
Due to financial assumption changes in DBO
Return on assets
Total remeasurement gain/(loss) recognised in OCI
Deferred tax on remeasurement (gain)/loss and
change in rate recognised in OCI
Cumulative loss recognised in OCI at
beginning of year
Cumulative loss recognised in OCI at end
of year
UK pensions
2018
£m
(1.3)
0.9
19.5
(22.6)
(3.5)
0.6
(48.4)
(51.3)
2017
£m
(7.6)
5.3
(9.4)
24.9
13.2
(3.1)
(58.5)
(48.4)
Overseas pensions
and medical
2018
£m
2017
£m
Total
2018
£m
0.7
(5.0)
6.6
(4.7)
(2.4)
0.6
(20.6)
(22.4)
(0.9)
–
(5.5)
5.0
(1.4)
(2.0)
(17.2)
(20.6)
(0.6)
(4.1)
26.1
(27.3)
(5.9)
1.2
(69.0)
(73.7)
2017
£m
(10.3)
0.1
(2.5)
(12.7)
2017
£m
(10.2)
(2.5)
(12.7)
2017
£m
(8.5)
5.3
(14.9)
29.9
11.8
(5.1)
(75.7)
(69.0)
164
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 24 Employee benefits continued
Sensitivity analysis
The effect on the defined benefit obligation at 31st December 2018 of an increase or decrease in key assumptions is as follows:
Increase/(decrease) in pension deficit:
Discount rate assumption being 0.50% higher
Discount rate assumption being 0.50% lower
Inflation assumption being 0.50% higher
Inflation assumption being 0.50% lower
Mortality assumption life expectancy at age 65 being 1 year higher
UK pensions
£m
Overseas
pensions and
medical
£m
(34.4)
43.8
26.2
(26.4)
15.7
(6.0)
7.6
1.6
(1.4)
3.1
Total
£m
(40.4)
51.4
27.8
(27.8)
18.8
The average age of active participants in the UK schemes at 31st December 2018 was 52 years (2017: 52 years) and in the overseas
schemes 51 years (2017: 50 years).
Share-based payments
Disclosures of the share-based payments offered to employees are set out below. More detail on each scheme is given in the Annual
Report on Remuneration 2018 on pages 95 to 109. The charge to the Income Statement in respect of share-based payments is made
up as follows:
Performance Share Plan
Employee Share Ownership Plan
Total expense recognised in Income Statement
2018
£m
4.7
1.0
5.7
2017
£m
3.7
0.9
4.6
Share option scheme
The Group operates equity-settled share option schemes for employees, although no grants have been made since 2011 because
awards have been made using the Group’s Performance Share Plan instead. Awards were determined by the Remuneration Committee
whose objective was to align the interests of employees with those of shareholders by giving an incentive linked to added shareholder
value. Options are subject to performance conditions, which if met make the options exercisable between the third and tenth anniversary
of the date of grant. For options granted before 2007 the performance condition is an increase in earnings per share (EPS) of more than
9% greater than the increase in the UK Retail Price Index over a consecutive three-year period between grant and ten years from date of
grant. From 2007 the performance condition needs to be met over the three-year period from 1st January prior to the date of the grant.
If the condition is not met at the end of the three-year period the option will lapse.
The share options granted have been measured using the Present Economic Value (PEV) valuation methodology.
The number and weighted average exercise prices of share options are as follows:
Option (exercise price)
2008 grant (959.0p)
2009 grant (765.0p)
2010 grant (1366.0p)
2011 grant (1873.0p)
Weighted average exercise price
Weighted average contractual life remaining
Outstanding at
start of year
11,000
4,576
24,500
61,501
101,577
£16.02
Granted during
year
–
–
–
–
–
Exercised
during year
(11,000)
(575)
(4,404)
(7,100)
(23,079)
£13.13
Lapsed during
year
–
–
–
–
–
Outstanding at
end of year
–
4,001
20,096
54,401
78,498
£16.87
1.9
Performance conditions in respect of all exercisable shares have been met. The number of shares exercisable at 31st December 2018 is
78,498 (2017: 101,577). The weighted average share price during the period was £62.63 (2017: £52.55).
165
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
24 Employee benefits continued
Performance Share Plan
Awards under the Performance Share Plan are made to Executive Directors and other senior managers and take the form of contingent
rights to acquire shares, subject to the satisfaction of a performance target. To the extent that they vest, awards may be satisfied in cash,
in shares or an option over shares. The performance criteria is split into two separate parts. For awards granted from 2014 40% of the
award is based on a TSR measure where the performance target is based on the Company’s total shareholder return (TSR) relative to
the TSR of other companies included in the FTSE All-Share Industrial Engineering Sector over a three-year performance period where
awards will vest on a sliding scale. All shares within an award will vest if the Company’s TSR is at or above the upper quartile. 25% will
vest if the TSR is at the median and the number of shares that will vest will be calculated pro-rata on a straight line basis between 25%
and 100% if the Company’s TSR falls between the median and the upper quartile. No shares will vest if the Company’s TSR is below the
median. For awards granted from 2014 the second part, amounting to 60% of the award, is subject to achievement of a target based
on aggregate EPS over a three-year performance period. 25% will vest if the compound growth in EPS is equal to the growth in the UK
Retail Price Index plus 3% and 100% will vest if the compound growth in EPS is equal to or exceeds the growth in the UK Retail Price
Index plus 9%, there is pro-rata vesting for actual growth between these rates. Awards made prior to 2014 had a weighting of 60%
TSR and 40% EPS. From 2015 a change has been made to measure EPS on a point to point basis over the three-year performance
period. From 2016 EPS growth is measured against the growth of global industrial production (IP), as published by CHR Economics with
thresholds of plus 2% and plus 8%.
Shares awarded under the Performance Share Plan have been valued using the Monte Carlo simulation valuation methodology.
The relevant disclosures in respect of the Performance Share Plan grants are set out below.
Grant date
Mid market share price at grant date
Number of employees
Shares under scheme
Vesting period
Probability of vesting
Fair value
2013
Grant
2014
Grant
8th March 14th March
2873.0p
124
170,521
3 years
75.2%
2160.5p
2615.0p
105
168,708
3 years
62.5%
1634.4p
2015
Grant
11th June
3460.0p
101
140,090
3 years
71.5%
2473.9p
2016
Grant
5th April
3550.0p
141
152,440
3 years
70.8%
2513.4p
2017
Grant
26th May
5273.0p
128
137,001
3 years
73.1%
3854.5p
2018
Grant
4th April
5560.0p
134
145,041
3 years
73.5%
4084.4p
Employee Share Ownership Plan
UK employees are eligible to participate in the Employee Share Ownership Plan (ESOP). The aim of the ESOP is to encourage increased
shareholding in the Company by all UK employees and so there are no performance conditions. Employees are invited to join the ESOP
when an offer is made each year. Individuals save for 12 months during the accumulation period and subscribe for shares at the lower of
the price at the beginning and the end of the accumulation period under HMRC rules. The Company provides a matching share for each
share purchased by the individual.
Shares issued under the ESOP have been measured using the Present Economic Value (PEV) valuation methodology. The relevant
disclosures in respect of the Employee Share Ownership Plans are set out below.
Grant date
Exercise price
Number of employees
Shares under scheme
Vesting period
Expected volatility
Risk free interest rate
Expected dividend yield
Fair value
2014
Grant
1st October
2821.3p
1,064
34,204
3 years
20%
0.6%
2.5%
2948.3p
2015
Grant
1st October
2797.0p
1,038
34,449
3 years
21%
0.4%
2.5%
2931.3p
2016
Grant
1st October
4477.3p
1,040
22,173
3 years
21%
0.1%
2.5%
4696.7p
2017
Grant
2018
Grant
1st October 1st October
7240.0p
1,294
16,687
3 years
19%
0.8%
2.0%
7623.7p
5496.7p
1,229
22,411
3 years
21%
0.4%
2.3%
5799.0p
The accumulation period for the 2018 ESOP ends in September 2019, therefore some figures are projections.
166
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 25 Analysis of changes in net debt, including changes in liabilities arising from
financing activities
Current portion of long-term borrowings
Non-current portion of long-term borrowings
Short-term borrowings
Total borrowings
Comprising:
Borrowings
Finance leases
Cash at bank
Bank overdrafts
Net cash and cash equivalents
Net debt
At 1st
January
2018
£m
(49.3)
(455.9)
(20.0)
(525.2)
(524.9)
(0.3)
(525.2)
152.1
(0.5)
151.6
(373.6)
Cash flow
£m
Acquired debt
£m
Exchange
movement
£m
111.5
–
111.5
39.8
0.1
39.9
151.4
–
–
–
(0.3)
–
(0.3)
(0.3)
(8.8)
–
(8.8)
(4.5)
–
(4.5)
(13.3)
At 31st
December
2018
£m
(41.5)
(365.3)
(15.7)
(422.5)
(422.2)
(0.3)
(422.5)
187.1
(0.4)
186.7
(235.8)
The cash flow for borrowings includes repayments of US$89.2m on the US$200.0m term loan.
The present value of finance lease payments are shown in Note 19 on page 158.
26 Related party transactions
Transactions with Directors are disclosed separately in Note 8 and are shown in the Annual Report on Remuneration 2018 on pages 95
to 109.
There were no other related party transactions in either 2017 or 2018.
