Efficient
Safer
Sustainable
Annual Report 2020
Strategic Report
Efficient, Safer, Sustainable
In a year we will never forget, our people,
products and solutions helped critical
industries and our communities around
the globe in the fight against COVID-19.
Living our Company purpose
Our purpose is to create sustainable value
for all our stakeholders as we engineer a
more efficient, safer and sustainable world.
In challenging circumstances, our teams
have continued to live our purpose and
Values, demonstrating resilience, innovation
and entrepreneurship.
Efficient
Spirax Sarco is helping food producers
to implement more efficient processes,
supporting quality improvements which
create consistency in the appearance,
taste and texture of food products
around the world.
Find out more on pages 14 to 15
Safer
Sustainable
Watson-Marlow technology is being used
in the development and production of
vaccines as well as virus tests helping to
fight the pandemic and create a safer world
for future generations.
Electric Thermal Solutions is working with
an electric vehicle manufacturer to develop
innovative CO2-free production processes,
supporting the transition towards a more
sustainable future.
Find out more on pages 16 to 17
Find out more on pages 18 to 19
Who we are
In this year’s report
Spirax-Sarco Engineering plc is a
multi-national industrial engineering
Group with expertise in the control
and management of steam, electric
thermal solutions, peristaltic
pumping and associated fluid
path technologies.
Our technologies play a critical role
across multiple industries as diverse
as Food & Beverage, Pharmaceutical
& Biotechnology, Power Generation
and Healthcare.
With customers in 130 countries,
we provide the engineered solutions
that sit behind the production of
many items used in daily life.
Our purpose, supported by our Values,
unites us, guides our decisions and
inspires us everywhere that we operate.
oratio n
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Our
Values
Integ r i t y
Further reading
To find out more about our Values
See pages 20-21
Strategic Report
A year of unprecedented challenges
Financial summary 2020
Our Group at a glance
The industries we serve
Chair’s Statement
Our business model in action
– Engineering a more efficient world
– Engineering a safer world
– Engineering a sustainable world
Business model, drivers and investment case
Strategic Review
Key performance indicators
Operations Review
– Performance at a glance
– Steam Specialties
– Electric Thermal Solutions
– Watson-Marlow
Financial Review
10 year financial summary
Risk management
Sustainability Report
Governance Report
Our approach to governance
1. Board leadership and Company purpose
– Chair’s introduction
– Board of Directors
– Leadership and tone
– Engaging with our stakeholders
(including Section 172 Statement)
– Employee Engagement Committee Report
2. Division of responsibilities
3. Composition, succession and evaluation
– Nomination Committee Report
– Board evaluation
4. Audit, risk and internal control
– Audit Committee Report
– Risk Management Committee Report
5. Remuneration
– Remuneration Committee Report
– Remuneration at a glance 2020
– Annual Report on Remuneration 2020
– Remuneration Policy 2020
Regulatory disclosures
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s 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
Corporate Information
Our global operations
Officers and advisers
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1
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
A year of unprecedented challenges
The impact of COVID-19 presented significant challenges for our people
throughout 2020. We moved swiftly at the start of the pandemic to protect
and support our colleagues, helping them to adapt quickly to the new realities
of socially distanced and remote working, while empowering them to go out
into our local communities to provide practical and much-needed support.
While juggling family and work life amidst a pandemic, our people together with
our wider supply chain are helping our businesses to keep supporting the critical
industries we serve, at a time when it matters most.
Efficient, Safer, Sustainable
To keep fulfilling our purpose, we applied our business model,
increased our capacity where required and stepped-up our support
and engagement with our suppliers to maintain continuity of service
and solutions for our customers in all sectors, including those directly
involved in fighting COVID-19.
Supporting the frontline effort
Whether it’s steam systems keeping hospitals warm and surgical
equipment sterilised, or pumping, dosing and filling applications for
COVID-19 vaccine development and production, the work we do to
support critical processes in the Pharmaceutical & Biotechnology and
Healthcare sectors has never been more important or more urgent.
2
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Providing nurture through nourishment
We work with a diverse range of customers in beverage manufacturing,
food production and processing, where steam is used for blanching,
cooking and baking as well as packaging, cleaning and sterilising.
Electric heating elements are used in commercial food equipment and
pumps are used to meter ingredients, deliver food to process lines and
handle process waste.
Our teams supported Food & Beverage manufacturers, both large
and small, all over the world to help our customers respond to the
increased demand, keeping families nourished as the restrictions
took hold.
2020 was a challenging year. We worked together and took care of each other
and those around us. We rose to the challenges, emerged stronger, more
resilient and most important of all, ready for 2021.
3
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Financial summary
for the year ended 31st December 2020
• Revenue down 4%, organically down 3%; industrial production (IP) down between 4%
and 5%
• Adjusted operating margin of 22.7%, 10 bps below 2019; up 120 bps on a statutory basis
• Strong organic sales and profit growth in Watson-Marlow, adjusted operating margin 33.4%
• Steam Specialties organic sales decline broadly in line with IP; margin down 80 bps
organically
• Electric Thermal Solutions organic sales decline 12%; margin up 10 bps organically
• Temporary cost containment initiatives reduced overheads by £22 million
• Net debt^ at year end £229 million; leverage reduced to 0.7x EBITDA*
• Total dividend up by 7% to 118.0p
2020 key figures
Adjusted*
Revenue
Adjusted operating profit*
Adjusted operating profit margin*
Adjusted profit before taxation*
Adjusted basic earnings per share*
Cash conversion
Statutory
Revenue
Operating profit
Operating profit margin
Profit before taxation
Basic earnings per share
Dividend per share
2020
2019
Reported
Organic*
£1,193.4m
£1,242.4m
£270.4m
22.7%
£261.5m
256.6p
102%
2020
£282.7m
22.8%
£274.5m
265.7p
84%
2019
£1,193.4m
£1,242.4m
-4%
-4%
-3%
-1%
-10 bps
+40 bps
-5%
-3%
Reported
-4%
+2%
£249.0m
20.9%
£240.1m
235.5p
118.0p
£245.0m
19.7%
+120 bps
£236.8m
226.2p
110.0p
+1%
+4%
+7%
* Results quoted in this announcement are “adjusted” metrics, except where otherwise stated. Organic measures are at constant currency and exclude contributions from acquisitions and disposals.
See Note 2 to the Financial Statements for an explanation of alternative performance measures.
^ Net debt includes total borrowings, cash and bank overdrafts but excludes IFRS 16 lease liabilities, as set out in Note 8 to the Financial Statements.
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 178 to 180. A performance review by operating segment is set out
on pages 38 to 51.
2020
EMEA††
Asia Pacific
Americas
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Total
†† Europe, Middle East and Africa.
2020
Revenue
£310.0m
£234.6m
£149.5m
£694.1m
£178.0m
£321.3m
Change
Reported
Organic
2020 Adjusted
operating
profit*
Change
Reported
Organic
-8%
-6%
-12%
-8%
-4%
+7%
-7%
-5%
-3%
-6%
-12%
+9%
£54.1m
£72.4m
£27.8m
£154.3m
£24.6m
£107.3m
(£15.8m)
£270.4m
-19%
0%
-28%
-13%
0%
+12%
-18%
+2%
-12%
-9%
-11%
+15%
-4%
-1%
£1,193.4m
-4%
-3%
* All profit measures exclude certain items, which totalled a charge of £21.4 million (2019: charge of £37.7 million), as set out in Note 2.
4
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Revenue £m
£1,193.4m
KPI
Adjusted operating profit* £m
Organic
change %
£270.4m
Revenue by segment %
2020
2019
2018
2017
2016
1,193.4
1,242.4
1,153.3
998.7
757.4
-3
+6
+7
+6
+4
2020
2019
2018
2017
2016
58%
44%
180.6
27%
KPI
Margin %
270.4
22.7
282.7
22.8
23.0
23.6
23.8
264.9
235.5
34%
Basic adjusted earnings per share* p
KPI
H&S over three-day lost time injury rate per 1,000 employees
KPI
256.6p
2020
2019
2018
2017
2016
256.6
265.7
250.0
220.5
171.5
* All profit measures exclude certain items, which totalled a charge
of £21.4 million (2019: charge of £37.7 million), as set out in Note 2.
2.9
2020
2019
2018
2017
2016
22%
15%
2.9
3.6
Steam Specialties
EMEA
4.9
Asia Pacific
4.6
Americas
Electric Thermal Solutions
6.0
Watson-Marlow
Revenue by segment %
Revenue by segment %
Revenue by segment %
Revenue by segment %
Adjusted operating profit by segment* %
Adjusted operating profit by segment* %
Before corporate expenses of £15.8 million.
Before corporate expenses of £15.7 million.
61%
27%
58%
44%
61%
27%
54%
35%
24%
24%
27%
20%
34%
20%
47%
15%
14%
22%
15%
15%
14%
37%
18%
9%
Steam Specialties
EMEA
Asia Pacific
Americas
Electric Thermal Solutions
Steam Specialties
EMEA
Asia Pacific
Americas
Steam Specialties
EMEA
Asia Pacific
Americas
Electric Thermal Solutions
Steam Specialties
EMEA
Asia Pacific
Americas
Watson-Marlow
Electric Thermal Solutions
Watson-Marlow
Electric Thermal Solutions
Watson-Marlow
Watson-Marlow
* All profit measures exclude certain items, which totalled a charge of £21.4 million (2019: charge of £37.7), as set out in Note 2.
The Group’s three operating segments, as defined by IFRS 8, are Steam Specialties, Electric Thermal Solutions and Watson-Marlow.
Adjusted operating profit by segment* %
Before corporate expenses of £15.7 million.
Adjusted operating profit by segment* %
Before corporate expenses of £15.7 million.
Adjusted operating profit by segment* %
Before corporate expenses of £15.7 million.
5
60%
23%
54%
35%
60%
23%
32%
32%
24%
47%
24%
8%
13%
37%
8%
13%
Steam Specialties
EMEA
Asia Pacific
Americas
18%
9%
Steam Specialties
EMEA
Asia Pacific
Americas
Watson-Marlow
Electric Thermal Solutions
Watson-Marlow
Electric Thermal Solutions
Steam Specialties
EMEA
Asia Pacific
Americas
Electric Thermal Solutions
Watson-Marlow
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our Group at a glance
A world-leading industrial engineering Group
Thermal Energy Management
Steam Specialties
Electric
Thermal Solutions
Watson-Marlow
EMEA Asia Pacific Americas
Core product expertise
Steam Specialties
Core product expertise
Electric Thermal Solutions
Core product expertise
Watson-Marlow
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 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 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
See pages 41-47
See pages 48-50
See pages 51-53
6
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Global operations*
A diverse and expanding Group with a
presence in all key industries and markets
Further reading
Read more about our performance across the Group
and our geographical expansion in 2020.
We operate in both mature and emerging economies and in
almost all industrial sectors. We have a global coverage and serve
customers in 130 countries worldwide. We have 132 operating
units in 47 countries and a resident direct sales presence in
21 countries. A further 62 countries are serviced indirectly by
distributors or non-resident direct sales.
See pages 38-51
Map key
Operating units
Sales offices
Indirect presence
* Global operations as of February 2021.
Our diverse business
People
7,900
Core product lines
1,600+
Countries with a resident
direct sales presence
68
Sales and service
engineers
1,900+
** Operating units are business units that invoice locally.
‡ Actively purchasing in the last 24 months.
Operating units**
132
Direct buying
customers‡
110,000
7
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 The industries we serve
A diversified and growing sector focus
We apply our products, solutions and expertise across a diverse range
of industrial sectors, helping our customers to increase their efficiency,
safety and sustainability.
Pharmaceutical
& Biotechnology
21%
of Group revenue
Food & Beverage
20%
of Group revenue
OEM Machinery
12%
of Group revenue
Our peristaltic pumps, valves and single-use
components enable precise flow control
and fluid isolation; clean steam reduces the
risk of product and process contamination;
electrical heating is used in a wide range of
process heating applications.
Steam is used for blanching, cooking,
baking, brewing, distilling, packaging,
cleaning and sterilising. Electric heating
elements are used in commercial food
equipment. Pumps are used to meter and
transfer ingredients, deliver food to process
lines, and handle process waste.
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
6%
of Group revenue
Chemicals
5%
of Group revenue
Power Generation
5%
of Group revenue
Electrical heating products reduce 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.
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.
Electrical heating 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 reuse waste heat formed
during the power generation process.
8
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Healthcare
4%
of Group revenue
Water & Wastewater
3%
of Group revenue
Buildings
3%
of Group revenue
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.
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.
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
2%
of Group revenue
Semiconductor
2%
of Group revenue
Pulp & Paper
2%
of Group revenue
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.
Electrical products are used in printing
production processes to ensure thermal
uniformity which is critical during the
chemical production process; clean and pure
steam generators supply the humidification
system to ensure the air is not too dry or wet.
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.
9
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Chair’s Statement
A resilient response to a challenging year
Our robust operational and financial
performance demonstrates the
commitment of our people, the
strength of our business model
and the resilience of our Group.”
Jamie Pike
Chair
Financial highlights
Following a stronger than anticipated fourth quarter, Group sales
in 2020 were £1,193.4 million (2019: £1,242.4 million), down 3%
on an organic basis, reflecting a robust performance against a
backdrop of a 4% to 5% contraction in global industrial production.
Currency movements had a 2% negative effect on sales during the
year, while the full year effect of sales from Thermocoax, acquired
in May 2019, increased sales by over 1%. Sales for the Group
were down 4% compared to 2019, with the currency movement
accounting for more than half of the full year revenue decline.