27 Purchase of businesses
2018
In January 2018, we acquired 100% of the share capital of a small German pre-revenue company within the Watson-Marlow Fluid
Technology business. The acquisition method of accounting has been used. Total consideration on a cash-free, debt-free basis at the
acquisition date was expected to be £8.4m (€9.5m). This includes £0.3m to repay a bank overdraft and £0.2m which was deemed to
be contingent remuneration rather than consideration under IFRS 3. £2.7m of the total £8.4m was paid on the acquisition date, with a
further £5.7m deferred. The deferred payment is dependent on satisfactory compliance with agreed conditions. Separately identified
intangibles are recorded as part of the provisional fair value adjustment. The fair value of net assets on acquisition under IFRS 3 were
£5.9m consisting of:
• Acquired intangibles, valued at £7.8m, relating to manufacturing designs, core technology and non-compete undertakings;
• A deferred tax liability of £1.8m recognised on the acquired intangibles;
• Property, plant and equipment of £0.2m; and
• A bank overdraft of £0.3m.
Goodwill of £2.0m was recognised and is not expected to be tax deductible. Total consideration under IFRS 3 is therefore £7.9m. In the
12 months ending 31st December 2018 the acquisition generated £nil of revenue and a loss of £1.3m. Had the acquisition been made
on the 1st January 2018 the revenue and loss would have been the same.
During the period the deferred consideration we expect to pay was reassessed resulting in a reduction of £0.6m to £5.1m.
During the period the fair value of the assets acquired as part of the acquisition of Chromalox Inc. and associated businesses on
3rd July 2017 were finalised. The outcome was an increase to goodwill of £2.2m.
During the period the Group acquired several distributors creating acquired intangibles of £1.3m.
167
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
27 Purchase of businesses continued
2017
The provisional fair value accounting for acquisitions made during 2017 is shown below:
Non-current assets:
Property, plant and equipment
Acquired intangibles
Software and other intangibles
Deferred tax assets
Current assets:
Inventories
Trade receivables
Other receivables
Cash
Total assets
Current liabilities:
Trade payables
Other payables, accruals and provisions
Non-current liabilities:
Long-term borrowings
Deferred tax liabilities
Post retirement benefit plans
Total liabilities
Total net assets
Goodwill
Total
Satisfied by:
Cash paid
Deferred consideration
Cash outflow for acquired businesses in the Statement of Cash Flows (page 136):
Cash paid for businesses acquired in the period and debt repaid on the acquisition date
Debt repaid on acquisition date
Cash paid for businesses acquired in the period
Less cash acquired
Net cash outflow
Acquisitions
Gestra
fair value
£m
Chromalox
fair value
£m
Total
fair value
£m
10.5
54.9
0.2
2.0
67.6
12.0
11.6
0.2
18.4
42.2
109.8
2.1
5.8
7.9
–
19.6
1.7
21.3
29.2
80.6
90.8
171.4
171.4
–
171.4
171.4
–
171.4
(18.4)
153.0
16.1
163.8
1.6
3.8
185.3
21.3
20.6
5.9
17.6
65.4
250.7
14.6
8.7
23.3
131.4
66.0
–
197.4
220.7
30.0
177.2
207.2
207.2
–
207.2
338.6
(131.4)
207.2
(17.6)
189.6
26.6
218.7
1.8
5.8
252.9
33.3
32.2
6.1
36.0
107.6
360.5
16.7
14.5
31.2
131.4
85.6
1.7
218.7
249.9
110.6
268.0
378.6
378.6
–
378.6
510.0
(131.4)
378.6
(36.0)
342.6
1. On a debt-free cash-free basis the cash outflow for acquisitions was £484.3m consisting of £378.6m paid to the vendors, £131.4m of
Chromalox debt repaid on the acquisition date, £10.3m of acquisition costs less cash acquired of £36.0m.
168
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 27 Purchase of businesses continued
2. The acquisition of 100% of Chromalox Inc. and associated businesses was completed on 3rd July 2017. The acquisition method
of accounting has been used. Consideration of £338.6m was paid on completion. Separately identified intangibles are recorded
as part of the provisional fair value adjustment. The acquired intangibles relate to brand names and trademarks, manufacturing
designs and core technology and customer relationships. The goodwill recognised represents the skilled workforce acquired
and the opportunity to achieve synergies from being part of a larger Group. Goodwill arising is not expected to be tax deductible.
The acquisition generated £75m of revenue and £14m of adjusted pre-tax profit in 2017 since acquisition. Had the acquisition been
made on the 1st January 2017, the Chromalox revenue and adjusted pre-tax profit in 2017 would have been approximately £146m
and £26m respectively. Chromalox, which has its headquarters in Pittsburgh, USA, is a well-established provider of thermal energy
management solutions for industrial process heating and temperature management. Chromalox is highly complementary to our
Steam Specialties business with the decision between using steam or electricity as a heating medium being driven by differing
needs of the application or customer circumstances. During 2018 the fair value of the assets acquired were finalised. The outcome
was an increase to goodwill of £2.2m.
3. The acquisition of 99.96% of Gestra AG and associated businesses (Gestra) was completed on the 2nd May 2017. The acquisition
method of accounting has been used. Consideration of £171.4m was paid on completion. Separately identified intangibles
are recorded as part of the provisional fair value adjustment. The acquired intangibles relate to brand names and trademarks,
manufacturing designs and core technology and customer relationships. The Goodwill recognised represents the skilled workforce
acquired and the opportunity to achieve synergies from being part of a larger Group. The acquisition generated £51m of revenue and
£8m of adjusted pre-tax profit in 2017 since acquisition. Had the acquisition been made on the 1st January 2017, the Gestra revenue
and adjusted pre-tax profit in 2017 would have been approximately £77m and £11m respectively. Gestra, which has its headquarters
in Bremen, Germany, is a technology leader in advanced industrial boiler control systems and specialises in the design and
production of valves and control systems for steam and fluid process control. Gestra is highly complementary to the Spirax Sarco
Steam Specialties business and will enhance and accelerate the implementation of Spirax Sarco’s strategy for growth, as a result of
its well-developed capabilities in a wide range of industries and applications.
4. During 2017 the fair value of the assets acquired as part of the acquisition of the process control valve manufacturer, Hiter Industria
e Comercio de Controles Termo-Hidraulicos Ltda (Hiter) on 1st July 2016 were reassessed. The outcome of the reassessment was
an increase to goodwill of £1.1 million. This is not included in the table above but is shown as an addition to goodwill in Note 14 on
page 154.
5. £10.3 million of acquisition costs were incurred during 2017 (2016: £0.5m).
28 Disposal of subsidiary
The profit on disposal of subsidiary wholly relates to the disposal of 100% of HygroMatik GmbH on 30th November 2018.
Property, plant and equipment
Inventory
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Post retirement benefit
Net assets disposed
Consideration received, satisfied in cash
Cash disposed of
Transaction expenses
Net proceeds from disposal of subsidiary
Contingent consideration
Cash disposed of
Net assets disposed of
Currency translation differences transferred from translation reserve
Profit on disposal of subsidiary
Net proceeds from disposal of subsidiary
Amount received to settle outstanding intercompany loan
Cash inflow per Consolidated Statement of Cash Flows
2018
£m
1.3
1.7
1.6
0.5
(4.4)
(0.1)
0.6
49.7
(0.5)
(2.0)
47.2
–
0.5
(0.6)
0.3
47.4
47.2
4.3
51.5
The sale of HygroMatik did not meet the definition of a discontinued operation given in IFRS 5 (Non-Current Assets Held for Sale and
Discontinued Operations) and, therefore, no disclosures in relation to discontinued operations have been made. On a debt-free, cash-
free basis including working capital adjustments the total cash consideration was £52.3m.
The Group did not divest any businesses during 2017.
169
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
29 Derivatives and other financial instruments
The Group does not enter into significant derivative transactions. The Group’s principal financial instruments comprise loans, cash and
short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has
various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been
throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk.
The Board reviews and agrees policies for managing each of these risks and they are summarised below.
Credit risk
The Group sells products and services to customers around the world and its customer base is extremely varied in size and industry
sector. The Group operates credit control policies to assess customers’ credit ratings and provides for any debt that is identified as non-
collectable.
Interest rate risk
The Group borrows in desired currencies at both fixed and floating rates of interest as appropriate to the purposes of the borrowing.
Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, loans, facilities
and finance leases as appropriate.
Foreign currency risk
The Group has operations around the world and therefore its Consolidated Statement of Financial Position can be affected significantly
by movements in the rate of exchange between sterling and various other currencies particularly the US dollar and euro. The Group
seeks to mitigate the effect of this structural currency exposure by borrowing in these currencies where appropriate while maintaining a
low cost of debt.
The Group also has transactional currency exposures principally as a result of trading between Group companies. Such exposures
arise from sales or purchases by an operating unit in currencies other than the unit’s functional currency. Net cash flows between
any two currencies of less than £1.0 million per annum would not usually be considered sufficiently material to warrant forward cover.
Forward cover is not taken out more than 24 months in advance or for more than 90% of the next 12 months and 60% of the following
12 months’ forecast exposure.
170
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 29 Derivatives and other financial instruments continued
Fair values
The following table compares amounts and fair values of the Group’s financial assets and liabilities:
Financial assets:
Cash and cash equivalents
Trade, other receivables and contract assets
Total financial assets
Financial liabilities:
Loans
Finance lease obligations
Bank overdrafts
Trade payables
Other payables and contract liabilities
Total financial liabilities
2018
Fair
value
£m
187.1
264.9
452.0
2018
Carrying
value
£m
422.2
0.3
0.4
57.4
46.5
526.8
2018
Carrying
value
£m
187.1
264.9
452.0
2018
Fair
value
£m
422.2
0.3
0.4
57.4
46.5
526.8
2017
Carrying
value
£m
152.1
250.8
402.9
2017
Carrying
value
£m
524.9
0.3
0.5
51.3
39.8
616.8
2017
Fair
value
£m
152.1
250.8
402.9
2017
Fair
value
£m
524.9
0.3
0.5
51.3
39.8
616.8
There are no other assets or liabilities measured at fair value on a recurring or non-recurring basis for which fair value is disclosed.