Our Steam Specialties business, comprising Spirax Sarco and
Gestra, experienced an organic decline of 6%, broadly in line with
global industrial production, with sales in all three geographical
reporting segments down year-on-year.
Our Electric Thermal Solutions business, comprising Chromalox and
Thermocoax, experienced a 12% organic sales decline but ended
the year with a significantly larger order book. Chromalox secured a
US$14 million order from the US Navy, the largest single order in our
Group’s history, helping bolster the yearend order book.
Watson-Marlow had an excellent year, delivering organic sales
growth of 9%. Sales to the Pharmaceutical & Biotechnology sector
grew 20% as customers redirected their activities and expanded
their manufacturing capabilities in support of COVID-19 vaccine
development and production. Demand was particularly strong in the
last quarter of the year, leading to an increased order book that will
ship in 2021. Sales to the other industrial sectors declined 3%, which
resulted in the Pharmaceutical & Biotechnology sector accounting for
over 55% of Watson-Marlow sales in 2020.
Group adjusted operating profit declined 4% to £270.4 million.
On an organic basis, adjusted operating profit was down 1%.
Currency movements reduced the Group adjusted operating profit by
4%, due to translation and transaction effects, while the net impact of
acquisitions and disposals added 1%.
The Group adjusted operating margin fell by 10 bps, to 22.7%,
largely due to the negative foreign exchange impact. Organically,
the adjusted operating margin increased by 40 bps despite an
organic sales decline of 3%, due in part to the strong performance
of Watson-Marlow and temporary cost containment initiatives taken
in each of our businesses. These cost initiatives mostly reduced
expenses related to travel, marketing and employment, lowering
Group overheads by £22 million, with most of the benefits realised in
Steam Specialties.
Introduction
In a year when industrial production was down between 4% and 5%,
and amidst a global pandemic, our robust operational and financial
performance demonstrates the commitment of our people, the
strength of our business model and the resilience of the Group.
Recognising our colleagues
On behalf of the Board, I would like to thank our colleagues
throughout the world for their outstanding individual and collective
contributions during this unprecedented time. Our teams have pulled
together, often in challenging personal circumstances to meet the
needs of our customers, enabling us to play our part in supporting
industrial processes in critical, frontline industries including Food
& Beverage, Healthcare and Pharmaceutical & Biotechnology.
They have also made exceptional efforts to provide support to
our communities, helping those who need it most. We sincerely
appreciate their hard work and dedication as we engineer a more
efficient, safer and sustainable world.
Our resilient response to a challenging year
Supporting the health and wellbeing of our people throughout
the global pandemic has and will continue to be our priority.
Our response to COVID-19 was swift and decisive, enabling us to
continue operating our manufacturing and sales companies safely
and with only a few short-duration shutdowns in the second quarter
of the year. The actions taken to protect our people and to support
our customers and communities are outlined in more detail in the
Strategic Review.
We did not lose focus on the importance of safety and made good
progress with the implementation of our plans, despite the challenges
of the year. Our continued focus on maintaining a strong safety culture
drove an improvement of both our leading and lagging indicators,
including our lost time injury rate reducing compared to 2019.
10
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Statutory operating profit was up 2% at £249.0 million
(2019: £245.0 million) and the statutory operating profit margin
increased from 19.7% to 20.9% due primarily to the impact of UK
and Canadian defined benefit pension schemes being closed to
future accrual during the year.
Dividend per share p
118.0p
The Group adjusted pre-tax profit was £261.5 million, 5% below the
prior year. Adjusted basic earnings per share was 3% behind at 256.6
pence (2019: 265.7 pence).
The pre-tax profit on a statutory basis was £240.1 million, up 1% on
2019 (£236.8 million). The statutory basic earnings per share were
235.5 pence (2019: 226.2 pence).
Cash and dividends
Cash generation was robust throughout the year, with adjusted
cash conversion of 102% (2019: 84%), reflecting enhanced
inventory management practices that increased our customer
service performance during the pandemic while also improving cash
management. At 31st December 2020 we had a net debt balance of
£229 million, a net debt to EBITDA ratio of 0.7 times, compared with
net debt of £295 million at 31st December 2019.
The interim dividend paid on 6th November 2020 was 33.5 pence per
share, an increase of 5% (2019: 32.0 pence per share). The Board is
recommending an increase in the final dividend of 8% to 84.5 pence
per share (2019: 78.0 pence). Subject to approval of the final dividend
by shareholders at the Annual General Meeting (AGM) on 12th May
2021, the total Ordinary dividend for the year will be 118.0 pence
per share, an increase of 7% over the 110.0 pence per share for the
prior year.
Corporate governance
In September 2020, Kevin Boyd, Chief Financial Officer and Executive
Director retired from the Group. On behalf of shareholders and the
Board, I acknowledge with gratitude his significant contribution to the
Group’s growth and development during his almost five-year tenure.
We wish him a happy and healthy retirement.
Kevin’s successor, Nimesh Patel, joined the Group in July 2020.
Nimesh assumed the role of Chief Financial Officer and was
appointed an Executive Director in September 2020. We were
delighted to welcome Nimesh to the Group and the Board and
appreciate the contribution he is already making. He brings 22 years
of experience in senior roles, including as Group Head of Corporate
Finance for Anglo American plc and most recently Chief Financial
Officer of De Beers.
Neil Daws, Managing Director, Steam Specialties and Executive
Director also retired from the Company on 31st December 2020,
following an outstanding career in the Group spanning 42 years.
Neil joined us in 1978 as an apprentice and held positions in
production and design engineering, moving from Product Director in
1996 to UK Supply Director in 2003. He held many senior Divisional
roles in Steam Specialties before becoming Managing Director in
2018. Neil was appointed to the Spirax-Sarco Engineering plc Board
in 2003. On behalf of shareholders and the Board, I acknowledge with
much appreciation the substantial contribution to the Group’s growth
and success achieved by Steam Specialties under Neil’s leadership.
2020
2019
2018
2017
2016
118.0
110.0
100.0
87.5
76.0
On 1st January 2021, Maurizio Preziosa succeeded Neil to become
Managing Director Steam Specialties and a member of the Group
Executive Committee, following a handover period with Neil during
the fourth quarter of 2020. Maurizio joined the Group in November
2011 as General Manager for Spirax-Sarco Italy, progressing to the
role of Regional General Manager for Southern Europe in 2014 before
becoming Divisional Director Gestra in May 2017. We are delighted
to have Maurizio’s experience and leadership in this role and it is
testament to the calibre of our leaders that we were able to fulfil this
key appointment from within the Group.
The Board was pleased to welcome Angela Archon and Olivia Qiu as
independent Non-Executive Directors, following their appointment on
1st December 2020.
Angela held various senior executive positions within IBM Corporation,
including as Vice President, Transformation and Chief Operating
Officer of the Watson Health Division. Angela also represented IBM
for eight years as Board Liaison for The National Action Council for
Minorities in Engineering. Angela has strong strategic and operational
experience and combines her ability to drive transformational change
with a clear focus on providing excellent customer support.
Olivia held a range of executive positions with large global
organisations, including Chief Executive Officer and Board Director
of Alcatel-Lucent Shanghai Bell. She is currently Chief Innovation
Officer with Signify (formerly Philips Lighting). Olivia has digital
transformation and innovation skills as well as strong international
business experience.
On 9th March 2021, we announced the appointment of Richard
Gillingwater as an Independent Non-Executive Director with
immediate effect. Richard will succeed Dr Trudy Schoolenberg as
Senior Independent Director on 1 August 2021, when Trudy will step
down from the Board after completing nine years as a Director.
Richard has held a range of executive positions within global
investment banks including Kleinwort Benson, Credit Suisse and
Barclays de Zoete Wedd. He is currently Chair at SSE plc (stepping
down at the end of March), Chair of Janus Henderson Group plc,
Senior Independent Director of Whitbread plc and Governor at the
Wellcome Trust.
All Board changes formed part of the succession planning undertaken
by the Nomination Committee to recruit Non-Executive Directors with
the skills and experience required to support the implementation of
our strategy for growth.
11
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 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 2020, taken as a whole, is fair,
balanced and understandable, and provides the information
necessary for shareholders to assess the Group’s financial
position, 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 2023. For the full Viability Statement, see page
57; and
• the Annual Report contains the information required for
compliance with the Companies, Partnerships and Groups
(and Non-Financial Reporting) Regulations 2016, see
page 86.
The Strategic Report was approved by the Board on
9th March 2021
Signed by:
Jamie Pike
Chair
on behalf of the Board of Directors
9th March 2021
Chair’s Statement continued
Outlook
The latest forecasts predict global industrial production will grow
over 7% in 2021. These forecasts are contingent on the swift and
successful roll-out of vaccination programmes across the world
and assume no emergence of new virus variants against which the
available vaccines would be materially less effective.
As always, the currency outlook remains uncertain. If current
exchange rates were to prevail for the remainder of the year there
would be a less than 4% adverse impact on sales from translation
and a more than 4% adverse impact on profit from translation
and transaction, compared with the full year 2020. Movements in
exchange rates are often volatile and unpredictable, therefore the
actual impact could be significantly different.
We anticipate most of the Group’s organic revenue streams in 2021
to expand broadly in line with global industrial production growth.
Additionally, Electric Thermal Solutions ended 2020 with a higher-
than-normal order book, which should add at least a further £8 million
to sales in the year. Watson-Marlow experienced extraordinary
demand from the Pharmaceutical & Biotechnology sector, which
accounted for over 55% of sales in 2020, also ending the year with
a higher-than-normal order book that will ship in 2021. We anticipate
this strong demand to continue in 2021, driving organic sales
growth of over 35% for that sector, with Watson-Marlow’s other
industrial sectors growing organic sales in line with global industrial
production growth.
During 2021, we will step-up our revenue investments, including for
sustainability and digital initiatives, to underpin future organic growth
and trading margin progression. We believe close to three-quarters of
the £22 million savings achieved by the temporary cost containment
initiatives taken in 2020 will reverse in 2021. Short-term capacity
expansion initiatives in Watson-Marlow will also generate incremental
operating costs. Taken together, we anticipate these initiatives will
reduce the full year drop-through from the organic increase in sales to
operating profit to close to 30%.
We anticipate that cash conversion, which has been above 80%
for the last 5 years, will return to those levels as we step up capital
investments and increase working capital in line with revenue.
Section 172 Statement
In accordance with the Companies Act 2006 (the Act) (as
amended by the Companies (Miscellaneous Reporting)
Regulations 2018), the Directors have prepared a statement
describing how they have had regard to the matters set
out in section 172(1) of the Act, when performing their duty
to promote the success of the Company, under section
172. The statement can be found on page 94 of the
Governance Report.
12
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Efficient, Safer, Sustainable
Around the globe, often in challenging
circumstances, our people have continued to
create sustainable value for all our stakeholders
through the application of our products and
solutions. Engineering a more efficient, safer
and sustainable world.
Efficient
Safer
Find out how Spirax Sarco is helping
food producers to implement more
efficient processes.
Find out how Watson-Marlow’s technology
is helping to fight the pandemic and create a
safer world for future generations.
pages 14 to 15
pages 16 to 17
Sustainable
Find out how Electric Thermal Solutions
is supporting the transition towards a
more sustainable future.
pages 18 to 19
13
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Steam
Specialties
Spirax Sarco exhaust vapour condenser, helping
create consistent noodle quality for less.
14
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 t
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Engineering a more
efficient world
Recovery of flash steam helped a noodle manufacturer improve process
and productivity, while saving water, energy and CO2.
The result
This single solution provided the customer
with process and productivity gains whilst
also saving them energy and money.
Projected annual savings of R 440,611,
including reductions of 118 tonnes of coal,
258m3 of water, 161 MWh of electricity and
287 tonnes of CO2.
The challenge
A team at a noodle production facility based
in South Africa engaged Spirax Sarco’s local
sales team after discovering issues with
pumping sunflower oil from their storage
tanks due to poor temperature control,
resulting in high oil viscosity, which was
exacerbated on cold winter days.
The sunflower oil used for noodle frying is
stored in five insulated stainless steel vessels
and should preferably be pre-heated to
improve pumping efficiency and reduce
sudden temperature drops in the oil fryer,
which may result in product spoilage and
production losses.
A steam systems audit was conducted
by Spirax Sarco’s engineers to assess the
situation and provide recommendations
for improvement. The aim was to increase
temperature of the sunflower oil supplied
to the fryers by 60% and recover 100 kW
of electricity to be used for electrical jacket
coil heating.
The solution
It was noted during the audit that there was a
free heat source next to the oil storage plant
in the form of flash steam. High temperature
condensate was being released from the
noodles steam systems (fryers and pre-
dryers). 282 kW of energy was available to
be recovered and made available to heat
processes in the plant.
A Spirax Sarco exhaust vapour condenser
(EVC) was installed to capture energy and
water from the vented flash steam to pre-
heat the oil in jacketed piping. The EVC is a
reliable, innovative solution for pre-heating
make-up or process water by utilising the
waste heat that would otherwise be lost to
the atmosphere and turned into hot water.
The hot water was then circulated in jacketed
piping to heat the oil using a 2kW electric
circulating pump.
258m3
of water savings per
annum projected
Spirax-Sarco Engineering plc Annual Report 2020 1515
Watson-Marlow
Watson-Marlow 400 series pump, providing stable
and sterile pumping solutions to avoid contamination
in critical COVID-19 diagnostic tests.
16
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 t
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Engineering
a safer world
Peristaltic pumps are used in the rapid production of Chemiluminescent
immunoassay (CLIA) devices to meet the urgent diagnostic need
throughout the COVID-19 pandemic.