Derivative financial instruments are measured at fair value. Fair value of derivative financial instruments are calculated based on
discounted cash flow analysis using appropriate market information for the duration of the instruments.
Financial instruments fair value disclosure
Fair value measurements are classified into three levels, depending on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets and liabilities;
• Level 2 fair value measurements are those derived from other observable inputs for the asset or liability; and
• Level 3 fair value measurements are those derived from valuation techniques using inputs that are not based on observable
market data.
We consider that the derivative financial instruments fall into Level 2.
171
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
29 Derivatives and other financial instruments continued
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 31st December was as follows:
2018
Euro
US dollar
Sterling
Renminbi
Other
Group total
2017
Euro
US dollar
Sterling
Renminbi
Other
Group total
Fixed rate
financial
liabilities
£m
202.6
–
–
13.7
0.5
216.8
Fixed rate
financial
liabilities
£m
200.6
0.1
–
13.6
0.3
214.6
Floating rate
financial
liabilities
£m
145.9
60.9
2.0
–
0.2
209.0
Floating rate
financial
liabilities
£m
142.3
124.0
46.5
–
0.1
312.9
Financial
liabilities on
which no
interest is paid
£m
28.2
20.5
12.0
16.4
23.9
101.0
Financial
liabilities on
which no
interest is paid
£m
23.9
16.1
10.7
13.1
25.5
89.3
Total
£m
376.7
81.4
14.0
30.1
24.6
526.8
Total
£m
366.8
140.2
57.2
26.7
25.9
616.8
Terms and debt repayment schedule
The terms and conditions of outstanding loans were as follows:
Unsecured private placement - €225.0m
Unsecured bank facility - €160.0m
Unsecured bank facility - $77.5m
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Finance leases
Unsecured bank facility
Finance leases
Finance leases
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Finance leases
Total outstanding loans
Currency
€
€
$
CNY
£
€
S$
€
CAD
YEN
£
$
£
IDR
Year
Nominal
of maturity
interest rate
2023
1.1%
2021
0.7%
2020
3.1%
2019
4.5%
2019
1.6%
0.9%
2019
2.8% 2018-2021
2019
4.0% 2018-2021
2023
1.4%
2021
1.2%
2019
2.9%
2019
1.8%
2018
–
10.4%
2018
Carrying value
£m
202.0
143.6
60.9
13.7
2.0
0.3
0.1
0.1
0.1
0.1
–
–
–
–
422.9
2017
Carrying value
£m
199.7
142.0
123.2
13.6
5.5
0.3
0.1
–
0.1
–
40.0
0.9
0.2
0.1
525.7
172
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 29 Derivatives and other financial instruments continued
The weighted average interest rate paid during the year was 1.5% (2017: 1.3%).
Interest rate risk profile of financial assets
The interest rate profile of the financial assets of the Group as at 31st December was as follows:
2018
Sterling
Euro
US dollar
Renminbi
Other
Group total
2017
Sterling
Euro
US dollar
Renminbi
Other
Group total
Fixed rate
financial
assets
£m
–
1.3
8.4
1.1
14.0
24.8
Fixed rate
financial
assets
£m
–
2.8
–
0.7
5.1
8.6
Floating rate
financial
assets
£m
0.2
17.1
5.1
19.2
8.9
50.5
Floating rate
financial
assets
£m
2.4
15.9
3.0
13.9
17.4
52.6
Total
£m
32.9
131.8
100.1
49.5
137.7
452.0
Total
£m
27.0
125.0
80.2
41.3
129.4
402.9
Financial
assets on
which no
interest is
earned
£m
32.7
113.4
86.6
29.2
114.8
376.7
Financial
assets on
which no
interest is
earned
£m
24.6
106.3
77.2
26.7
106.9
341.7
Financial assets on which no interest is earned comprise trade and other receivables and cash at bank.
Floating and fixed rate financial assets comprise cash at bank or placed on money market deposit mainly at call and three month rates.
The average rate of interest received on sterling deposits during the year was £nil (2017: £nil).
Currency exposures
As explained on page 170, the Group’s objectives in managing the currency exposures arising from its net investment overseas (in other
words, its structural currency exposures) are to maintain a low cost of debt while partially hedging against currency depreciation. All gains
and losses arising from these structural currency exposures are recognised in the Consolidated Statement of Comprehensive Income.
Transactional (or non-structural) exposures give rise to net currency gains and losses that are recognised in the Consolidated Income
Statement. Such exposures include the monetary assets and monetary liabilities in the Consolidated Statement of Financial Position
that are not denominated in the operating (or functional) currency of the operating unit involved. At 31st December 2018 the currency
exposures in respect of the euro was a net monetary liability of £191.1m (2017: £191.3m net monetary liability) and in respect of the US
dollar a net monetary liability of £40.5m (2017: net monetary liability £101.1m).
At 31st December 2018, the percentage of debt to net assets, excluding debt was 29% (2017: 30%) for the euro, 5% (2017: 11%) for
the US dollar and 1% (2017: 1%) for the Chinese renminbi.
173
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
29 Derivatives and other financial instruments continued
Maturity of financial liabilities
The Group’s financial liabilities at 31st December mature in the following periods:
2018
In six months or less, or on demand
In more than six months but no more than 12
In more than one year but no more than two
In more than two years but no more than three
In more than three years but no more than four
In more than four years but no more than five
In more than five years
Total contractual cash flows
Statement of Financial Position values
2017
In six months or less, or on demand
In more than six months but no more than 12
In more than one year but no more than two
In more than two years but no more than three
In more than three years but no more than four
In more than four years but no more than five
In more than five years
Total contractual cash flows
Statement of Financial Position values
Trade,
other payables
and contract
liabilities
£m
97.7
6.1
0.1
–
–
–
–
103.9
103.9
Trade and
other
payables
£m
89.3
1.8
–
–
–
–
–
91.1
91.1
Overdrafts
£m
0.4
–
–
–
–
–
–
0.4
0.4
Overdrafts
£m
0.3
0.2
–
–
–
–
–
0.5
0.5
Short-term
borrowings
£m
13.4
2.3
–
–
–
–
–
15.7
15.7
Short-term
borrowings
£m
17.8
2.2
–
–
–
–
–
20.0
20.0
Finance
leases
£m
0.1
0.1
0.1
–
–
–
–
0.3
0.3
Finance
leases
£m
0.1
0.1
0.1
–
–
–
–
0.3
0.3
Long-term
borrowings
£m
24.1
22.8
23.8
146.1
2.1
204.1
–
423.0
406.5
Long-term
borrowings
£m
27.6
51.9
69.1
28.0
144.4
2.1
202.0
525.1
504.9
Total
£m
135.7
31.3
23.9
146.1
2.2
204.1
–
543.3
526.8
Total
£m
135.1
56.2
69.2
28.0
144.4
2.1
202.0
637.0
616.8
Cash flow hedges
The Group uses forward currency contracts to manage its exposure to movements in foreign exchange rates. The forward contracts are
designated as hedging instruments in a cash flow hedging relationship. At 31st December 2018 the Group had contracts outstanding
to purchase £14.1m (2017: £1.2m), and €5.7m (2017: €0.5) with US dollars, £1.1m (2017: £1.5m) with Danish krone, £17.8m (2017: £3.8m)
with euros, £0.1m (2017: £nil) with Japanese yen, £1.9m (2017: £0.6m) and €0.4m (2017: €0.0m) with Korean won, £0.2m (2017: £0.2m)
with Canadian dollars and £0.5m, (2017: £nil) with Swiss franc. The fair values at the end of the reporting period were an asset of £0.1m
(2017: £0.2m asset). The fair value of cash flow hedges falls into the Level 2 category of the fair value hierarchy in accordance with IFRS 7.
The fair value of derivative financial instruments is estimated by discounting the future contracted cash flow using readily available
market data.
174
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 29 Derivatives and other financial instruments continued
The contractual cash flows on forward currency contracts at the reporting date are shown below, classified by maturity. The cash flows
shown are on a gross basis and are not discounted.
2018
(Sale)/purchase contracts:
Sterling
Euro
US dollar
Korean won
Other
Total contractual cash flows
2017
(Sale)/purchase contracts:
Sterling
Euro
US dollar
Korean won
Other
Total contractual cash flows
Less than
6 months
£m
6 to 12
months
£m
More than
12 months
£m
23.3
(7.0)
(13.1)
(2.2)
(1.0)
–
12.2
(5.3)
(6.1)
–
(0.8)
–
–
–
–
–
–
–
Less than
6 months
£m
6 to 12 months
£m
More than
12 months
£m
4.0
(1.6)
(0.8)
(0.6)
(1.0)
–
3.3
(1.8)
(0.8)
–
(0.7)
–
–
–
–
–
–
–
Total
£m
35.5
(12.3)
(19.2)
(2.2)
(1.8)
–
Total
£m
7.3
(3.4)
(1.6)
(0.6)
(1.7)
–
It is anticipated that the cash flows will take place at the same time as the corresponding forward contract matures. At this time the
amount deferred in equity will be reclassified to profit or loss.
All forecast transactions which have been subject to hedge accounting during the year have occurred or are still expected to occur.
A loss on derivative financial instruments of £0.1m (2017: profit of £0.2m) was recognised in other comprehensive income during
the period.
No amount (2017: £nil) was removed from equity during the period and included in the initial cost or other carrying amount of a non-
financial asset or non-financial liability whose acquisition or incurrence was a hedged highly probable forecast transaction.
As at 31st December 2018 no ineffectiveness has been recognised in profit or loss arising from hedging foreign currency transactions.