The result
Watson-Marlow’s customers in China were
able to rapidly produce CLIA devices which
were used to meet the urgent diagnostic
need throughout the COVID-19 pandemic.
The devices helped to diagnose patients
in the early stages of COVID-19, facilitating
earlier treatment and self isolation in order to
reduce the spread of the virus and limit the
number of people affected.
The solution
CLIA diagnostic instruments contain multi-
channel pumps which transfer the waste
liquid produced after the test and clean the
reaction cell to avoid cross-contamination.
Watson-Marlow’s peristaltic pumps were
recommended for this purpose as they
provide a stable flow rate across all pump
channels and a tube life of more than
six months.
Watson-Marlow’s team assisted in the
adoption and incorporation of these devices
to ensure customers could rapidly assemble
the CLIA devices and meet this urgent need.
The Watson-Marlow team was on hand at all
times to make the process as efficient and
seamless as possible.
The challenge
When the Wuhan province of China was
first impacted by COVID-19, the market
experienced explosive demand for
COVID-19 testing throughout China and
as such, leading Chinese medical device
manufacturers were required to rapidly
and significantly scale-up production of
testing devices.
Widespread testing and diagnosis of
COVID-19 is a key pillar in preventing its
spread and bringing an end to the global
pandemic. Chemiluminescent immunoassay
(CLIA) is a diagnostic technique that is
used for detection of antibodies for many
diseases. It has been applied in the diagnosis
of both current COVID-19 cases and the
confirmation of those who have previously
had the disease and still have antibodies.
CLIA is faster, more accurate and more
stable than previously used methods of
chemical analysis and an increasing number
of hospitals are now using this technique.
100%
sterile design with incomparable
accuracy and repeatability in
clinical diagnostics
Spirax-Sarco Engineering plc Annual Report 2020 17
Electric
Thermal
Solutions
18
Chromalox MOS system is helping green
technology to be even more sustainable.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 t
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Engineering a
sustainable world
Our heat transfer system provides an electric vehicle and clean energy company
with a point-of-use CO2-free heating solution that met strict equipment code
requirements, tight time schedule and space constraints.
The challenge
An American electric vehicle and clean
energy company working on an innovative
production process required a heating
solution, in keeping with its “green ethos”,
for high temperature heat transfer fluid to
circulate through critical production tools.
The heating solution needed to fit within
an existing building with space constraints,
meet the US state and local equipment
code requirements and due to their strict
testing schedule, was required within a
short timeframe.
As experts in advanced thermal technologies
for the world’s toughest industrial heating
applications, Chromalox was well placed
to develop a heating solution to meet
these requirements.
The solution
Following technical advice from Chromalox’s
engineers, the customer selected one of
Chromalox’s packaged solutions. The MOS
(Mid-sized oil system) heat transfer system
selected provides a pre-engineered electric
hot oil circulation heater with required
ancillary products mounted on a skid base.
This was further customised with the addition
of pre-designed ship loose isolation valves
and pump strainers to deliver an optimal
solution for the customer’s needs.
As electric heating solutions are considered
to be “green” technologies, environmental
permitting is not required, unlike with
alternatives such as gas-fired heating
solutions. This, along with the integrated
end-to-end solution offered by Chromalox,
helped to support delivery within the
customer’s tight schedule.
The result
Chromalox’s MOS system provided the
customer with a “green” heat transfer
solution certified to the required standards,
which avoided the need for environmental
permitting (which could have led to schedule
delays) and met all US state and local
codes facilitating the acceleration of the
customer’s testing schedule to meet the
project deadline.
The facility where the system is installed, is
on a journey towards deriving 100% of its
electricity from solar panels. The move to a
Chromalox MOS system means the process
will become emissions free once the transfer
to a complete photovoltaic renewable power
supply is complete, projecting a saving of
1,063 tonnes of CO2 per annum.
1,063 tonnes
of CO2 savings projected per annum
once construction is complete
Spirax-Sarco Engineering plc Annual Report 2020 19
Our business model
Creating value through meeting customer needs
Our customers’ needs drive all that we do, ensuring our activities and behaviours
deliver our purpose to create sustainable value for all our stakeholders as we
engineer a more efficient, safer and sustainable world.
1. Our competitive strengths
At the heart of our value creation is our
deep engagement with and understanding
of our customers and their processes.
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.
Customer
closeness
Applied
engineering
Customer
needs
Regional
manufacturing
Wide
product
range
Our Values
Our business may be global,
but wherever we operate in
the world, our people share
the same Values. Our Values
are the foundation for all we
do and an integral part of our
culture, shaping everything
from day-to-day decision
making to our strategic
global operations.
oratio n
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Our
Values
Integ r i t y
20
Customer closeness
Our direct sales business model creates a unique understanding
of our customers’ needs. We build deep, long-term relationships
as we help our customers solve their difficult productivity, control
and energy efficiency problems and improve their operational
performance, safety and sustainability.
Applied engineering
It is not our products alone that provide value to our customers,
but also 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 research and development (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 and are continuing
to invest in new and upgraded manufacturing facilities across
our Group.
Our strategy
Our strategy is designed to help us do what we do better.
To understand more, read about our strategy in action on pages
28 to 35.
Further reading
To see our business model in action, view our customer case studies.
See pages 14-19
Customer Focus
Customers are at the heart of
our business. Through expertise,
passion and professional
insight we achieve extraordinary
results for both external and
internal customers.
Excellence
We approach challenges with
passion, aiming for excellence in
all we do. We continually strive
for further improvements to
build a sustainable business for
the future.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
2. 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 and 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.
No. core product lines
1,600+
Manufacture
We manufacture 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 1,600 core product
lines in 32 manufacturing sites, located
across four continents.
No. manufacturing sites
32
Sell
With a resident direct sales presence in
68 countries and non-resident direct sales
or distributors in a further 62 countries,
we serve customers in 130 countries
worldwide. Our offering to customers
ranges from single products to bespoke
engineered solutions or full system design
and supply. We also provide site surveys
and audits, and customer training.
No. countries with direct sales
presence
68
Monitor and 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 and solve
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.
Revenue from maintenance activities
No. sales and service engineers
50%
1,900+
Educate
We help our customers to identify
in-house engineering knowledge skill
gaps and offer a wide range of training
courses, delivered in our 58 training
centres worldwide, to help plug those
knowledge gaps.
No. training centres
58
Respect
Everyone matters, both inside
and outside our Company.
We listen to diverse perspectives
to help us generate new
ideas and make better
decisions. We respect the
natural environment and the
local communities in which
we operate.
Integrity
We work in a way that is fair and
honest. We do the right thing at
all times. Success only matters
when achieved fairly. We believe
that winning with integrity leads
to sustainable results.
Safety
The safety and wellbeing of our
people is our first consideration.
We anticipate dangers and
report hazardous situations to
prevent accidents before they
happen. We care about people,
helping them stay safe and look
after our own wellbeing.
Collaboration
We are most successful when
we trust each other and work
together. Building relationships
across the business allows
diverse teams to work together,
share expertise and help others.
21
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our business model continued
3. Our routes to market
Our direct sales approach is instrumental in delivering on our purpose
and creating value-adding opportunities for self-generated growth.
Sales companies
Over 100 sales
companies, supplied by
our manufacturing facilities,
holding stock locally.
Over 1,900 specialist sales
and service engineers
engaging with end
users, identifying their
requirements and designing
engineered solutions.
End users
43%
OEMs
24%
Contractors
& consultants
9%
24%
End 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.
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Routes to market
Our direct sales approach plays an important role in all routes to
market – whether direct or indirect – as our engineers engage with
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.
Direct sales
Our specialist sales and service engineers visit end users in 68
countries, offering expert advice and providing products and
solutions to optimise process efficiency, safety and sustainability.
Our territories are covered segmentally where possible,
geographically where not, with sector specialists allocated to our
core industries. We call this sectorisation. Sectorisation enables us
to provide industry-leading support to end users.
End users
As we combine a detailed understanding of our end users’
processes with our broad range of regionally-manufactured
products, engineered packages and services, we build deep,
long-term relationships with our customers who trust us as a
valued engineering partner and expert adviser. This customer
closeness further strengthens our ability to design and develop
products, services and solutions that deliver value to customers,
and self-generate growth.
Self-generated growth
Our sales and service engineers spend a lot of time in our
customers’ plants physically and now virtually. They 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, meaning that they
remain attractive even during challenging economic times.
22
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
4. 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.
Customers
Creating value for our customers is at the
heart of our Company purpose and is
exemplified by our direct sales business
model, which is driven by our customer
needs. 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.
Colleagues
We have almost 7,900 Company
colleagues across 68 countries worldwide.
Our people are our greatest asset and
we always aim to treat them with respect.
We create value for our colleagues by
extensively investing in developing their
knowledge and skills, providing safe
and inclusive working environments and
remunerating them fairly for the work that
they do.
Shareholders
As we focus on meeting our customers’
needs we consistently achieve growth
that outperforms our markets. This, in
turn, enables us to create and deliver
a strong track record of shareholder
value. We have a progressive dividend
policy that has delivered over 50 years of
dividend progress, with an 11% dividend
Compound Annual Growth Rate over the
last 10 years.
15.8m
tonnes of CO2 saved annually
from products sold in 2020
£365m
paid in wages, salaries and
pension contributions in 2020
£82m
paid as dividends in 2020
Suppliers
We operate a regional manufacturing
strategy and use a wide range of local,
national and international suppliers who
adhere to our Supplier Sustainability Code.
Having a broad manufacturing footprint,
the beneficiaries of our value creation are
geographically widespread and they, in
turn, create value for their stakeholders.
Communities
We are committed to “Engineering
better futures” for the people in our
local communities. We create value in
our communities as we offer support
to charities, non-profit organisations
and education providers through
employee volunteering, financial and
in-kind charitable donations and
educational provision.
£496m
paid to suppliers for materials
and services in 2020
£542,000
cash, in-kind donations and employee
time to community engagement
activities worldwide in 2020
Environment
We create value for the environment by
providing products and services that
improve the sustainability of our end
users’ operations, in particular reducing
energy and water use, lowering carbon
emissions and reducing waste. We are
also committed to minimising our own
environmental impacts through reducing
energy consumption, emissions, water
use and waste.
78.6m
m3 of water saved by customers
annually from products sold in 2020
23
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Creating sustainable value for our shareholders
We have a clear understanding of our customers and markets,
allowing us to see where and how our revenues are
generated and where best to invest for future returns.
With the majority of our income coming from our customers’
maintenance activities and small improvement projects…
85%* of Group revenue is generated from annual
50%
maintenance and operational (Opex) budgets,
rather than from capital (Capex) budgets.
15%
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.
* Based on internal estimates.
p e x
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Opex b u d g
ets
35%
Maintenance and repair sales
that maintain existing systems,
supported by the end users’ Opex
budgets, with a typical invoice value
of around £1.2k
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
…and over a third of sales coming from self-generated opportunities…
35%* of revenue is derived from self-generated
opportunities. This reflects our overall strategic
objective to deliver growth that outperforms 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.
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 14-23
Why is this important?
By focusing on self-generated growth we identify problems
and design solutions that deliver significant operational benefits
for customers. Typically, these bespoke, engineered projects
have higher margins and relatively short sign-off timeframes as
they are funded by maintenance and operational budgets at
plant level. As we deliver engineered solutions we self-generate
growth, reinforce our customers’ trust in our engineering
expertise and forge sustainable business relationships.
…our revenue is balanced across multiple less-cyclical industries…
55+%* of Group revenue is derived from defensive,
less cyclical end markets, including: Food &
21%
Beverage, Pharmaceutical & Biotechnology, Healthcare and
Power Generation.
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.
* Based on 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 2020 these “unknown” sales accounted for 18% of total revenue.
OEM sales to identifiable industries have been allocated to those industries. Sales to
OEM customers accounted for 24% of Group revenue in 2020.
24
2%
2%
2%
13%
2%
3%
3%
4%
5%
5%
6%
12%
Pharmaceutical & Biotechnology
Food & Beverage
OEM Machinery
20%
Oil & Gas
Chemicals
Power Generation
Healthcare
Water & Wastewater
Buildings
Mining & Precious Metal Processing
Semiconductor
Pulp & Paper
Transport
Other
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
…and our long-term market drivers remain positive.
12%* is our share of addressable market, which is valued
at £10.3 billion at the end of 2020.
Our markets have significant growth potential due to a number
of positive long-term market drivers (see the table below) at a
macroeconomic and sector level.
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 renewable and non-renewable energy and
power generation industries, with increased demand for energy
management solutions.
Industrial production
Our markets reflect changes in industrial production growth rates
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 steam systems and peristaltic
pumping, and a significant player in the electric thermal solutions
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.
Why is this important?
Our long-term growth prospects are promising. Although we are
the market leaders in Steam Specialties as well as pumps and fluid
path technologies, we have a relatively small market share of these
large addressable markets, at 16% and 12% respectively, and with
just a 6% share of the Electric Thermal Solutions market we have
good opportunities for growth. We can grow by targeting self-
generated sales, extending our geographical reach and increasing
the size of our addressable market through innovative product
development. In addition, our addressable markets and sectors
continue to demonstrate headroom for long-term growth.
12%
£4.5bn
£2.6bn
6%
Total addressable
market size
£10.3bn
£3.2bn
16%
Steam Specialties addressable market
Steam Specialties market share
Electric Thermal Solutions addressable market
Electric Thermal Solutions market share
Watson-Marlow addressable market
Watson-Marlow market share
* Based on internal estimates. The increase in market size in 2020
reflects underlying changes in market segment sizes, expansion of the
addressable market as a result of product development and the impact
of exchange movements.