Borrowing facilities
The Group has various borrowing facilities available to it. The undrawn committed facilities available at 31st December in respect of
which all conditions precedent had been met at that date were as follows:
Expiring in one year or less
Expiring in more than one year but no more than two years
Expiring in more than two years but no more than three years
Expiring in more than three years
Total Group undrawn committed facilities
2018
£m
21.5
17.7
160.0
–
199.2
2017
£m
39.9
70.0
–
–
109.9
At 31st December 2018, the Group had available £160.0m (2017: £70.0m) of undrawn committed borrowing facilities in respect of its
GBP £160m revolving credit facilities, of which all conditions precedent had been met. These facilities expire on 31st December 2021.
The remainder of the undrawn committed borrowing facilities are represented by RMB 155m overdraft facilities, GBP £15m of overdraft
and money market facilities, and local overdraft facilities used to support short-term working capital.
175
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Consolidated Financial Statements
continued
29 Derivatives and other financial instruments continued
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 31st December 2018 are not materially different from book values due to their size or the
fact that they were at short-term rates of interest. Fair values have been assessed as follows:
• Derivatives
Forward exchange contracts are marked to market by discounting the future contracted cash flows using readily available
market data.
• Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
• Finance lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease
agreements. The estimated fair values reflect change in interest rates.
• Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value.
Sensitivity analysis
In managing interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations on the Group’s
earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on
consolidated earnings. At the year end borrowings totalled £422.9m (2017: £525.7m). At 31st December 2018, it is estimated that a
general increase of one percentage point in interest rates would decrease the Group’s profit after tax and equity by approximately £3.1m
(2017: £1.5m).
For the year ended 31st December 2018, it is estimated that a decrease of one percentage point in the value of sterling weighted in
relation to the Group’s profit and trading flows would have increased the Group’s profit before tax by approximately £2.3m (2017: £1.8m).
The effect can be very different between years due to the weighting of different currency movements. Forward exchange contracts have
been included in this calculation.
The credit risk profile of trade receivables
The ageing of trade receivables at the reporting date was:
Not past due date
0–30 days past due date
31–90 days past due date
91 days to one year past due date
More than one year
Group total
Gross
2018
£m
164.6
41.4
23.8
15.6
9.5
254.9
Impairment
2018
£m
(0.5)
(0.1)
(0.6)
(1.4)
(7.2)
(9.8)
Gross
2017
£m
153.7
43.0
25.6
15.2
9.6
247.1
Impairment
2017
£m
(0.4)
(0.1)
(0.5)
(1.5)
(7.1)
(9.6)
Other than those disclosed above no other impairment losses on receivables and contract assets arising from contracts with customers
have been recognised. Other than trade receivables there are no financial assets that are past their due date at 31st December 2018.
Payment terms across the Group vary dependent on the geographic location of each operating company. Payment is typically due
between 20 and 100 days after the invoice is issued.
All contracts with customers do not contain a significant financing component.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1st January
Additional impairment
Amounts written off as uncollectable
Amounts recovered
Impairment losses reversed
Exchange differences
Balance at 31st December
176
2018
£m
9.6
2.8
(0.7)
(0.5)
(1.4)
–
9.8
2017
£m
12.2
3.1
(1.7)
(0.2)
(3.7)
(0.1)
9.6
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 30 Events after the balance sheet date
On 18th February 2019 we announced that we had entered into exclusive negotiations with a view to acquiring 100% of the share capital
of Thermocoax Developpement (Thermocoax), based in France, for a debt-free, cash-free consideration of €158m (£139m).
Thermocoax is a leading designer and manufacturer of highly engineered electrical thermal solutions for critical applications in high
added value industries.
We anticipate that Thermocoax will become part of our Chromalox business and will significantly enhance our electrical process heating
business, especially in Europe. Thermocoax enables us to address critical high value applications where product cost is a secondary
concern to reliability and performance and allows for cross-selling opportunities for both businesses, strengthening Thermocoax’s
presence in North America and Chromalox’s presence in Europe.
In the year ended 31st December 2018, Thermocoax recorded revenues of €49.8m (£43.9m), EBITDA of €12.9m (£11.4m) and adjusted
operating profit of €12.1m (£10.7m). In 2018, 54% of the company’s revenues were in EMEA with 32% in the Americas and 14% in Asia
Pacific. At 31st December 2018, Thermocoax’s gross assets were €94.6m (£83.0m).
The purchase will be financed from existing cash and debt facilities and is expected to be accretive to Group earnings in 2019.
Upon completion of the exclusive negotiations, the transaction will require certain regulatory approvals in France, Germany and the USA.
These regulatory approvals are expected to be satisfied during the second quarter of 2019.
177
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Company Financial
Statements
In this section
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
179
180
181
178
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Company Statement of Financial Position
at 31st December 2018
Assets
Non-current assets
Property, plant and equipment
Loans to subsidiaries
Investment in subsidiaries
Deferred tax assets
Post-retirement benefits
Current assets
Due from subsidiaries
Other current assets
Cash and cash equivalents
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Current portion of long-term borrowings
Short-term borrowings
Net current assets
Non-current liabilities
Long-term borrowings
Deferred tax liabilities
Due to subsidiaries
Total liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Equity shareholders’ funds
Total equity
Total equity and liabilities
Notes
2018
£m
2017
£m
11
3/9
2
6
7
3/9
4
5
10
10
6
9
8
8
7.5
285.6
445.8
–
3.7
742.6
135.2
2.9
0.3
138.4
881.0
3.4
41.2
2.0
46.6
91.8
221.7
0.6
13.3
235.6
282.2
598.8
19.8
77.8
13.6
487.6
598.8
598.8
881.0
8.2
272.0
269.4
1.2
4.3
555.1
234.1
7.7
0.7
242.5
797.6
4.6
49.3
5.7
59.6
182.9
313.6
0.7
6.4
320.7
380.3
417.3
19.8
75.1
12.2
310.2
417.3
417.3
797.6
The loss before dividends received was £17.5m (2017: £22.7m). Dividends from subsidiary undertakings of £265.4m (2017: £154.6m) are
excluded from this amount.
These Financial Statements of Spirax-Sarco Engineering plc, company number 00596337 were approved by the Board of Directors and
authorised for issue on 6th March 2019 and signed on its behalf by:
N.J. Anderson
K.J. Boyd Directors
179
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Company Statement of Changes in Equity
for the year ended 31st December 2018
Balance at 1st January 2018
Profit for the year
Other comprehensive (expense)/income:
Remeasurement loss on post-retirement benefits
Deferred tax on remeasurement loss on post-retirement
benefits
Total other comprehensive expense for the year
Total comprehensive income for the year
Contributions by and distributions to owners of
the Company:
Dividends paid
Equity settled share plans net of tax
Issue of share capital
Employee Benefit Trust shares
Investment in subsidiaries in relation to share options
granted
Balance at 31st December 2018
For the year ended 31st December 2017
Balance at 1st January 2017
Profit for the year
Other comprehensive (expense)/income:
Remeasurement gain on post-retirement benefits
Deferred tax on remeasurement gain on post-retirement
benefits
Total other comprehensive income for the year
Total comprehensive income for the year
Contributions by and distributions to owners of
the Company:
Dividends paid
Equity settled share plans net of tax
Issue of share capital
Employee Benefit Trust shares
Investment in subsidiaries in relation to share options
granted
Balance at 31st December 2017
Share
capital
£m
19.8
Share
premium
account
£m
75.1
Other
reserves
£m
12.2
Retained
earnings
£m
310.2
247.9
Total
equity
£m
417.3
247.9
(0.6)
(0.6)
–
–
–
–
–
–
–
–
19.8
Share
capital
£m
19.8
–
–
–
–
–
–
–
–
–
–
19.8
–
–
–
–
–
2.7
–
–
77.8
–
–
–
–
–
–
(1.2)
2.6
13.6
0.1
(0.5)
247.4
(67.0)
(3.0)
–
–
–
487.6
Share
premium
account
£m
72.7
–
Other
reserves
£m
8.2
–
Retained
earnings
£m
236.7
131.9
0.1
(0.5)
247.4
(67.0)
(3.0)
2.7
(1.2)
2.6
598.8
Total
equity
£m
337.4
131.9
–
–
–
–
–
–
2.4
–
–
75.1
–
–
–
–
–
–
–
1.9
2.1
12.2
(0.5)
(0.5)
0.1
(0.4)
131.5
(58.1)
0.1
–
–
–
310.2
0.1
(0.4)
131.5
(58.1)
0.1
2.4
1.9
2.1
417.3
Other reserves represent the Company’s share-based payments, capital redemption and Employee Benefit Trust reserves (see Note 8).
The Notes on pages 181 to 187 form an integral part of the Financial Statements.
180
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 Notes to the Company Financial Statements
1 Accounting policies
The separate Financial Statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under FRS 100. Accordingly the Company has adopted FRS 101 (Reduced Disclosure Framework).
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to
share-based payments, financial instruments and the presentation of a Cash Flow Statement. Where relevant, equivalent disclosures
have been given in the Consolidated Financial Statements.
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Income Statement.
As permitted by the audit fee disclosure regulations, disclosure of non-audit fees information is not included in respect of the Company.
The Company’s accounting policies are the same as those set out in Note 1 of the Consolidated Financial Statements, except as
noted below.
The Directors have concluded that no critical judgements or key sources of estimation uncertainty have been made in the process of
applying the Company’s accounting policies.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Loans to or from other Group undertakings and all other payables and receivables are initially recorded at fair value, which is generally
the proceeds received. They are then subsequently carried at amortised cost.
2 Investments in subsidiaries
Cost:
At 1st January
Share options issued to subsidiary company employees
Additions
At 31st December
2018
£m
269.4
2.6
173.8
445.8
2017
£m
217.3
2.1
50.0
269.4
Investments are stated at cost less provisions for any impairment in value.
Additions in the year relate to investments in Spirax-Sarco Overseas Limited (£3.0m) and Spirax Sarco America Investments Limited
(£170.8m). Spirax Sarco America Investments Limited was incorporated on 24th October 2018 with the purpose of holding Group US$
investments and loans.