25
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Strategic Review
A stable strategy at the core of reliability
Against the backdrop of the
COVID-19 pandemic, the work we
do to create a more efficient, safer
and sustainable world has never
been more important.”
Nicholas Anderson
Group Chief Executive
Efficient, Safer, Sustainable
Our Company purpose continued to guide our decisions in 2020.
Against the backdrop of the COVID-19 pandemic, the work we do to
create a more efficient, safer and sustainable world has never been
more important. Across the globe and in the critical sectors we serve,
our teams have supported our customers to keep their manufacturing
and industrial processes operational.
Resilience and reliability when it matters
Our diverse products and solutions, which are deeply embedded
in industrial and commercial sites all over the world, combined with
our extensive engineering expertise, have helped our customers
– including those who are on the frontline in the fight against the
COVID-19 pandemic – rapidly respond to their needs.
Our direct sales business model is highly effective at uncovering
opportunities to improve the efficiency and effectiveness of our
customers’ processes. By “walking our customer sites” our engineers
often identify unrecognised needs and design bespoke engineered
solutions to meet those needs. These solutions generally have a
short payback period for the customer and are typically paid for from
customers’ operating budgets which means they remain attractive
even during challenging economic times. Alongside this, we have
continued to help our customers reduce their environmental impacts,
improve product quality, provide safer working environments for their
people and to achieve regulatory compliance.
Our Group supports a diverse range of industries with over 55%
of sales destined to critical sectors such as Food & Beverage,
Pharmaceutical & Biotechnology, Healthcare and Power Generation,
which helped mitigate the impact of reduced customer demand
in cyclical sectors that suffered larger contractions during 2020.
Our largest sector in 2020 was Pharmaceutical & Biotechnology
accounting for 21% of Group sales. No single customer accounts
for more than 1% of Group sales. The total proportion of Group
sales which are funded by our customer’s operating budgets
remains close to 85%, with the balance coming from the customers’
capital budgets.
Further reading
Information on the strategic review of the Group Sustainability strategy.
Sees page 67-68
These market drivers and our business model have continued
to serve us well throughout the COVID-19 pandemic. Unable to
physically walk our customers’ sites in many cases, our network of
more than 1,900 sales and service engineers – unique in number and
expertise amongst our competitors – rapidly embraced virtual tools to
engage with our customers and in this respect continued to support
our business model for self-generated sales, which represent close to
35% of our Group revenue.
Although we have not been immune to the detrimental economic
impacts caused by the global pandemic, the high proportion of sales
that derive from our customers’ maintenance budgets combined
with our ability to continue to self-generate sales in the wide variety
of sectors we serve, has enabled our business to be highly resilient
during this global crisis.
Performance during a difficult year
2020 has not been without its challenges and we would like to pay
tribute and give thanks to every colleague in our Group, for their
outstanding efforts and dedication in line with our Values. Our teams
have worked diligently, with innovation and entrepreneurship, to meet
the needs of our customers without losing focus on the importance of
safety, health and wellbeing.
Our response to the global pandemic has been comprehensive.
Protecting everyone in our workplaces and helping our dispersed
teams adjust to the new realities of remote working has been at the
forefront of our efforts. For our critical workforce still accessing our
facilities around the world, the measures we have taken include the
provision of medical-grade masks and hand sanitiser, increased
distancing between workstations, implementation of one-way
systems and enhanced cleaning regimes.
We have stepped up our communications activity to connect
with colleagues working remotely at home and introduced flexible
measures to help those with responsibility for caring for loved ones.
The global roll-out of our Group Employee Assistance Programme
(EAP) ensured that everyone has access to support and resources
when and where needed. COVID-19 infection levels among our
employees have remained low, with the majority of cases being
contracted outside the workplace from family or friends. We continue
to actively monitor and engage to ensure that the risks do not
become “normalised” as time goes on.
26
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 We took decisive and early action to introduce temporary cost
containment initiatives in the first half of the year. These included
the restriction of non-essential spend, a reduction in temporary staff
and salary reductions for senior management. As we moved into
the second half of the year, the way in which our people adapted,
and the continued resilience of our business model became clear
to see. We were able to lift some temporary cost containment
measures earlier than anticipated and a number of the voluntary
salary reductions put in place in April, ceased by August with all salary
sacrifices being repaid in December. Throughout the year we realised
savings from activity curtailment as a direct consequence of the global
restrictions, such as reduced travel and lower marketing expenditure.
Enhanced inventory management practices increased our customer
service performance during the pandemic, improving our competitive
position and our cash management.
Planning for long-term resilience
Our strategy, underpinned by six strategic themes, aims to deliver
self-generated growth that outperforms our markets.
Our six strategic themes are:
• 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 our R&D investments
• Optimise supply chain effectiveness
• Operate sustainably and help improve our customers’ sustainability
Our strategy has been in place since 2014 and has consistently
delivered strong results. Watson-Marlow and Electric Thermal
Solutions completed planned strategy refreshes during the year,
identifying the key initiatives for strategic implementation over the next
five years. In January 2021, Steam Specialties also initiated a similarly
planned exercise that will be completed during the year.
Despite the challenges of remote working our teams launched 42
new product, service or solution offerings during the year, with 15
new product introductions in Steam Specialties, 20 in Electric Thermal
Solutions and seven within Watson-Marlow, accelerating the Group’s
Product Vitality (a measure which compares total revenues from new
products, services or solutions introduced in the previous five years,
against overall Group revenue). Work continued throughout 2020
on the development of the Group’s new product pipeline, which will
support the launch of further products and solutions in 2021.
To ensure we are well positioned to meet the growing needs of our
customers in the medium term, we continue to invest significantly
to expand both the capacity and performance of our business. Our
“future factory” initiative is driving our focus on operational excellence
in Steam Specialties; as is the consolidation of manufacturing sites
into single-site facilities across all our businesses.
Within Electric Thermal Solutions we are well progressed with a
project to consolidate Thermocoax’s four manufacturing facilities in
Normandy (France) and integrate these within a new purpose-built
facility. We expect to complete the integration by the end of this year.
In Watson-Marlow, we are increasing capacity in some of our existing
manufacturing sites and expanding our footprint to add further
capacity. For Aflex in Yorkshire (UK), we have consolidated four of
five sites into a 16,200m2 purpose-built facility, with the fifth site to be
integrated later this year. Additionally, we have initiated construction
of a new 11,000m2 facility for BioPure in Portsmouth (UK), which will
commence operations towards the end of 2021.
In 2021, we are further accelerating our investment in Watson-
Marlow to better serve our customers. The Board has approved
an US$88 million investment to build a 12,800m2 state-of-the-art
manufacturing facility on a 25.4 acre site in Massachusetts (USA),
which will significantly expand our capacity to serve customers in
the Americas region, particularly the fast-growing Pharmaceutical
& Biotechnology sector. Negotiations with local authorities and
contractors are well advanced and first customer deliveries are
expected before the end of 2022.
The additional capacity from these investments combined with
enhanced inventory management practices, which increased our
customer service performance and improved our cash management,
leaves us well positioned to better serve our customers as
markets recover.
We are also investing in digital and technology, such as upgrading
our systems to future proof our business and to identify opportunities
to create additional value for our customers, through digital products
and solutions. The global pandemic has accelerated digital adoption
and we have fast-tracked digital solutions across the Group and for
our customers. This will continue in 2021 and beyond as we seek
to accelerate digital initiatives that improve our customer targeting,
innovation, operational effectiveness and people processes.
During 2020 we also invested in key roles within our Human
Resources organisation, including the appointment of a Group Head
of Inclusion, Diversity and Wellbeing. This reflects our aspiration to
be an increasingly inclusive employer and to create a culture where
diversity thrives. In March 2021, 31% of senior executives across the
Group are female, up from 21% in mid-2019.
Building a sustainable future
In 2020, we committed to achieve net zero greenhouse gas
emissions before 2040 and to source 50% of our electricity from
renewable sources by 2030.
To ensure we can achieve these and other important targets, we
are accelerating our investments in sustainability and we appointed
our first Group Head of Sustainability, who reports directly to the
Group Chief Executive. This important role will enable us to work
collaboratively with both internal and external stakeholders to
accelerate our sustainability performance, and that of our customers,
while addressing key global sustainability challenges. During the final
quarter of 2020 we commenced a sustainability strategy refresh and
completed a range of activities such as stakeholder engagement,
a materiality assessment, climate change scenario analysis, and
a biodiversity impact assessment. We also commenced the
development of our net zero greenhouse gas roadmap.
We are exploring synergies within our thermal energy management
portfolio, which will enable us to combine core capabilities from
our Steam Specialties and Electric Thermal Solutions businesses
to develop our products and service capabilities for quantifiable
sustainability benefits. This will enable us to support the evolving
needs of our customers as they seek to mitigate the impact of their
operations on the environment.
The Group remains committed to organic growth as the predominant
source of growth. Nevertheless, we regularly refresh our pipeline of
acquisition opportunities across our businesses and market sectors.
We look for complementary companies that have strong potential
to underpin the Group’s organic growth over the long term at similar
margin levels.
27
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Strategic Review continued
Increase direct sales effectiveness through market sector focus
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.
Progress in 2020
The global pandemic intensified our sector-focused activities in
2020. Reacting to the rapidly changing needs of our customers, a
number of targeted activities were launched. With hospital staff having
to stand in for each other, Spirax Sarco UK introduced a “drop in”
webinar session on the subject of “safety in the boiler house” for the
National Health Service (NHS) to ensure customers were up to date
with essential boiler house checks. Watson-Marlow also developed
and launched a COVID-19 marketing campaign (see “Strategy in
action” for more information).
Steam Specialties expanded its range of Clean Steam Generators
(CSG) through the release of a CSG specifically designed for the Food
& Beverage sector.
Watson-Marlow ensured its sales engineers’ knowledge was up
to date through the delivery of two training events at the start
of 2020. The purpose over the two days was to drive Watson-
Marlow’s continuing sales growth, particularly in Pharmaceutical &
Biotechnology and Food & Beverage (its biggest sectors), through
a series of interactive sessions covering existing products and
introducing an incredible ten new products and features.
Focus for 2021
• Developing industry and application-focused products and
engineered solutions to align our offering with the needs of
customers in our target industries.
• Watson-Marlow micro-segmentation of industries and customers
for stronger alignment of product value propositions with customer
buying objectives.
• Continue focus on critical industries serving on the frontline, which
are already our core industry sectors such as Pharmaceutical &
Biotechnology, Healthcare, Food and Beverage.
Strategy in action
When the COVID-19 pandemic broke, it was time to pause,
reflect and refocus Watson-Marlow’s marketing activity.
The team examined how behaviour and preferences
had changed and discussed where a different approach
was needed.
Consensus was found in one simple fact: people in all our
target industries needed a little help – it was important to be
very clear about how our products could be used in the fight
against COVID-19.
A specific COVID-19 marketing campaign supporting five
industry sectors across multiple platforms and in 14 languages
was launched in four weeks.
By partnering with Cobra Biologics, one of a consortium
working on the AstraZeneca COVID-19 vaccine, Watson-
Marlow launched a “vaccine development” campaign which
included a webinar covering how to accelerate vaccine
production. The webinar included endorsement from Cobra
Biologics of Watson-Marlow’s single-use product range used
for vaccine development, which includes assemblies and
individual components such as the Q-Clamp.
As a result of this campaign’s unique and informative content,
distributed utilising a mix of social media, video, digital
marketing and media relations, 600 people registered for
the webinar. Approximately 40% of the registered individuals
attended it live, with the remainder having viewed the webinar
“on-demand”. These 600 prospects, from Pharmaceutical
& Biotechnology, Medical Technology, Food & Beverage,
Environmental, and Industrial industries, were then shared with
the global sales team for follow up. This initiative has already
resulted in a pipeline of new global sales opportunities for
single-use technology, Watson-Marlow pumps and larger fill
finish technology – all of which is used in different stages of
vaccine or medicine development and production.
Watson-Marlow will continue innovating and adjusting its
marketing approach to deliver value and help its markets to
continue to thrive into 2021 and beyond.
28
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Develop the knowledge and skills of our expert sales and service teams
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.
Progress in 2020
Despite the challenges posed by the pandemic during 2020, we
continued to invest in training and development initiatives during the
year, prioritising it in many cases.
In January and February Watson-Marlow launched two regional
training conferences in the US and Italy, sharing sector specific
content with more than 350 attendees across the Pharmaceutical
& Biotechnology, Food & Beverage, Industrial and Environmental
sectors. In addition to existing planned webinars, Watson-Marlow also
created daily online training meetings for Sales Engineers, Technical
Support and Applications Engineers to “drop into”.
Development of Blue (more advanced technical) and Purple belt
(global sector or product specialist) content for the Spirax Sarco
Academy was fast-tracked to support the increased usage from
sales engineers due to access to customer sites being restricted.
The Academy’s programmes are structured in levels, called “belts”,
with each “belt” being allocated a colour and representing an
increasing level of expertise from White belt (introduction to sales and
specific health & safety subjects) through to Black belt (global sector
or product specialist). Online “Consultative Selling” courses were also
rapidly authored to help with the need for remote selling. Four training
modules for the “Sales Management Development” programme
were also released. Gestra launched a global webinar initiative, in
conjunction with Gestra sales and technical specialists, to encourage
continuous development of newer sales colleagues who were unable
to attend face-to-face training.