Details relating to subsidiary undertakings are given on pages 189 to 193. Except where stated all classes of shares were 100% owned
by the Group at 31st December 2018. The country of incorporation of the principal Group companies is the same as the country of
operation with the exception of companies operating in the United Kingdom which are incorporated in Great Britain. All operate in steam,
electrical thermal energy solutions, fluid path technologies or peristaltic pumping markets except those companies identified as a holding
company on pages 189 to 193.
181
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Company Financial Statements
continued
3 Loans to subsidiaries
Cost:
At 1st January
Advances
Interest
Repayments
Exchange adjustment
At 31st December
The terms and conditions of loans to subsidiaries at 31st December 2018 were as follows:
Currency
€
$
$
Nominal
interest rate
1.10%
2.20%
2.20%
Year of
maturity
2023
2020
2020
Spirax-Sarco Overseas Limited
Spirax-Sarco Investments Limited
Spirax-Sarco America Limited
Total loans to subsidiaries
Due before 31st December 2019
Due after 31st December 2019
4 Other current assets
Prepayments and accrued income
Total other current assets
5 Trade and other payables
Accruals
Other Payables
Total trade and other payables
Trade and other payables are due within one year.
6 Deferred tax assets and liabilities
Movement in deferred tax during the year 2018
2018
£m
321.3
–
4.2
(46.5)
6.6
285.6
2018
£m
200.6
3.7
81.3
285.6
–
285.6
2018
£m
2.9
2.9
2018
£m
3.3
0.1
3.4
2017
£m
–
334.5
–
(18.0)
4.8
321.3
2017
£m
198.1
123.2
–
321.3
49.3
272.0
2017
£m
7.7
7.7
2017
£m
4.6
–
4.6
Other temporary differences (asset)
Pensions (liability)
Company total
1st January
2018
£m
1.2
(0.7)
0.5
Recognised
in income
£m
(1.2)
–
(1.2)
Recognised
in OCI
£m
–
0.1
0.1
Recognised
in equity
£m
–
–
–
31st December
2018
£m
–
(0.6)
(0.6)
Movement in deferred tax during the year 2017
1st January
2017
£m
0.9
(0.8)
0.1
Recognised
in income
£m
0.3
–
0.3
Recognised
in OCI
£m
–
0.1
0.1
Recognised
in equity
£m
–
–
–
31st December
2017
£m
1.2
(0.7)
0.5
Other temporary differences (asset)
Pensions (liability)
Company total
182
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 7 Employee benefits
Pension plans
The Company is accounting for pension costs in accordance with International Accounting Standard 19.
The disclosures shown here are in respect of the Company’s defined benefit obligations. Other plans operated by the Company were
defined contribution plans.
The total expense relating to the Company’s defined contribution pension plans in the current year was £0.6m (2017: £0.5m).
At 31st December 2018 the post-retirement mortality assumptions in respect of the Company Defined Benefit Scheme follows 85% of
SAPS S2 Light base table for males and 96% of SAPS S2 base table for females with CMI Core Projection Model 2016 improvements
commencing in 2007, subject to a 1.25% p.a. long-term trend. At 31st December 2017 the post-retirement mortality assumption followed
the SAPS S2 light base table, with 2016 CMI Core Projection model from 2007, with a long-term trend of 1.25% p.a. These assumptions
are regularly reviewed in light of scheme specific experience and more widely available statistics.
The financial assumptions used at 31st December were:
Rate of increase in salaries
Rate of increase in pensions
Rate of price inflation
Discount rate
Weighted-average
assumptions used to define the
benefit obligations
2018
%
2.7
2.9
3.2
2.7
2017
%
2.6
2.9
3.1
2.4
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions, which due to the
timescale covered, may not necessarily be borne out in practice.
Fair value of scheme assets:
Equities
Bonds
Other
Total market value in aggregate
£1.4m (2017: £2.3m) of scheme assets have a quoted market price in an active market.
The actual return on plan assets was a loss of £1.0m (2017: £3.7m return).
The amounts recognised in the Company Statement of Financial Position are determined as follows:
Fair value of scheme’s assets
Present value of funded scheme’s liabilities
Retirement benefit asset recognised in the Statement of Financial Position
Related deferred tax
Net pension asset
2018
£m
7.8
46.8
1.8
56.4
2018
£m
56.4
(52.7)
3.7
(0.6)
3.1
2017
£m
9.3
48.8
1.9
60.0
2017
£m
60.0
(55.7)
4.3
(0.7)
3.6
183
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Company Financial Statements
continued
7 Employee benefits continued
The movements in the Defined Benefit Obligation (DBO) recognised in the Statement of Financial Position during the year were:
Defined benefit obligation at beginning of year
Current service cost
Interest cost
Contributions from members
Remeasurement gain/(loss)
Actual benefit payments
Experience loss
Defined benefit obligation at end of year
The movements in the fair value of plan assets during the year were:
Value of assets at beginning of year
Expected return on assets
Remeasurement gain/(loss)
Contributions paid by employer
Contributions from members
Actual benefit payments
Value of assets at end of year
The estimated employer contributions to be made in 2019 are £nil.
The history of experience adjustments is as follows:
Defined benefit obligation at end of year
Fair value of scheme’s assets
Retirement benefit recognised in the Statement of
Financial Position
Experience adjustment on scheme’s liabilities
As a percentage of scheme’s liabilities
Experience adjustment on scheme’s assets
As a percentage of scheme’s assets
2018
£m
(52.7)
56.4
3.7
(0.3)
0.1%
(2.4)
4.3%
2017
£m
(55.7)
60.0
4.3
(1.2)
2.2%
2.2
3.7%
2016
£m
(54.1)
58.8
4.7
0.5
0.9%
7.6
13.0%
The expense recognised in the Company Income Statement was as follows:
Current service cost
Net interest on scheme’s assets and liabilities
Total expense recognised in Income Statement
2018
£m
(55.7)
(0.1)
(1.3)
–
2.1
2.6
(0.3)
(52.7)
2018
£m
60.0
1.4
(2.4)
–
–
(2.6)
56.4
2015
£m
(48.1)
51.7
3.6
1.0
2.0%
(1.2)
2.3%
2018
£m
(0.1)
0.1
–
2017
£m
(54.1)
(0.1)
(1.4)
–
(1.5)
2.6
(1.2)
(55.7)
2017
£m
58.8
1.5
2.2
0.1
–
(2.6)
60.0
2014
£m
(54.4)
57.0
2.6
0.7
1.3%
3.1
5.4%
2017
£m
(0.1)
0.1
–
184
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 7 Employee benefits continued
Statement of Comprehensive Income (OCI)
Remeasurement effects recognised in OCI:
Due to experience on DBO
Due to demographic assumption changes in DBO
Due to financial assumption changes in DBO
Return on assets
Total remeasurement loss recognised in OCI
Deferred tax on remeasurement amount recognised in OCI
Cumulative loss recognised in OCI at beginning of year
Cumulative loss recognised in OCI at end of year
2018
£m
(0.3)
0.4
1.7
(2.4)
(0.6)
0.1
(11.2)
(11.7)
Sensitivity analysis
The effect on the defined benefit obligation at 31st December 2018 of an increase or decrease in key assumptions is as follows:
Increase/(decrease) in pension defined benefit obligation
Discount rate assumption being 0.5% higher
Discount rate assumption being 0.5% lower
Inflation assumption being 0.5% higher
Inflation assumption being 0.5% lower
Mortality assumption life expectancy at age 65 being 1 year higher
2017
£m
(1.2)
(0.7)
(0.8)
2.2
(0.5)
0.1
(10.8)
(11.2)
£m
2.8
(3.4)
(2.0)
2.0
1.8
Share-based payments
Disclosures of the share-based payments offered to employees of the Company are set out below. The description and operation of
each scheme is the same as outlined in the Group disclosure.
Share Option Scheme
As at 31st December 2018 the number of shares outstanding were nil, due to performance conditions in respect of all exercisable shares
being met. No options have been granted since 2011.
Performance Share Plan
The relevant disclosures in respect of the Performance Share Plan grants are set out below.
Grant date
Mid market share price at grant date
Number of employees
Shares under scheme
Vesting period
Probability of vesting
Fair value
2014
Grant
14th March
2873.0p
11
61,154
3 years
75.2%
2160.5p
2015
Grant
11th June
3460.0p
15
70,290
3 years
71.5%
2473.9p
2016
Grant
5th April
3550.0p
13
69,890
3 years
70.8%
2513.4p
2017
Grant
26th May
5256.0p
12
62,356
3 years
73.1%
3842.1p
2018
Grant
4th April
5560.0p
12
60,899
3 years
73.5%
4084.4p
185
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Notes to the Company Financial Statements
continued
8 Called up share capital and reserves
Ordinary shares of 26 12/13p (2017: 26 12/13p ) each
Authorised 111,428,571 (2017: 111,428,571)
Allotted, called up and fully paid 73,666,646 (2017: 73,600,195)
2018
£m
30.0
19.8
2017
£m
30.0
19.8
66,451 shares with a nominal value of £17,890 were issued in connection with the Group’s Employee Share Schemes for a consideration
of £2.7m received by the Company.
In March 2018 the Parent Company purchased 80,000 shares representing 0.11% of called up share capital with a nominal value of
£21,538 for a consideration of £4,720,777. In April 2018 the Parent Company purchased 35,000 shares representing 0.05% of called
up share capital with a nominal value of £9,423 for a consideration of £1,994,224. The shares were placed in an Employee Benefit Trust
(EBT) to be used in connection with the Group’s Employee Share Scheme.
At 31st December 2018 46,249 shares were held in an Employee Benefit Trust and available for use in connection with the Group’s
Employee Share Schemes.