Elsewhere in the Group, Chromalox expanded upon its video training
library for field sales engineers, with over 300 videos made available.
Focus for 2021
• Continuing development and roll-out of the programmes
of the Spirax Sarco Academy and Sales Management
Development programme.
• Begin developing training material for Chromalox and integrate into
the Spirax Sarco training platform (The Academy).
• Further development of Watson-Marlow’s training materials.
Strategy in action
Ben Pringle, Sales Manager, Spirax Sarco UAE has spent
many years in different parts of the business throughout his
career. “I realised how coaching has personally enabled me to
increase my confidence and grow in my roles. In my current
position, I immediately saw the potential to support and
develop my new team of sales engineers through coaching.”
One of the first areas that Ben initiated was a team
assessment on their knowledge of our key technical
products and systems. “The results gave insight into the
developmental needs of my team and that of each individual
within it. We have been able to target our training and personal
development plans to support each sales engineer’s particular
needs, as well as that of the whole team, to improve their
performance in their roles.”
The Middle East has recently started to participate in the Sales
Excellence First Line Sales Manager Capability Development
Coaching programme. “I really like this approach because
the coaching programme is specifically about coaching in the
sales environment and is targeted at supporting behavioural
transformation to achieve excellence in the role.”
The programme covers the skills required of the coach and
how to target and apply these skills. One of the key tools
in the programme is the Coaching Engagement Planner.
Through careful observation, this is a tool which helps a First
Line Sales Manager focus on what areas to coach in order
to build excellence in sales. “As a result of using this tool my
coaching is not arbitrary; instead it is focused on the individual
needs of my team and the way in which they execute
their roles.”
Despite only engaging with the programme in recent months,
Spirax Sarco UAE have already improved their customers’
experience by reducing response times by up to 50%.
Ben indicated that, with the roll-out of OPAL CRM in the
Middle East, coaching will become even more of a key
success factor in supporting the adoption and sustainability of
a new CRM system.
29
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Strategic Review continued
Broaden our global presence
Our strong global infrastructure enables
us to branch into adjacent markets rapidly
and leverage our existing infrastructure to
establish our businesses and technologies
in new markets.
Progress in 2020
Having a local sales presence with expert sales and service
engineers on-the-ground, unlocking self-generated sales by
engaging customers and identifying their needs is what our direct
sales business model is all about. The geographic expansion of
our direct sales presence is a key element of our strategy, enabling
us to increase our coverage and offer customers easier access to
our expertise.
Each of our businesses across the Group established a direct sales
presence in a number of new countries in 2019, and much of the
focus in 2020 has been on supporting these teams with developing
their new businesses during this difficult year.
Three new Watson-Marlow operating companies began trading in
2020. Watson-Marlow Hungary began trading in the first quarter of
the year. Watson-Marlow Finland and Watson-Marlow Norway were
operational from the third quarter of 2020. In September, Watson-
Marlow opened a new representative office in Serbia (managed
by Watson-Marlow Austria) to strengthen direct sales, service
and support for customers in Serbia, Bosnia and Herzegovina,
Montenegro, Albania, Kosovo and North Macedonia.
Focus for 2021
• Continuing geographical expansion and strengthening of Gestra,
Chromalox and Thermocoax’s direct sales presence internationally.
• Strengthening Watson-Marlow’s direct sales presence in Asia and
Latin America.
• Investing in Watson-Marlow’s global manufacturing capacity.
• Strengthening Spirax Sarco’s direct sales presence in
developing markets.
30
Strategy in action
Hungary is often considered to be a gateway into Central
and South-eastern Europe and therefore provides an
attractive market for foreign investment. Pharmaceutical &
Biotechnology and Food & Beverage are among its main
industries, and are a core focus for Watson-Marlow.
With a direct sales presence in Hungary, Watson-Marlow can
serve local customers more effectively and broaden the range
of products it sells to this market. Local engineers can draw
on the company’s 60+ years of expertise to advise customers
on the most suitable pump for their application, demonstrating
the value of peristaltic pumps to customers who may not be
familiar with the application of this pumping technology.
Watson-Marlow Hungary began trading in the first quarter of
2020, a difficult time to begin new operations due to the height
of the COVID-19 pandemic. The majority of sales to date have
come from Pharmaceutical & Biotechnology customers, with
a large variety of orders for pumps and tubing. Following a
challenging start, Watson-Marlow Hungary is on a growth
path. Next year they plan to take on BioPure and Flexicon,
currently being serviced from Watson-Marlow Austria.
The Hungarian office is based in Budapest and supports
Watson-Marlow’s business in Hungary, Romania and Bulgaria.
Attila Pal is the Country Manager and the operating company
currently employs six people.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Leverage our R&D investments
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 2020
2020 has been a productive year for new product releases with
42 new products and solution offerings launched across the
Group accelerating the Group’s Product Vitality (a measure which
compares total revenues from new products, services or solutions
introduced in the previous five years, against overall Group revenue).
Steam Specialties added to its range of Spirax Sarco Clean Steam
Generators (CSG) with the launch of a CSG specifically developed for
the Food & Beverage industry. A state-of-the-art steam trap survey
tool to be used by our service engineers was also introduced and
our range of manifolds was extended. SPECTORconnect, the new
Gestra technology for boiler controls launched in 2019, has been
successfully introduced into the market as a new standard.
Within our Electric Thermal Solutions business, Chromalox released
its new ChromaTrace™ for Buildings 1.0 design software specially
created for the Building & Construction market, architects and
engineers, and expanded its DirectConnect™ MV Boiler product
line to 11MW. Thermocoax developed seven new, bespoke heating
solutions for use in the Semiconductor industry, in response to
customer needs.
Watson-Marlow introduced a number of new products including three
new EtherNet/IP™ process pumps which provide digital connectivity,
as well as a range of model extensions for the MasoSine Certa™
pump. A targeted launch of a revolutionary new patented-technology
pump head, the ReNu 30 CWT (Conveying Wave Technology), was
initiated in June. The pump head, which fits onto existing Qdos
pumps, gives superior accuracy in chemical metering and dosing
applications, expanding our addressable market in sectors requiring
higher flow, pressure and enhanced chemical resistance.
Throughout the COVID-19 pandemic, we have continued to invest
in the development of innovative new products to ensure that
we maintain our industry-leading position and stay ahead of our
customers’ changing needs.
Focus for 2021
• Continue to develop innovative, sector-aligned new products
through effective R&D processes.
• Broaden the application scope of existing products through range
extensions, to meet customer needs.
• Continue our digital transformation journey.
Strategy in action
The use of electric heaters to generate steam is not a new
concept. Providing steam generation at the scale required for
customer sites that are planning to decarbonise their steam
supply has been beyond the capabilities of low voltage electric
heat sources. Driven by an ambition to achieve net zero
greenhouse gas emissions by 2050, Equinor, a broad energy
company, is planning to reduce emissions at one of their Oil &
Gas processing facilities.
Chromalox and Equinor have engaged in a testing programme
which will include building a test steam generator to utilise
medium voltage electricity (6,600V) to generate high pressure
steam at the temperature required at the facility. Chromalox will
be monitoring and recording pressure, temperature, flow,
water quality, as well as other measurements to ensure
proper operation at full scale for any potential installations in
the future.
The testing equipment was designed and assembled in
2020, and installation, commissioning and testing was started
early in 2021. Testing will run for a period of time to validate
Chromalox’s medium voltage heating technology for the
purpose of generating and super-heating high pressure steam.
The objective of the project is to confirm the viability of using
medium voltage resistance heaters to generate and superheat
high pressure steam, with the aim of supplementing or
replacing fossil fuel fired steam generation.
Alongside the intended reduction in emissions, this electric
steam generation application will deliver additional benefits
including increased efficiency and reduced maintenance.
31
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Steam
Specialties
32
M850 flow computer from Spirax Sarco, communicating data
for real-time analysis of steam system performance.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 t
r
o
p
e
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c
g
e
t
a
r
t
S
i
Engineering a
more efficient world
A remote monitoring system to measure steam flow is already proving the
value of digital in driving increased efficiency and sustainability.
The result
The new system went live in December 2020
and the data collected has already helped
our thermal engineers develop a deeper
understanding of the areas for improvement
in the system being monitored.
One of the critical areas identified was the
high levels of steam load on the boilers and
the need for the boilers to respond quickly
to the variations in the steam load occurring,
due to the increased demand.
The teams are now actively planning the
monitoring of the steam boilers to ensure
steam generation is optimised to support
the increased production requirements
and to identify efficiency and productivity
improvements that could be implemented as
part of the next phase of the project.
The project is in its early stages, but is
a great example of how our products,
solutions and know-how can be combined
with digital technology to enhance efficiency,
remotely and in real time.
The challenge
The sustainability team at Aspen Pharmacare
(Aspen) in South Africa was looking for ways
to improve the energy efficiency, process
productivity and reliability of the steam
system in their manufacturing and packing
facility in Port Elizabeth.
In February 2020, the local Spirax Sarco
team conducted a comprehensive steam
system and energy audit. Our experienced
engineers identified several opportunities
to achieve energy reduction and process
productivity improvements through
combining our products, solutions and
know-how with digital technologies.
The audit findings identified the need to
produce KPIs and to validate savings, while
improving heat exchange, controls, boiler
performance, process quality and reliability
through upgrading the steam trapping
to discharge condensate, air and other
incondensable gases more effectively from
the steam.
24/7
real-time and remote monitoring
for efficient resolution of any
identified issues
The solution
Priorities for the work arising from the audit
were agreed and divided into manageable
phases, starting with the critical processes.
The first priority was to implement a solution
to meter steam energy to establish how
effectively steam was being distributed
and used. Progress was hampered when
COVID-19 lockdowns swept across the
world, limiting travel and access to site.
However, Spirax Sarco and Aspen adapted,
continuing to work together virtually, to
complete the installation designs, technical
assessments and secured stakeholder
approvals for a turnkey solution to enable
remote monitoring of steam flow on one
specific part of the steam system.
The remote monitoring system for phase
one involved the fabrication, installation and
commissioning of five flow metering stations
to measure the flow of steam, which were
connected to our Cloud Monitoring and
Connected Expert platform, allowing the data
to be monitored and analysed in real time by
our remote engineers. The data transmitted
by the flow computer was processed by our
systems and teams, providing Aspen with
24/7 monitoring, alarms, notifications and
periodic expert assessments, supported
by a maintenance package to resolve any
identified issues.
Spirax-Sarco Engineering plc Annual Report 2020 33
Strategic Review continued
Optimise supply chain effectiveness
We have a global manufacturing footprint and
focus on increasing supply chain agility and
compressing lead times to enable greater
responsiveness, reduce costs and improve
customer service.
Progress in 2020
Many sites within the Steam Specialties business have achieved their
best ever On Time to Customer Request (OTTR) results, with Italy
seeing the most progress due to a strong focus on driving service and
operational improvements. Gestra also saw a significant improvement
in OTTR as a result of planning and capacity improvements.
The Americas division designed an Inventory Quality Management
(IQM) champion certification programme for the Spirax Sarco
Academy that has been rolled out across the division and made
available to others.
Watson-Marlow saw its first production output from its new state-of-
the-art manufacturing facility in Yorkshire for Aflex (see “Strategy in
action” for more information). Construction of the new manufacturing
facility at Dunsbury Park for BioPure is underway, which will
commence operations towards the end of 2021.
In February 2020, construction commenced on a new manufacturing
site and office facility in Normandy, France, to integrate Thermocoax’s
four existing sites into a new purpose-built facility which is expected
to complete in the second half of 2021.
The Board has approved an US$88 million investment to build a
major state-of-the-art manufacturing facility in the USA state of
Massachusetts for Watson-Marlow, which will significantly expand our
capacity to serve customers in the Americas region. Negotiations with
local authorities and contractors are well advanced and first customer
deliveries are expected before the end of 2022.
Chromalox has partnered with a third party to support the
Registration, Evaluation, Authorisation and Restriction of Chemicals
(REACH) and Restriction of Hazardous Substances (RoHS)
declarations of key products for specific customer requirements in a
timely manner.
Focus for 2021
• Increase our focus on supplier performance, making use of
improved data to accelerate improvements in our supply chain,
improve quality and support our customer service metrics.
34
• Further improve the alignment between sales and supply
companies, making use of improved internal and customer data, to
reduce lead times and support OTTR improvements.
• Complete the consolidation of Aflex’s UK manufacturing sites
into one new, purpose-built facility. Complete the construction
of the new BioPure site at Dunsbury Park which will commence
operations towards the end of 2021.
Strategy in action
Aflex Hose, the leading manufacturer of PTFE lined flexible
hose products located in Yorkshire, joined the Watson-Marlow
Fluid Technology Group in 2016. With ambitious expansion
plans, a new factory was required that was specifically
designed to accommodate Aflex’s bespoke processes.
Planning permission to develop waste land close to its existing
sites into a new state-of the-art manufacturing and office
facility was received in 2018, and construction at Bradley Park
commenced at the beginning of 2019.
The relocation and consolidation of its existing five
manufacturing, office and product development facilities to
a single, nearby, purpose-built site ensured its highly skilled
workforce would be retained.
Once the build and handover were completed, a carefully
phased transfer of Aflex’s existing five sites began, ensuring
zero disruption to customers. Four of the five sites successfully
transitioned to the new site in 2020, with the final site due to
complete its move in the second quarter of 2021.
Aflex Managing Director, Neil Hooper, commented, “The
success of Aflex has been driven by the skills, creativity and
commitment of our people. The opening of our new facility is
truly a pivotal moment in the company’s development and will
underpin an exciting and sustainable future. The investment
in the new Bradley Business Park facility is an outstanding
example of strategy and sustainability in action.”
Despite a demanding timeline, the project is on plan and
budget. The facility, consisting of a three-storey office building
and 17,000m2 factory, includes investments in new extrusion
lines and processing equipment, increases Aflex’s production
by 70%.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operate sustainably and help improve our customers’ sustainability
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 2020
In the first half of 2020, our Group Chief Executive, Nicholas
Anderson, was invited to join the Council for Sustainable Business
(CSB), and subsequently attend a virtual environmental sustainability
meeting of over 200 business leaders from the UK’s largest
companies alongside government representatives. In preparation for
this event, we made a number of climate change and biodiversity
commitments, including: achieve net zero GHG emissions before
2040; source 50% of our electricity from renewable sources by 2030
and establish a 2030 biodiversity net gain target.
In July 2020, we appointed a Group Head of Sustainability to
accelerate our Sustainability agenda and performance in conjunction
with the Sustainability Managers in each of our three Group
businesses. During the second half of 2020, we have undertaken
a number of actions including a third-party assisted materiality
assessment, stakeholder engagement exercise, peer benchmarking
and risk assessment. The Sustainability strategy has been refreshed
and implementation plans developed in the first half of 2021.
While the COVID-19 pandemic put a stop to many of our pre-planned
local volunteering activities in 2020, our colleagues found other ways
to engage with and support their local communities during this time
of need; from the production and distribution of personal protective
equipment (PPE) and groceries, to financial donations for local causes
and virtual fundraisers.
Focus for 2021
• Complete the refresh of our Group Sustainability strategy, including
setting stretching targets.
• Roll out and implement the refreshed strategy across the Group.
• Further develop the Group’s net zero greenhouse gas
emissions roadmap.
Strategy in action
Initially driven by a quality improvement exercise to improve
the longevity of the paint used on our products, our UK
manufacturing operation set themselves the additional target
of completely overhauling the paint process to deliver process
efficiency gains, via a project that was to be completed in just
one month.
Following a review of the process from end-to-end, the
project team made a number of upgrades to the paint
process including sourcing a new local paint supplier;
introducing pressurised paint pots for consistent viscosity
and application as well as to reduce the potential for spills;
removal of fans from the floorspace and replacing them with
uprated fans located on top of the oven to declutter the floor
area, upgraded paint booths with water curtains at the back
to catch overspray and a change in the paint and water
separation method from floating to sinking the paint.
Following the many process enhancements implemented by
the team, not only has the business seen an improvement in
the quality of the finished products but they have also realised
other benefits too. The introduction of sequence rules and
dedicated product booths and flow lanes have improved
product flow and throughput, and eliminated the bottleneck
caused by increase demand. Water tanks are now drained
down once every three weeks instead of once a week,
meaning the spray booths are now operational for longer and
the number of waste disposal tankers coming on site have
reduced from 48 to 18.
Compared with the same 10 month period in 2019, the
project has delivered a saving of 3,600 litres of paint, £31,423
of treatment chemicals and a reduction in disposal to waste
stream of 142,800 litres. Allowing for a slight reduction in
output as a result of COVID-19, the project still delivered a
total saving of £70,620.
Further reading
2020 Community Engagement Awards.
See page 84-85
35
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Key performance indicators
Our key performance indicators are used to measure
the successful implementation of our strategy.
1. Organic Revenue
2. Adjusted operating
Growth† %
profit* £m
3. Adjusted operating
profit margin* %
2020
-3
2019
2018
2017
2016
6
6
7
4
2020
2019
2018
2017
2016
270.4
282.7
264.9
235.5
180.6
2020
2019
2018
2017
2016
22.7
22.8
23.0
23.6
23.8
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.
Progress in 2020
Organic sales declined by 3%, with
6% organic decline in the Steam
Specialties business, a 12% organic
contraction in the Electric Thermal
Solutions business and a 9% organic
increase in Watson-Marlow.
Progress in 2020
Adjusted operating profit declined by
4% to £270.4 million. The reported
figure reflects a 1% organic decline
and a net 1% increase as a result of
acquisitions and disposals, partially
offset by a currency headwind.
Progress in 2020
The adjusted operating profit margin
fell by 10 bps to 22.7% largely due to
the negative foreign exchange impact.
On an organic basis the adjusted
operating profit margin increased by
40 bps.
Link to remuneration
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 remuneration
Executive Directors’ variable
remuneration is based on two
financial components: adjusted
operating profit and cash generation.
Adjusted operating profit margin is a
key driver of both bonus measures.
Link to remuneration
Executive Directors’ variable
remuneration is measured on two main
indicators: profit and cash generation.
Adjusted operating profit margin is a
key driver of both.
Link to risk
1
2
3
4
5
6
7
8
Direct link
Indirect link
No link
Link to risk
Link to risk
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
† Organic growth is at constant currency and excludes
* Based on adjusted operating profit. Adjusted operating profit excludes certain
contributions from acquisitions and disposals, see Note 2.
items as set out and explained in the Financial Review and in Note 2.
36
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Further reading
More information about our remuneration measures.
See pages 118 onwards
More information about our principal risks.
See pages 60-65
4. Adjusted basic
earnings per share
(EPS)* p
5. Cash generation* £m
6. H&S over three-day
lost time injury rate
per 1,000 employees
2020
2019
2018
2017
2016
256.6
265.7
250.0
220.5
171.5
2020
2019
2018
2017
2016
275.8
238.1
242.9
203.8
185.0
2020
2019
2018
2017
2016
2.9
3.6
4.9
4.6
6.0
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.
Progress in 2020
Adjusted basic earnings per share
declined by 3% to 256.6 pence as
organic decline and the net positive
impact of acquisitions and disposals,
partially offset by exchange headwinds,
contributed to a decline in earnings.
Definition
Cash generation is adjusted operating
profit after adding back depreciation
and amortisation, less cash payments
to pension schemes in excess of
the charge to operating profit, equity
settled share plans, net capital
expenditure excluding acquired
intangibles, working capital changes
and repayment of principal under
lease liabilities.
Definition
The number of workplace injuries that
resulted in over three days of absence
per 1,000 employees. The workplace
is any location in which an employee
is present as a requirement of
employment. Employees include all
permanent and temporary staff and
contractors. All injuries that occur in
workplaces, regardless of cause, are
included, as are road traffic accidents.
Progress in 2020
Cash generation increased by 16% to
£275.8 million, primarily as a result of
improvements in working capital and
a reduction in capital expenditure.
Progress in 2020
Our over three-day lost time injury rate
improved during 2020, falling from 3.6
per 1,000 employees in 2019 to 2.9
per 1,000 employees in 2020.
Link to remuneration
EPS measured over three-year periods
is one of the two components of the
Performance Share Plan.
Link to remuneration
Cash generation is one of two
financial measures on which Executive
Directors’ variable remuneration
is based.
Link to remuneration
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.
Improving the health, safety and
sustainability of our Group is one of the
personal strategic objectives of each
Executive Director, creating a
direct link with remuneration.
Link to risk
Link to risk
Link to risk
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
* Based on adjusted operating profit. Adjusted operating profit excludes certain
items as set out and explained in the Financial Review and in Note 2.
37
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operations Review
Market environment and progress in 2020
Despite a challenging macro-economic
environment, we continued to create
value for our stakeholders, invest in
our businesses, implement our strategy
and ensure a strong foundation for
continued, sustainable growth.”
Nicholas Anderson
Group Chief Executive
The wide applicability of our products across a broad range of
industries, combined with our extensive geographical presence and
close to 85% of revenues derived from end users’ maintenance and
operating budgets, mean that our markets closely correlate with
industrial production growth.
Market environment
Global industrial production declined 4% at the start of 2020 as
COVID-19 began spreading from Asia to Europe and the Americas.
As governments around the world enforced social restrictions to
contain the spread of the virus, global industrial production collapsed
by close to 12% in the second quarter. With social restrictions
easing in the third quarter, global industrial production improved
in the second half of the year. Across the full year, global industrial
production contracted between 4% and 5% returning close to
December 2019 levels by December 2020.
Industrial production rates were down across all regions in 2020, with
Europe experiencing the worst impact, down 8%. The Americas also
experienced a significant decline in industrial production, down 7% in
both North and Latin America. Excluding China, industrial production
in Asia Pacific was down by 6%, while industrial production grew
almost 3% in China.
With revenue down 3% organically, against a 4% to 5% decline in
industrial production, we again outperformed our markets, in part due
to maintaining a focus on excellence, reacting rapidly and decisively to
the changing needs of our customer base and continuing to invest in
our internal capabilities and capacity.
Despite the continuing uncertainty surrounding Brexit throughout
2020, its impact on market confidence was very quickly
overshadowed by the global pandemic. Overall, Brexit uncertainty
had a relatively limited impact on our business during 2020 as over
90% of our sales and operating profit are generated outside the UK.
Our direct sales business model is highly effective at uncovering
opportunities to improve our customers’ performance and this has
continued to serve us well throughout the pandemic.
Introduction
Despite a challenging macro-economic environment in 2020 and a
global recession triggered by the COVID-19 pandemic, we continued
to create value for our stakeholders, invest in our businesses,
implement our strategy and ensure a strong foundation for continued,
sustainable growth. In 2020, we delivered resilient sales and profit,
experiencing a 4% revenue decline against 2019, or a 3% decline
on an organic basis. Adjusted operating profit margin for the Group
was down 10 bps. Excluding the impact of currency, the adjusted
operating profit margin was up 40 bps organically.
What we do
Our Steam Specialties, Electric Thermal Solutions and Watson-
Marlow businesses all provide engineered products, services and
solutions that play a vital role in industrial processes worldwide.
We have remained an essential supplier throughout the global
pandemic, as many of our customers operate in the critical industries
of Pharmaceutical & Biotechnology, Healthcare, Food & Beverage
and Power Generation.
Steam is relatively easy to control, environmentally safe, clean and
sterile, and is capable of transferring large energy loads (in the form
of heat) into industrial processes. Steam is used across a broad
range of industries, in all geographical markets and a wide range
of applications including: heating, curing, cooking, drying, cleaning,
sterilising, space heating, humidifying, vacuum packing and producing
hot water on demand.
Electrical heating solutions are a complementary medium to
steam and there are synergies in terms of the broad industrial and
geographical application. Electrical heating solutions are particularly
utilised in applications that require rapid “on-off” control, higher
temperatures, concentrated power loads, easy installation or zero
emissions at point of use.
Peristaltic and other niche pumps and associated fluid path
components are also widely used across an extensive range of
industries to address mission critical or difficult pumping needs.
Peristaltic pumps are particularly suitable for hygienic applications
(as the fluid is contained within a tube and sterile tubing creates a
sterile pump), precise metering or low-shear applications, as well as
handling corrosive or abrasive materials that would otherwise damage
the pump.
38
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our Group supports a diverse range of industries with more than
55% of sales destined to critical sectors such as Food & Beverage,
Pharmaceutical & Biotechnology, Healthcare and Power Generation.
This has helped mitigate the impact of reduced customer demand in
cyclical sectors that were affected during 2020. Our largest sector,
Pharmaceutical & Biotechnology, accounts for 21% of sales and no
single customer accounts for over 1% of sales.
Forecasters predict global industrial production growth will reach 7%
to 8% in 2021 with an exit rate of 3% to 4% in the fourth quarter of
the year. With the huge task ahead to complete the global vaccination
programme for COVID-19 and the possibility of tighter restrictions for
longer, there is still a strong element of uncertainty at the current time.
Summary of progress in 2020
Sales
Group sales were down 4% to £1,193.4 million
(2019: £1,242.4 million) and down 3% on an organic basis. Sales in
Steam Specialties were down 6% on an organic basis, with the
Electric Thermal Solutions business down 12% organically. Watson-
Marlow’s sales grew 9% on an organic basis.
Acquisitions and disposals added £15.2 million, or 1%, while foreign
exchange had a 2% adverse impact on Group sales.
The Steam Specialties business, which accounted for 58% of
Group revenue in 2020, experienced a decline in all regions. Sales of
£694.1 million were down 8%, or 6% down on an organic basis.
The Electric Thermal Solutions business, which accounted for 15%
of Group revenue in 2020, delivered sales of £178.0 million, 4%
below 2019 and down 12% organically. Thermocoax, which joined
the Group in May 2019, delivered double-digit organic sales growth,
helping to offset a sales drop in Chromalox.
Watson-Marlow, which accounted for 27% of Group revenue in the
period, had an excellent year and delivered sales of £321.3 million,
7% above 2019 and 9% up on an organic basis. This growth
was largely due to increased demand from the Pharmaceutical
& Biotechnology sector, which accounted for 55% of Watson-
Marlow’s sales in 2020, as customers in this market redirected their
activities and expanded their manufacturing capabilities in support of
COVID-19 vaccine development and production.
Adjusted operating profit
Group adjusted operating profit was down 4% to £270.4 million and
down 1% on an organic basis. The £3.1 million full-year benefit from
the acquisition of Thermocoax in May 2019, was more than offset by
a £12.0 million exchange headwind.
In the Steam Specialties business, adjusted operating profit of
£154.3 million was down 9% on an organic basis, and a negative
exchange impact resulted in profit being down 13% compared
with 2019.
The Electric Thermal Solutions business delivered an adjusted
operating profit of £24.6 million, 11% down on an organic basis and
flat compared with 2019.
Watson-Marlow’s adjusted operating profit was up 15% organically,
notwithstanding continued investment in the business, and was up
12% compared with 2019 due to a currency headwind.