12 senior employees of the Company have been granted options on Ordinary shares under the Share Option Scheme and Performance
Share Plan (details in Note 7).
Other reserves in the Company Statement of Changes in Equity on page 180 are made up as follows:
Share-based payments reserve
Capital redemption reserve
Employee Benefit Trust reserve
Total other reserves
1st January
2018
£m
11.7
1.8
(1.3)
12.2
Change
in year
£m
2.6
–
(1.2)
1.4
31st December
2018
£m
14.3
1.8
(2.5)
13.6
Share-based payments reserve
This reserve records the Company’s share based payment charge that is recognised in reserves.
Capital redemption reserve
This reserve records the historical repurchase of the Company’s own shares.
Employee Benefit Trust reserve The Company has an Employee Benefit Trust which is used to purchase, hold and issue shares in
connection with the Group’s employee share schemes. The shares held in Trust are recorded in this separate reserve.
9 Related party transactions
Dividends received from subsidiaries
Loans and amounts due from subsidiaries at 31st December
Amounts due to subsidiaries at 31st December
2018
£m
265.4
420.8
13.3
2017
£m
154.6
506.1
6.4
10 Financial instruments
The terms and conditions of outstanding loans at 31st December 2018 are as follows:
Unsecured private placement – €225.0m
Unsecured bank facility – $77.5m
Total outstanding loans
Currency
€
$
Nominal
interest rate
1.1%
2.2%
Year of
maturity
2023
2020
Carrying value
£m
202.0
60.9
262.9
Current portion of long term borrowings due before 31st December 2019
Long term borrowings payable after 31st December 2019
Total outstanding loans
41.2
221.7
262.9
186
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2018 11 Other information
Dividends
Dividends paid by the Company are disclosed in Note 11 of the Consolidated Financial Statements.
Property, plant and equipment
The Company holds freehold property with a cost of £9.3m (2017: £9.3m), accumulated depreciation of £1.8m (2017: £1.1m) and a net
book value of £7.5m (2017: £8.2m).
Employees
The total number of employees of the Company at 31st December 2018 was 85 (2017: 64).
Directors’ remuneration
The remuneration of the Directors of the Company is shown in the Annual Report on Remuneration 2018 on pages 95 to 109.
Auditor’s remuneration
Auditor’s remuneration in respect of the Company’s annual audit has been disclosed on a consolidated basis in the Company’s
Consolidated Financial Statements as required by Section 494(4)(a) of the Companies Act 2006.
Contingent liabilities and capital commitments
The Company has no contingent liabilities or capital commitments at 31st December 2018 (2017: £nil).
187
Spirax-Sarco Engineering plc Annual Report 2018Financial Statements Consolidated financial summary
2009
£m
2010
£m
2011
£m
2012†
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Revenue
518.7
589.7
650.0
661.7
689.4
678.3
667.2
757.4
998.7 1,153.3
Operating profit
76.5
121.4
129.5
125.7
147.0
148.1
142.8
174.1
198.9
299.1
Operating profit* (adjusted)
89.9
119.1
134.0
136.2
151.6
153.0
152.4
180.6
235.5
264.9
Operating profit margin
(adjusted)*
17.3% 20.2% 20.6% 20.6% 22.0% 22.5% 22.8% 23.8% 23.6% 23.0%
Profit before taxation
76.4
123.5
132.3
124.1
145.7
144.8
139.7
171.4
192.5
288.8
Profit before taxation*
(adjusted)
90.2
121.6
137.2
134.9
151.1
151.1
151.1
177.9
229.1
254.6
Profit after taxation
53.1
86.7
93.2
87.6
102.3
100.6
96.7
121.3
157.9
223.4
Dividends in respect
of the year
27.6
52.6
38.1
119.5
44.5
139.9
50.6
55.8
64.4
73.6
Net assets
307.4
379.5
400.1
436.5
403.5
441.9
398.3
524.4
609.5
766.9
Earnings per share (basic)
69.6p
112.5p
120.0p
112.2p
133.4p
132.8p
129.9p
165.0p
214.4p 303.1p
Earnings per share* (adjusted)
82.2p
109.5p
124.8p
122.2p
138.8p
140.4p
142.6p
171.5p
220.5p 250.0p
Dividends in respect
of the year (per share)
36.1p
43.0p
49.0p
53.0p
59.0p
64.5p
69.0p
76.0p
87.5p 100.0p
Special dividend (per share)
–
25.0p
–
100.0p
–
120.0p
–
–
–
–
Return on capital employed*
33.3% 42.1% 41.1% 39.4% 44.4% 44.3% 44.1% 47.9% 52.9% 54.9%
* All profit measures exclude certain items as set out and explained in the Financial Review and in Note 2.
† The results for 2012 were restated to reflect IAS19(R), prior years have not been restated..
188
Corporate InformationSpirax-Sarco Engineering plc Annual Report 2018 Our global operations
Steam Specialties
EMEA
Country
Company Name
Belgium
Czech
Republic
Egypt
Spirax Sarco NV
Spirax Sarco spol sro
Spirax Sarco Egypt
Registered Office address
Industrielaan 5, B-9052 Zwijnaarde, Belgium
Prazska 1455, 102 00 Praha, Hostivar, Czech Republic
33 Mourad Bek, Heliopolis, Cairo, Egypt
Spirax Sarco Energy Solutions LLC (H)
33 Mourad Bek, Heliopolis, Cairo, Egypt
Finland
France
Spirax Oy
Spirax Sarco SAS
Niittytie 25 A 24, 01300 Vantaa, Finland
8 Avenue le Verrier, 78190 Trappes, France
Germany
Spirax Sarco GmbH Regelapparate
Reichenaustr. 210, 78467 Konstanz, Germany
Spirax-Sarco Germany Holdings GmbH (H)
Reichenaustr. 210, 78467, Konstanz, Germany
Gestra AG
Muenchener Str. 77, 28215, Bremen, Germany
Gestra HoldCo GmbH (H)
Muenchener Str. 77, 28215, Bremen, Germany
Hungary
Spirax-Sarco Kft
1103 Budapest Koér utca 2/A, Hungary
Ireland
Spirax-Sarco (Americas) Financing Unlimited (H)
Unit 1013, Gateway Business Park, New Mallow Road, Cork, T23 WK35, Ireland
Spirax-Sarco (EMEA) Financing Unlimited (H)
Unit 1013, Gateway Business Park, New Mallow Road, Cork, T23 WK35, Ireland
Italy
Spirax Sarco Srl
Via Per Cinisello 18, 20834 Nova Milanese, Italy
Colima Srl
Italgestra Srl
Via Mestre 11, 20063 Cernusco Sul Naviglio, Milano, Italy
Via Per Cinisello 18, 20834 Nova Milanese, Italy
Kenya
Spirax Sarco East Africa Ltd
Clifton Park, Mombasa Road, Nairobi, Kenya
Morocco
Spirax Sarco Maghreb
159 Boulevard de la Résitance, 3eme etage Mob 20.20000, Casablanca, Morocco
Netherlands
Spirax-Sarco Netherlands BV
Industrieweg 130A, 3044 AT, Rotterdam, Netherlands
Spirax-Sarco Engineering BV (H)
Industrieweg 130A, 3044 AT, Rotterdam, Netherlands
Spirax-Sarco Investments BV (H)
Industrieweg 130A, 3044 AT, Rotterdam, Netherlands
Spirax-Sarco Netherlands Holdings Coöperative WA (H) Sluisstraat 7, 7491 GA Delden, Delden, Netherlands
Norway
Poland
Spirax Sarco AS
Spirax Sarco Sp Zoo
Gestra Polonia Sp Zoo
Vestvollveien 14A, N-2019 Skedsmokorset, Norway
Jutrzenki 98, 02-230, Warszawa, Poland
ul Schuberta 104, PL 80-172, Gdansk, Poland
Portugal
Spirax Sarco Equipamentos Ind Lda
Rua Quinta do Pinheiro, No 8 & 8A, 2794-058 Carnaxide, Portugal
Gestra Portugal, Lda
Avenida Dr Antunes Guimaraes, Numero 1159, Porto 4100-082, Portugal
Romania
Spirax-Sarco SRL
2-4 Traian Street, Cluj-Napoca Municipality, Cluj County, Romania
Russia
Spirax-Sarco Engineering LLC*
198188, Russian Federation, St. Petersburg, Vozrozhdeniya Street, The House 20a, lit.A.
Russian Federation
South Africa
Spirax Sarco Investments (Pty) Ltd (H)
Corner Brine Avenue and Horn Street, Chloorkop Ext 23, Gauteng 1624, South Africa
Spirax Sarco South Africa (Pty) Ltd
Corner Brine Avenue and Horn Street, Chloorkop Ext 23, Gauteng 1624, South Africa
Spain
Spirax-Sarco SAU
C/ Sant Josep, 130 08980 Sant Feliu de Llobregat, Barcelona, Spain
Especialidades Hydra SLU
C/ Sant Josep, 130 08980 Sant Feliu de Llobregat, Barcelona, Spain
Spirax-Sarco Engineering SLU (H)
C/ Sant Josep, 130 08980 Sant Feliu de Llobregat, Barcelona, Spain
Gestra Espanloa SA
Calle Luis Cabrera 86-88, 28002, Madrid, Spain
Sweden
Spirax Sarco AB
Switzerland
Spirax Sarco AG
Telefonvägen 30, SE-126 37 Hagersten, Sweden
Gustav-Maurer-Strasse 9, 8702 Zollikon, Switzerland
Turkey
Spirax Sarco Valf Sanayi ve Ticaret A.Ş.