Adjusted operating profit margin
The Group adjusted operating profit margin of 22.7% was down 10
bps due to a negative currency impact. On an organic basis, the
adjusted operating margin improved by 40 bps.
Within the Steam Specialties business, the adjusted operating profit
margin declined 140 bps to 22.2%, as our 80 bps organic decline
was compounded by a currency headwind. Declines in adjusted
operating profit margin in EMEA and the Americas regions were
partially offset by a 200 bps organic increase in Asia Pacific.
The adjusted operating profit margin for the Electric Thermal Solutions
business was up 50 bps to 13.8% as a very positive contribution from
Thermocoax was partially offset by a small currency headwind and an
organic margin decline in Chromalox.
Watson-Marlow’s operating profit margin was up 160 bps to 33.4%,
driven by a strong 180 bps organic margin expansion.
Statutory operating profit and margin
Statutory operating profit of £249.0 million was up from £245.0 million
in 2019, primarily as a result of a £10.5 million credit from defined
benefit retirement plans in the UK and Canada being closed to future
accrual. As a result, the statutory operating profit margin of 20.9%
was up 120 bps (2019: 19.7%).
Revenue
2019
Exchange
Organic
£1,242.4m
(£27.2m)
(£37.0m)
Adjusted operating profit
£282.7m
(£12.0m)
(£3.4m)
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
22.8%
£245.0m
19.7%
Acquisitions and
disposals
2020
Organic
Reported
£15.2m £1,193.4m
£270.4m
£3.1m
-3%
-1%
-4%
-4%
22.7%
+40 bps
-10 bps
£249.0m
20.9%
+2%
+120 bps
39
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operations Review continued
Performance at a glance
Steam Specialties
Electric
Thermal Solutions
Spirax Sarco & Gestra
Revenue £m
Revenue £m
Chromalox &
Thermocoax
Revenue £m
Revenue £m
Watson-Marlow
Fluid Technology
Group
Watson-Marlow
Revenue £m
Revenue £m
58%
44%
34%
22%
£694.1m
Reported
-8%
Organic
-6%
15%
£178.0m
Reported
-4%
Organic
-12%
27%
£321.3m
Reported
+7%
Organic
+9%
Adjusted operating profit £m
Adjusted operating profit £m
Adjusted operating profit £m
£154.3m
£24.6m
£107.3m
Adjusted operating margin %
Adjusted operating margin %
Adjusted operating margin %
22.2%
13.8%
33.4%
No. of operating units at year end
No. of operating units at year end
No. of operating units at year end
62
22
48
Key Industries
Key Industries
Key Industries
Performance summary
Organic sales down 6%; organic
operating profit down 10%.
All geographic segments contracted.
Reported results impacted by
negative FX. Operating profit
margin 22.2%; down 80 bps
organically. Gestra sales also down.
Temporary cost containment
initiatives effective at reducing
fixed costs. Continued to invest in
digital technologies, sustainability,
new product development and
implementing new integrated
information systems.
40
Performance summary
Organic sales down 12%; down 4%
on a reported basis. Sales decline
largely driven by COVID-19
pandemic in the USA and fall in
oil price. Thermocoax, acquired
May 2019, benefitted from strong
growth in Semiconductor sector.
Restructured Chromalox France;
divested ProTrace (Canada).
Operating profit down 0%.
Operating margin up 50 bps.
Performance summary
Organic sales up 9%; strong growth
in all regions. Pharmaceutical &
Biotechnology sector drives stronger
sales growth. Operating profit
up 12%; organic profit up 15%.
Organic margin up 180 bps;
increased investments for growth.
New sales companies in Hungary,
Finland, and Norway. Well positioned
to deliver above-market organic
sales growth.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Steam Specialties
Revenue £m
Reported
Organic
£694.1m -8% -6%
2019: £755.4m
2020
2019
2018
2017
2016
694.1
755.4
733.5
675.4
563.5
Adjusted operating profit £m Reported
Organic
£154.3m -13% -9%
2019: £177.9m
2020
2019
2018
2017
2016
154.3
177.9
170.1
154.6
129.1
Adjusted operating margin % Reported
22.2%
2019: 23.6%
-140 bps
Organic
-80 bps
Steam Specialties at a glance (at year end)
62
operating units*
67
countries with
a resident direct
sales presence
4,679
employees
* Operating units are business units that invoice locally.
Group revenue %
Revenue £m
58%
44%
34%
22%
Sales of £694.1 million were down
8% against a backdrop of a strong
contraction in IP. Sales derived
from our customers’ operational
and maintenance activities
declined 4%, while larger
project sales related to
customers’ capital
budgets declined
almost 12%.”
Neil Daws
Managing Director,
Steam Specialties
Key market performance
Industrial production growth rates, 2020*
• Industrial production
contracted in many core
markets during 2020
• Pharmaceutical &
Biotechnology sector a good
driver for growth; Food &
Beverage and Healthcare
generally robust
• OEMs, Oil & Gas and
Chemical industries weaker
<-10%
<-5 to -10%
≤0% to -5%
>0% to 2%
>2% to 4%
>4%
unavailable
* Compared with the prior year. (Source: Oxford Economics, February 2021.)
Positive
Neutral
Negative
41
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Operations Review continued
Steam Specialties continued
Market overview
Industrial production (IP) in the Europe, Middle East and Africa (EMEA)
division contracted 6% during 2020 with COVID-19 and Brexit
affecting market conditions. With the exception of the UK, which
contracted close to 9%, our large European markets saw double-digit
IP declines with France and Germany both contracting over 10%
and Italy contracting 11%. Elsewhere across EMEA, many of our
smaller markets experienced negative IP rates between 2% and 11%.
The only markets with IP growth were Norway at 4% and Turkey
at 2%.
In Asia Pacific, IP contracted strongly in the first half of the year,
with the region returning to low growth in the second half as China
recovered quickly from the effects of the pandemic and achieved
industrial production growth close to 3% for the year. The strong
IP recovery in China and Korea, our second largest market in
the region, lessened the overall decline in Asia Pacific’s industrial
production growth rate from over 6% to under 1%. Singapore,
Taiwan and Vietnam all experienced IP growth while India, Japan,
most of Southeast Asia and Australasia experienced negative IP rates
between 1% and 11%.
Industrial production contracted 7% across the Americas in 2020,
with the most severe impact felt in the second quarter, when IP
declined more than 15%. On a full-year basis, IP in North America
contracted 7%, while declines across Latin America varied between
1% and 13%. Aside from COVID-19, the collapse of the oil price had
an additional but varied impact across the region.
Market growth in critical sectors was resilient including in
Pharmaceutical & Biotechnology (+4%) and Food. In contrast, sectors
that are more cyclical, such as Oil & Gas (-7%), declined significantly.
Progress in 2020
Sales of £694.1 million were down 8% in the Steam Specialties
business. On an organic basis, sales were down less than 6%,
reflecting the 4% to 5% contraction of industrial production across
our global markets. Sales derived from our customers’ operational
and maintenance activities declined 4%, while larger project sales
related to customers’ capital budgets declined almost 12%.
As a result of our focus on critical sectors, such as Food & Beverage,
Healthcare and Pharmaceutical & Biotechnology, we have been
able to continue providing products and services during this difficult
year, as steam systems are essential to many critical manufacturing
and industrial operations. Despite the challenges brought about by
COVID-19, we have still been able to self-generate opportunities
in the areas of energy savings, quality control and production
improvement, helping our customers achieve business continuity.
At times during the year our direct sales and service engineers
were restricted from physically accessing customers’ sites due
to lockdowns as a result of COVID-19 protection measures.
Customer visits at the start of the pandemic initially decreased
but picked up again as we rapidly switched to digital models of
providing service support remotely, together with new audit solutions
and remote customer training. We believe that this swift action to
maintain our customer service, together with the resilience of our
business model, contributed to our robust sales in the majority of our
core sectors.
All our manufacturing sites remained open and operational during
2020 with some exceptions including short, government-enforced
shutdowns linked with lockdowns primarily at the start of the
pandemic. We have maintained a focus on further improving
customer service and, as a result, our Steam Specialties on-time-to-
request (OTTR) customer service measure improved to over 94% on
a global basis.
Gestra sales were also down in 2020, with some scheduled
maintenance and projects in the Power Generation sector being
postponed. The biggest impacts were felt in the Oil & Gas sector,
due to the drop in oil price, and sales to distributors, as they reduced
the volume of their inventory. Sales of boiler house control products,
including the new SPECTORconnect range that was launched in
2019, remained robust. Gestra China performed well as a result of
establishing a new operating company there in April 2019.
The temporary cost containment initiatives taken by the Steam
Specialties business were very effective at reducing costs, by over
£15 million, mostly in the areas of travel, advertising and employment
costs. We focused on cost reduction initiatives that enabled us to
manage the impact of the pandemic without damaging our ability
to respond quickly to a recovery. As such we continued to invest in
digital technologies, sustainability, new product development and
implementing new integrated information systems.
Adjusted operating profit was £154.3 million, down 9% organically
and down 13% compared to 2019, due to a negative currency
impact. At 22.2%, the Steam Specialties business’ adjusted operating
profit margin declined 140 bps and 80 bps organically.
Statutory operating profit of £157.8 million was down 9% from
£172.6 million in 2019 for the same reasons as the decline in adjusted
operating profit.
2019
Exchange
Organic
Acquisitions and
disposals
2020
Organic
Reported
Revenue
Adjusted operating profit
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
£755.4m
£177.9m
23.6%
£172.6m
22.8%
(£20.6m)
(£40.7m)
(£9.1m)
(£14.5m)
–
–
£694.1m
£154.3m
-6%
-9%
-8%
-13%
22.2%
-80 bps
-140 bps
£157.8m
22.7%
-9%
-10 bps
42
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Strategy update
Across Steam Specialties we remained focused on our “Customer
first” business strategy, despite the disruption caused by the
COVID-19 pandemic.
Our business model adapted well to the changing landscape as our
direct sales and service engineers swiftly adjusted their work patterns,
including the adoption of new digital technologies, to maintain contact
with our customers and continue self-generating sales. Through the
adoption of digital engagement tools and the development of
digital technologies which combine the Internet of Things (IoT),
cloud solutions and wearable technology to create a virtual and
augmented reality experience, our engineers are still able to uncover
problems and provide bespoke solutions to meet customers’ needs.
Continuous improvement activities continued to receive attention and
delivered good results, such as an improvement in our On-Time-To-
Request (OTTR) customer service measure.
The pandemic accelerated the roll-out of our eCommerce platform
across our operating companies in the Netherlands, UK & Republic of
Ireland, Germany, Switzerland and in our EMEA Developing Markets
in the second half of the year. The Americas began piloting an
eCommerce platform in 2020.
As the pandemic took hold, the opportunity for virtual learning
amongst our people increased significantly as our colleagues
made use of time they had available as a result of reduced travel.
In response to this, the Spirax Sarco Academy rapidly produced
and deployed curricula in support of the new ways of working,
such as “Remote Consultative Selling” and developed “Wellbeing”
programmes to help our colleagues adjust to the new realities of
remote working and living with a pandemic. The sales programmes
of the Spirax Sarco Academy are structured into levels called
“belts”, with each belt representing an increasing level of expertise
from White belt (introduction to sales and specific health & safety
subjects) through to Black belt (global sector or product specialist).
The materials for our Blue belt (more advanced technical) and Purple
belt (sector) were also fast-tracked and made available in a basic
form, to enable our sales and service engineers to accelerate their
learning, while the interactive content was being produced.
In 2020, 15 new products were released. A Clean Steam Generator
(CSG) was specifically developed to meet the needs of customers
in the Food & Beverage industry and was launched successfully,
expanding our range of CSGs. A state-of-the-art steam trap survey
tool for use by our service and survey engineers was introduced
early in the year, and we extended our range of manifolds.
Gestra successfully introduced the SPECTORconnect boiler controls
technology as a new standard in the market.
We also continued to invest in upgrades to our business information
systems in 2020. “Project OPAL”, initiated in 2019, incorporates
ERP (Enterprise Resource Planning), CRM (Customer Relationship
Management), CPQ (Configure, Price, Quote) and BI (Business
Intelligence) modules. The implementation of this new integrated
system is set to improve operational effectiveness and deliver
improved customer focus and insight, as well as effective strategic
account management and rapid quoting and processing to further
improve our customer delivery performance. Among the first
countries to “go live” were Norway, Sweden, Finland and Denmark in
September, with a further six countries successfully switching to the
new CRM platform by the end of the year. Investment in Argentina
to move to a common Spirax Sarco manufacturing ERP platform
was also initiated as the first step in a multi-year roll-out across the
Americas to upgrade to a single system.
Since its acquisition in 2017, Gestra has made further progress in line
with the acquisition strategy, moving several transformational projects
into business as usual. The synergy with Spirax Sarco will deliver
further tangible results with the new range of SPECTORconnect
boiler controls range envisaged to fully replace the current Spirax
Sarco technology.
Our plans for further geographical expansion were largely on hold
during 2020. We expect this to pick up again once we see a stable
return to more normal customer demand-levels. Gestra expanded its
direct sales presence in India in 2020, with the addition of an internal
application engineering capability. During the final quarter of 2020, we
worked to set up a new Gestra operating company in France, ready
to begin trading in the first quarter of 2021.
Health and safety of our employees remains our top priority and in
2020 we stepped up our focus on the mental and physical wellbeing
of our colleagues, whether they are working from home or at one
of our sites, with the introduction of COVID-19 training, enhanced
sanitary regimes, enforced social distancing and correct self-isolation
procedures introduced across the entire business.