Serifali Mevkii, Edep Sok No 27, 34775 Yukari Dudullu - Ümraniye, Istanbul, Turkey
United Arab
Emirates
United
Kingdom
Spirax-Sarco Engineering Middle East (FZC)
Saif Desk Q1-05-005/A, PO Box 514361, Sharjah, United Arab Emirates
Spirax-Sarco Ltd*
V.C.E. Ltd
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Block 2, Unit 5 Threave Court, Castlehill Industrial Estate, Carluke, ML8 5UF
Spirax-Sarco America Ltd (H)
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Spirax-Sarco America Investments Ltd* (H)
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Spirax-Sarco Investments Ltd* (H)
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Spirax-Sarco Overseas Ltd* (H)
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Gestra Holdings Ltd* (H)
Gestra UK Ltd
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
189
Spirax-Sarco Engineering plc Annual Report 2018Corporate Information Our global operations
continued
Steam Specialties continued
Asia Pacific
Country
Company Name
Registered Office address
Australia
Spirax Sarco Pty Ltd
14 Forge St., Blacktown, NSW 2148, Australia
China
Spirax-Sarco Engineering (China) Ltd
No 800 XinJun Ring Road, Pujiang Hi Tech Park, Shanghai, China
Spirax Sarco Trading (Shanghai) Co Ltd
No 800 XinJun Ring Road, Pujiang Hi Tech Park, Shanghai, China
Hong Kong
Spirax Sarco Hong Kong Co Ltd
Unit 1507, 15th Floor, Prosperity Center, 25 Chong Yip Street, Kwun Tong, Kowloon, Hong Kong
India
Spirax-Sarco India Private Ltd
Plot No. 6, Central Avenue, Mahindra World City, Chengalpattu Taluk, Kancheepuram District 603004, India
Indonesia
PT Spirax Sarco Indonesia
Kawasan Infinia Park Blok C99, Jl. Dr Sahardjo No. 45, Manggarai Tebet, Jakarta Selatan 12850, Indonesia
Malaysia
Spirax Sarco Sdn Bhd
No 10, Temasya 18, Jalan Pelukis U1/46A, 40150 Shah Alam, Selangor, Malaysia
Spirax Sarco Investment Limited (H)
6th Floor, Akademi Etiqa, No23 Jalan Melaka, 50100 Kuala Lumpur, Malaysia
Myanmar
Spirax Sarco Ltd
No. 1206, 12th Floor, Sakura Tower, 339 Bogyoke Aung San Road, Kyauktada Township, Yangon,
Myanmar
New Zealand
Spirax Sarco Ltd
6 Nandina Avenue, East Tamaki, Auckland 2013, New Zealand
Philippines
Spirax-Sarco Philippines Inc
2308 Natividad Building, Chino Roces Avenue Extension, Makati City, Philippines
Singapore
Spirax Sarco Pte Ltd
21 Changi South Avenue 2, #01-01 Singapore 486630, Singapore
Gestra Singapore Pte Ltd
21 Changi South Avenue 2, #01-01 Singapore 486630, Singapore
South Korea
Spirax Sarco Korea Ltd
Steam People House, 99 Sadangro 30gil, Dongjak-gu, Seoul, Republic of Korea
Taiwan
Thailand
Vietnam
Spirax Sarco Co Ltd
No. 9, Lane 270, Sec. 3, Beishen Road, Shenkeng District, New Taipei City 222, Taiwan
Spirax Sarco (Thailand) Ltd
95 Rama 9 Road, Soi 59, Kwang Suanluang, Khet Suanluang, Bangkok 10250, Thailand
Spirax Sarco Vietnam Co Ltd
4th Floor, 180 Nguyen Van Troi Street, Ward 8, Phu Nhuan District, Ho Chi Minh City, Vietnam
Americas
Country
Company Name
Registered Office address
Argentina
Spirax Sarco SA
866 Paraguay St., 3rd Floor, Buenos Aires (1057), Argentina
Brazil
Spirax Sarco Ind e Com Ltda
Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Spirax-Sarco Servicos de Engenharia Ltda Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Hiter Controls Engenharia Ltda
Av. Jerome Case, No 2600, Hangers B19, B20 and B21, Éden, Sorocaba, São Paulo, 18087 220, Brazil
Canada
Spirax Sarco Canada Ltd
383 Applewood Crescent, Concord, ON L4K 4J3, Canada
Chile
Spirax-Sarco Chile Ltda
Las Garzas 930, Galpón E, Quilicura, Santiago de Chile, Chile
Inversiones Spirax-Sarco Chile Ltda (H)
Las Garzas 930, Galpón D, Quilicura, Santiago de Chile, Chile
Colombia
Spirax Sarco Colombia SAS
Carretera Panamericana No 3-150, Jamundi, Valle del Cauca, Cali, Colombia
Mexico
Peru
Spirax Sarco Mexicana, SAPI DE CV
Boulevard Alianza 30B, Parque Industrial CPA, Ciénega de Flores Nuevo León, CP 65550, Mexico
Spirax Sarco Peru SAC
Av. Guillermo Dansey 2124, Lima, Lima, Perú
United States Spirax Sarco Inc
1150 Northpoint Blvd., Blythewood, SC 29016, United States
Sarco International Corp (H)
2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States
Gestra USA, Inc
1150 Northpoint Blvd., Blythewood, SC 29016, United States
190
Corporate InformationSpirax-Sarco Engineering plc Annual Report 2018 Chromalox
Country
Company Name
Registered Office address
Brazil
Chromalox Engenharia Ltda
Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Canada
Canadian Heat Acquisition Corp (H)
7051 68th Ave NW, Edmonton, Alberta, T6B 3E3, Canada
ProTrace Engineering, Inc
Suite 205, 6204-6A Street SE, Calgary, Alberta, T2H 2B7, Canada
China
Chromalox Precision Heat Control
(Shanghai) Co Ltd
Chromalox Precision Heat Control
(Suzhou) Co Ltd
88 Taigu Road, Suite A2, 4th Floor - Fenggu Building, Shanghai, 200131, China
T02, No 1801, Pangjin Road, Pangjin Industrial Park, Wujiang, Suzhou, 215200, China
France
Etirex SAS
23 Route de Chauteau Thierry, Noyant-et-Aconin, Soissons, Cedex, F-02203, France
Germany
Chromalox Germany GmbH
Im Defdahl 10 C, Dortmund, 44141, Germany
Hong Kong
Chromalox Hong Kong Holdings Ltd (H)
33/F, Shui On Centre, Nos 6-8 Harbour Road, Wanchai, Hong Kong
India
Chromalox India Precision Heat & Control
Private Limited
Mexico
ELW Industrial S. de R. L. de C.V.
Singapore
Chromalox Precision Heat and Control
(Singapore) Pte Ltd
Thailand
Chromalox (Asia Pacific) Ltd
1st Floor, 6 Unicom House, A-3 Commercial Complex, New Delhi, Janakpuri, 110058, India
Carretera Nacional, K.M. 8.5, Modulo Industrial de America, Lote #5, Nuevo Laredo, Tamaulipas, 88277,
Mexico
No 11 Woodlands Close, #05-34, Singapore, 737854, Singapore
383/2, The Village Business Centre, Unit D16-A, Moo 12, Sukhumvit Road, Nongprue, Banglamung, Chon
Buri, 20151, Thailand
United Arab
Emirates
United
Kingdom
Chromalox Gulf DWC, LLC
PO Box 390012, Office No: E-2-0226, Business Park, Dubai Aviation City, United Arab Emirates
Chromalox (UK) Ltd
AMP House, 2nd Floor, Dingwall Road, Croydon, Surrey, CR0 2LX, United Kingdom
United States Chromalox, Inc.
2711 Centerville Rd., Suite 400, Wilmington, DE 19808, United States
Heat Acquisition Corp (H)
2711 Centerville Rd., Suite 400, Wilmington, DE 19808, United States
191
Spirax-Sarco Engineering plc Annual Report 2018Corporate Information Our global operations
continued
Watson-Marlow Fluid Technology Group
Country
Australia
Austria
Belgium
Brazil
Company Name
Watson-Marlow Pty Ltd
Registered Office address
Unit 15, 19-26 Durian Place, Wetherill Park, NSW 2164, Australia
Watson-Marlow Austria GmbH
3 OG/Top D 34, Leopold - Böhm - Strasse 12, 1030, Wien, Austria
Watson-Marlow NV
Industriepark 5, B-9052 Zwijnaarde, Belgium
Watson-Marlow Bredel Ind e Com de
Bombas Ltda
Alameda Juari, 559–Centro Empresarial Tamboré, Barueri – SP, CEP: 06460-090, Brazil
Canada
Watson-Marlow Canada Inc
383 Applewood Crescent, Concord, ON L4K 4J3, Canada
Chile
Watson-Marlow Bombas Chile Ltda
Las Garzas 930, Galpón E, Quilicura, Santiago de Chile, Chile
Colombia
Watson-Marlow Colombia SAS**
Carretera Panamericana No 3-150, Jamundi, Valle del Cauca, Cali, Colombia
Denmark
Watson-Marlow Flexicon A/S
Frejasvej 2, 4100 Ringsted, Denmark
France
Watson-Marlow SAS
9 Route De Galluis, Zi Les Croix, 78940 La Queue Lez Yvelines, France
Germany
Watson-Marlow GmbH
Kurt-Alder-Str. 1, 41569 Rommerskirchen, Germany
India
Watson-Marlow India Private Ltd
S No 81/7, Opp JSPM College, Pune-Mumbai Bypass Road, Tathawade, Pune, Maharashtra,
411 033, India
Ireland
Italy
Japan
Watson-Marlow Ltd
Watson-Marlow Srl
Unit 1013, Gateway Business Park, New Mallow Rd., Cork, Ireland
Via Padana Superiore 74/D, 25080 Mazzano, Brescia, Italy
Watson-Marlow Co Ltd
4-23-21 Ukima Kita-ku, Tokyo 115-0051, Japan
Malaysia
Watson-Marlow SDN BHD
6th Floor, Akademi Etiqa No. 23 Jalan Melaka, 50100 Kuala Lumpur W.P., Malaysia
Mexico
Watson-Marlow S de RL de CV
Boulevard Allianz 30B, Parque Industrial CPA, Ciénega de Flores Nuevo León, CP 65550, Mexico
Netherlands Watson-Marlow BV
Industrieweg 130A, 3044 AT, Rotterdam, Netherlands
Watson-Marlow Bredel BV
Sluisstraat 7, 7491 GA, Delden, Netherlands
Watson-Marlow Bredel Holdings BV (H)
Industrieweg 130A, 3044 AT, Rotterdam, Netherlands
Watson-Marlow Bredel Holdings II BV (H)
Sluisstraat 7, 7491 GA, Delden, Netherlands
New Zealand Watson-Marlow Ltd
Unit F, 6 Polaris Place, East Tamaki, Auckland 2013, New Zealand
Philippines
Watson-Marlow Inc**
10th Floor EGI Rufino Plaza, Sen. Gil Puyat Avenue, Corner Taft Avenue, Barangay, 38 Pasay City,
Fourth District, Philippines
Poland
Russia
Watson-Marlow Sp Zoo
Ul. Fosa 25, 02-768 Warszawa, Poland
Watson-Marlow LLC*
Room 19, Premises I, Shosse Entuziastov, 34, Moscow, 105118, Russian Federation
Singapore
Watson-Marlow Pte Ltd
421 Tagore Industrial Avenue, #01-13, Singapore 787805, Singapore
South Africa Watson-Marlow Bredel SA (Pty) Ltd
Unit 5 Industrial Park, Citrus Street, Honeydew, Johannesburg, South Africa
Sweden
W-M Alitea AB
Hammarby Fabriksväg 29-31, SE-120 30 Stockholm, Sweden
Taiwan
Watson-Marlow Co Ltd
No.9 Lane 270 Sec. Beishen Road, Shenkeng District, New Taipei City 222, Taiwan
United Arab
Emirates
United
Kingdom
Watson Marlow FZCO
Office Number FZJOA2005, Jafza One, Jebel Ali Free Zone, Dubai, United Arab Emirates
Aflex Hose Ltd
Spring Bank Mill Industrial Estate, Spring Bank Industrial Estate, Watson Mill Lane, Sowerby Bridge,
HX6 3BW, United Kingdom
BioPure Technology Ltd
Bickland Water Road, Falmouth, Cornwall, TR11 4RU, United Kingdom
Watson-Marlow Ltd*
Bickland Water Road, Falmouth, Cornwall, TR11 4RU, United Kingdom
United States Aflex Hose USA LLC
32 Appletree Lane, Pipersville, PA 18947, United States
ASEPCO
355 Pioneer Way, Suite B, Mountain View, CA 94041 United States
Watson Marlow Inc
37 Upton Technology Park, Wilmington, MA 01887, United States
Watson-Marlow Flow Smart Inc
1675 South State St., Suite B, Dover, DE 19901 United States
192
Corporate InformationSpirax-Sarco Engineering plc Annual Report 2018 Dormant companies
Country
Canada
France
United
Kingdom
Company Name
Registered Office address
Canadian Heat Holding Corp
6600-100 King Street W., 1 First Canadian Place, Toronto, Ontario, M5X 1B6, Canada
Heat Holding France SAS
Gervase Instruments Ltd*
Heat Holding (UK) Limited
SARCO Ltd*
23 Route de Chauteau Thierry, Noyant-et-Aconin, Soissons, Cedex, F-02203, France
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
AMP House, 2nd Floor, Dingwall Road, Croydon, Surrey, CR0 2LX, United Kingdom
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Sarco Thermostats Ltd
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Spirax Manufacturing Co Ltd
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Spirax-Sarco Europe Ltd*
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
Spirax-Sarco International Ltd*
Charlton House, Cirencester Road, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom
United States Electronic Control Systems, Inc.
103 Gamma Drive, Pittsburgh, PA 15238, United States
Heat Asset Acquisition Corp.
2711 Centerville Rd., Suite 400, Wilmington, DE19808, United States
Mexican Heat Holding Corp.
c/o RA PO Box 20380, Carson City, Nevada, 89706, United States
Mexican Heat Holding, LLC
160 Greentree Dr., Suite 101, Dover, Delaware, 19904, United States
Ogden Manufacturing Co.
2711 Centerville Rd., Suite 400, Wilmington, DE19808, United States
The global operations listed on pages 189 to 193 are registered companies.
In addition to these operations we have a number of other operating units, including an Associate company; a company that is part owned with
a third-party trust; branches of Spirax Sarco steam or Watson-Marlow companies; and several Watson-Marlow businesses that operate via
Spirax Sarco steam business companies.
Notes
1.
All subsidiaries in the tables on pages 189 to 193 are indirect subsidiaries of
Spirax-Sarco Engineering plc, unless indicated*. All subsidiaries listed are
100% owned by the Group, except as follows:
Company
% owned by the Group
Spirax Sarco Egypt
Spirax Sarco Energy Solutions LLC, Egypt
Spirax Sarco Korea Ltd
Spirax-Sarco Philippines Inc
Spirax Sarco Services South Africa (Pty) Ltd
Spirax Sarco (Thailand) Ltd
98.867%
98.992%
97.5%
99.998%
48.51%. (51.49% is owned by a
third-party trust, The Tomorrow
Trust). The Group has control of the
company and exposure, or rights, to
variable returns from its investment
in the investee.
99.995%
2.
In addition to the subsidiaries in the tables on pages 189 to 193, we have the
following operations:
Steam Specialties (Spirax Sarco):
Country
Cambodia
Denmark
Ghana
Ireland
Israel
Japan
Sri Lanka
United Arab Emirates
Operating as a branch of
Spirax Sarco Pte Ltd, Singapore
Spirax-Sarco Limited, UK
Spirax-Sarco Limited, UK
Spirax-Sarco Limited, UK
Spirax-Sarco Limited, UK
Spirax-Sarco Limited, UK
Spirax-Sarco India Private Ltd, India
Spirax-Sarco Limited, UK
Watson-Marlow Fluid Technology Group:
Country
Switzerland
Argentina
China
South Korea
Indonesia
Thailand
Vietnam
Operating as a branch of
Watson-Marlow Limited, UK
Operating via
Spirax Sarco SA, Argentina
Spirax-Sarco Engineering (China) Ltd
Spirax Sarco Korea Ltd
PT Spirax-Sarco Indonesia
Spirax Sarco (Thailand) Ltd
Spirax Sarco Vietnam Co Ltd
This complete list of our global operations, including subsidiaries, forms part of the
audited Financial Statements. For more information see Note 2 in the Company
Financial Statements.
3. UK registered subsidiaries exempt from audit:
Gestra UK Ltd (company no. 10639879), Spirax-Sarco America Ltd (company no.
07829847), Spirax-Sarco Investments Ltd (company no. 00100995), Spirax-Sarco
Overseas Ltd (company no. 01472201), V.C.E Ltd (company no. SC126116), Gestra
Holdings Ltd (company no. 11612492), Spirax-Sarco America Investments Ltd
(company no. 11639451) and Heat Holding (UK) Limited (company no. 04325456)
qualify to take the statutory audit exemption as set out within section 479A of the
Companies Act 2006 for the period ended 31st December 2018. Spirax-Sarco
Engineering plc will guarantee the debts and liabilities of the companies claiming
the statutory audit exemption at the balance sheet date in accordance with section
479C of the Companies Act 2006.
Key
* Direct subsidiary owned by Spirax-Sarco Engineering plc
** Commenced trading after 31st December 2018
(H) Holding company
193
Spirax-Sarco Engineering plc Annual Report 2018Corporate Information
Officers and advisers
Secretary and registered office
A.J. Robson
General Counsel and Company Secretary
Spirax-Sarco Engineering plc
Charlton House
Cirencester Road
Cheltenham
Gloucestershire GL53 8ER
Telephone:
Facsimile:
Email:
Website: www.spiraxsarcoengineering.com
01242 521361
01242 581470
company.secretary@uk.spiraxsarco.com
Auditor
Deloitte LLP
Financial adviser
Rothschild
Financial PR
Citigate Dewe Rogerson
Bankers
Barclays Bank PLC
HSBC Bank PLC
Corporate brokers
Bank of America Merrill Lynch
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0371 384 2349* (UK)
or +44 (0)121 415 7047 (overseas)
* Lines open 8.30 am to 5.30 pm, Monday to Friday, excluding English public holidays
Website:
www.shareview.co.uk
Solicitors
Baker & McKenzie LLP
Important dates
Annual General Meeting
Final dividend**
Ordinary shares quoted ex-dividend
Record date for final dividend
Final dividend payable
** Subject to shareholder approval at the AGM.
15th May 2019
25th April 2019
26th April 2019
24th May 2019
194
Corporate InformationSpirax-Sarco Engineering plc Annual Report 2018
Designed and produced by Radley Yeldar www.ry.com
This annual report is printed on Revive 100 which is 100% recycled.
The manufacturers of Revive 100 hold ISO 9001 & ISO 14001
certifications and are also FSC & PEFC certified. This report is printed
by Pureprint a CarbonNeutral® company. Both manufacturing mill
and the printer are registered to the Environmental Management
System ISO14001 and are Forest Stewardship Council® (FSC) chain-
of-custody certified. If you have finished reading the Report and no
longer wish to retain it, please pass it on to other interested readers
or dispose of it in your recycled paper waste.
Charlton House
Cirencester Road
Cheltenham
Gloucestershire
GL53 8ER
UK
www.spiraxsarcoengineering.com