In 2020, we also stepped up our sustainability initiatives, with a
particular focus on accelerating offerings to customers that help them
manage their environmental impacts, as well as activities to improve
our own energy efficiency and reduce our greenhouse gas emissions.
As planned, in January 2021 we initiated a refresh of the “Customer
first” strategy to reinforce areas of success while accelerating the
strategic implementation of digital and sustainability initiatives.
Outlook
Steam is used across a broad range of industries and in all
geographic markets, and therefore the Steam Specialties business
could not escape the effects of the COVID-19 pandemic on global
industrial production. Thanks to our resilient business model, ability to
self-generate sales and significant maintenance and repair revenues,
the organic decline of sales in 2020 was contained to 5.5%, broadly
in line with the decline in global industrial production.
The latest forecasts predict global industrial production will grow
over 7% in 2021. Industrial production is predicted to grow over 5%
in EMEA with growth in the UK forecasted at a more modest 2%.
Across the Americas, industrial production growth is predicted to
reach 6%, with North America growing over 5% and Latin America
growing over 7%. In China, industrial production is predicted to grow
a further 9% in 2021, ahead of the Asia Pacific region as a whole that
is forecasted to grow over 8%.
Typically, organic sales growth in Steam Specialties would exceed
growth of global industrial production. However, in 2021 we anticipate
that reduced demand from larger capital projects, which lag the
recovery of operational and maintenance driven demand, will limit
sales growth to slightly above global industrial production.
In early 2021, we initiated investments to merge our Italian
businesses, which will benefit our performance in future years.
We have also planned additional revenue investments in sustainability
and new digital applications in support of organic sales growth
and stepped up the global implementation of our integrated IT
systems. We believe close to 75% of the savings derived from cost
containment initiatives taken in 2020 will reverse in 2021, particularly
in manufacturing overheads and employment costs.
As a result of the expected currency headwind and the increased
revenue investments listed above, we anticipate the adjusted
operating profit margin in 2021 to be marginally ahead of the
prior year.
43
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operations Review continued
Steam Specialties continued
Europe, Middle East and Africa (EMEA)
Revenue £m
Adjusted operated profit £m
£310.0m
2019: £335.7m
2020
2019
2018
2017
2016
£54.1m
2019: £67.0m
310.0
305.3
335.7
344.4
2020
2019
2018
2017
2016
234.3
54.1
50.0
67.0
69.3
66.1
Adjusted operating margin %
17.5%
2019: 20.0%
2019
Exchange
Organic
Acquisitions and
disposals
2020
Organic
Reported
Revenue
Adjusted operating profit
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
£335.7m
£67.0m
20.0%
£63.4m
18.9%
(£1.0m)
(£0.9m)
(£24.7m)
(£12.0m)
–
–
£310.0m
£54.1m
-7%
-18%
-8%
-19%
17.5%
-220 bps
-250 bps
£57.7m
18.6%
-9%
-30 bps
Asia Pacific
Revenue £m
£234.6m
2019: £249.8m
2020
2019
2018
2017
2016
Adjusted operated profit £m
Adjusted operating margin %
£72.4m
2019: £72.5m
30.9%
2019: 29.0%
234.6
249.8
232.7
218.0
193.3
2020
2019
2018
2017
2016
72.4
72.5
63.9
56.9
49.9
2019
Exchange
Organic
Acquisitions and
disposals
2020
Organic
Reported
Revenue
Adjusted operating profit
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
£249.8m
£72.5m
29.0%
£72.5m
29.0%
(£3.7m)
(£1.4m)
(£11.5m)
£1.3m
–
–
£234.6m
£72.4m
-5%
+2%
-6%
0%
30.9% +200 bps +190 bps
£72.4m
30.9%
0%
+190 bps
The Americas
Revenue £m
£149.5m
2019: £169.9m
2020
2019
2018
2017
2016
Adjusted operated profit £m
Adjusted operating margin %
£27.8m
2019: £38.4m
18.6%
2019: 22.6%
169.9
149.5
156.4
152.1
135.9
2020
2019
2018
2017
2016
27.8
31.6
29.2
38.4
36.9
2019
Exchange
Organic
Acquisitions and
disposals
2020
Organic
Reported
Revenue
Adjusted operating profit
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
£169.9m
£38.4m
22.6%
£36.7m
21.6%
(£15.9m)
(£6.8m)
(£4.5m)
(£3.8m)
–
–
£149.5m
£27.8m
-3%
-12%
-12%
-28%
18.6%
-190 bps
-400 bps
£27.8m
18.6%
-24%
-300 bps
44
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Progress in 2020
Europe, Middle East and Africa (EMEA)
Sales of £310.0 million were down 8% in EMEA or 7% down on an
organic basis. Against a backdrop of over 6% industrial production
contraction, sales declined broadly in line with our markets.
Economic activity in the second half of the year returned to more
stable activity levels, as customers adapted to the new economic
landscape and ways of working.
The Americas
Sales of £149.5 million were down 12% or 3% down on an organic
basis, while industrial production contracted 7% across the region.
Organic sales in North America were down less than 9%, impacted
by the spread of COVID-19, the global recession, and the decline in
the Oil & Gas sector. Our distribution network in the USA chose to
reduce their inventory levels, due to the decline in industrial production
and market uncertainty, thereby reducing demand for our products.
The impact of the global recession on organic sales was felt across
all core territories, with the biggest effect in the Middle East and Africa
that contracted over 20% following the decline of the oil price and
as the region did not substantively benefit from government stimulus
packages. Our core European markets, including the UK, Germany,
Italy and France, experienced a close to 6% organic sales decline.
EMEA adjusted operating profit of £54.1 million was down 18%
organically, as inventory reductions across the sales companies
globally further reduced demand levels at European manufacturing
facilities. A currency headwind further reduced the adjusted operating
profit to be down 19%. At 17.5%, the adjusted operating margin
was down by 250 bps. On an organic basis, the adjusted operating
margin was down 220 bps.
Statutory operating profit was down from £63.4 million to
£57.7 million, which is reflective of the reduced adjusted operating
profit partially offset by a credit as a result of the UK pension schemes
being closed to future accrual.
Asia Pacific
Sales of £234.6 million were down 6% in Asia Pacific or 5% down
on an organic basis, compared to a 1% industrial production decline.
Asia Pacific is the region most exposed to larger capital projects that
were down by double digits.
Organic sales in China, our largest operating company, were down
less than 3% for the full year, as a result of almost 15% sales decline
in the first half being partially offset by a strong second half recovery of
almost 9% sales growth. While some customers were still restricting
physical site visits, we remained in close contact, using digital
methods to support them and ensure smooth operations. Since April,
sales to customers in China have continued to recover with the
economy, cushioning the sales decline in the rest of Asia Pacific.
Our operations in Korea and Australasia experienced a similar sales
decline to China. Although initially less affected by the pandemic,
subsequent waves of infection and eventual lockdowns in these
countries impeded customer interactions and delayed deliveries.
Japan, India and Southeast Asia operations were particularly
impacted by customers delaying capital investments when economic
conditions worsened, as well as routine maintenance work being
postponed when plants and facilities closed due to lockdowns.
Adjusted operating profit of £72.4 million was flat compared to 2019
as currency movements offset an organic increase of 2%. At 30.9%
the adjusted operating margin was up 200 bps organically due
to improved operational performance, a favourable sales mix and
temporary cost containment measures.
Statutory operating profit was also flat against the prior year at
£72.4 million.
In Latin America, sales grew over 8% organically as we experienced
strong sales performance in Spirax Sarco Brazil and Hiter Controls
that were able to effectively pivot business into new sectors, in
response to the decline of the Oil & Gas and Ethanol sectors.
Argentina also achieved organic sales growth in 2020, as strong
devaluation of the Peso drove local price increases to more than
offset real term demand declines. Excluding Argentina, organic sales
growth in Latin America was 3%.
Our five factories across the Americas have been able to meet
demand, helping mitigate currency effects and take market share
from our competitors who are dependent on imports. Our focus on
strategic implementation and our strong cash position has ensured
we retain sufficient inventory levels to help our customers meet their
business continuity plans.
Adjusted operating profit of £27.8 million was down 28% or 12%
down organically, the difference being the result of a significant
negative currency impact. The adjusted operating profit margin was
down 400 bps, strongly impacted by currency movements. On an
organic basis, the adjusted operating profit margin was down by
190 bps to 18.6%.
Statutory operating profit was down from £36.7 million to
£27.8 million, broadly in line with the reduction in adjusted
operating profit.
Strategy in action
Before COVID-19, a team at Spirax Sarco UK was researching
wearable technology to help develop its service engineers.
They identified augmented reality headsets which connect to
company systems via 4G networks, enabling expert engineers
to provide real-time support and share technical documents
and drawings through the headset. When Daryl Andrews
joined the Service team during lockdown in November 2020,
he was the first to try this digital technology at customer sites.
During one service visit, Daryl was presented with a complex
issue that due to limited experience he was unable to solve on
his own. Daryl requested support via the headset to show the
scenario to an experienced engineer who was able to provide
clear instructions on how to fix the problem. The benefits of this
new technology include reduced travel time and associated
emissions, as well as reduced footprint on site, increased
availability of specialist resource and improved efficiency.
45
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operations Review continued
Electric Thermal Solutions
Revenue £m
Reported
Organic
£178.0m -4% -12%
2019: £186.1m
Group revenue %
Revenue £m
2020
2019
2018
2017
2016
178.0
186.1
154.6
75.1
* Chromalox acquired in July 2017.
Adjusted operating profit £m Reported
Organic
£24.6m 0% -11%
2019: £24.7m
2020
2019
2018
2017
2016
24.6
24.7
22.8
13.8
* Chromalox acquired in July 2017.
Adjusted operating margin % Reported
13.8%
2019: 13.3%
+50 bps
Organic
+10 bps
Electric Thermal Solutions at a glance (at year end)
22
operating units*
19
countries with
a resident direct
sales presence
1,387
employees
* Operating units are business units that invoice locally.
15%
Sales of £178.0 million were 4%
down or 12% down on an organic
basis as the additional five months
of Thermocoax sales in 2020
expanded revenues by 8%.”
Dominique Mallet
President,
Electric Thermal Solutions
Key market performance
Industrial production growth rates, 2020*
• Industrial production
contraction in core markets of
North America and EMEA
• Power Generation and Oil &
Gas lower; Chemical down
• Growth in Semiconductor
<-10%
<-5 to -10%
≤0% to -5%
>0% to 2%
>2% to 4%
>4%
unavailable
* Compared with the prior year. (Source: Oxford Economics, February 2021.)
Positive
Neutral
Negative
46
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Market overview
The geographical footprint of the Electric Thermal Solutions business
differs greatly from Steam Specialties and Watson-Marlow, with two-
thirds of its revenue generated in the Americas and less than 10%
generated in Asia Pacific. It also has a greater weighting of sales to
the Oil & Gas, Power Generation and Semiconductor sectors than
Steam Specialties, plus lower weighting to the Food & Beverage and
Pharmaceutical & Biotechnology sectors.
Chromalox, which accounts for three-quarters of revenue in the
Electric Thermal Solutions business generates close to 75% of
its revenue in North America and therefore has a higher exposure
to industrial production in the USA that reported 7% industrial
production decline in 2020. In particular, Chromalox was impacted by
the contraction of the Oil & Gas sector and the lack of growth in the
Power Generation sector.
Thermocoax, acquired in May 2019, accounted for a quarter of
Electric Thermal Solutions’ revenue in 2020. Almost 60% of sales are
directed to European markets, with 35% of sales to the USA and less
than 10% of sales supplied into Asia.
Progress in 2020
Sales of £178.0 million were 4% down or 12% down on an organic
basis as the additional five months of Thermocoax sales in 2020
expanded revenues by 8%. The sales decline was largely driven by
the COVID-19 pandemic, particularly in the USA, combined with the
fall in oil price. Sales to Semiconductor OEMs, a strategic sector for
the Electric Thermal Solutions business, grew significantly in both
Europe and the USA, as we expanded our offering and displaced
competitors with superior technological solutions.
Large project business declined at a faster rate than the base
business, with projects being deferred due to customer capital
expenditure reductions. However, in late 2020, Chromalox secured
the largest single order in the Group’s history, a US$14 million order
from the US Navy, ending the year with a significantly higher order
book to be shipped in 2021 and 2022.
Chromalox sales declined in its core markets of Oil & Gas,
Petrochemical and Power Generation, although some specific sub-
sectors, such as Liquified Natural Gas, remained strong. The sales of
Heat Trace products also declined, impacted by distributors reducing
inventory and a milder winter in the USA, but the rapid growth of
decarbonisation efforts by countries and industry, has proven to be a
valuable growth trend for Chromalox in 2020.
In its first full year with the Group, Thermocoax benefitted from strong
growth in the Semiconductor sector and sustained growth in the
Nuclear sector. As a result of strong operational performance and
orders carried over from 2019, Thermocoax achieved 27% like-for-like
sales growth in 2020
Following a comprehensive consultation period, we agreed
a restructuring programme at our loss-making Chromalox
manufacturing facility in Soissons, France, resulting in a reduction of
34 roles primarily in direct production. The restructuring negotiations
were completed amicably in August and with limited disruption
to operations. The site will now focus on manufacturing complex
engineered solutions for European markets, with heating elements
and components sourced from other Chromalox manufacturing
facilities. This restructuring initiative will significantly reduce our cost
base and create a more appropriately sized production facility,
which will improve the site’s efficiency and help to secure its long-
term profitability.
In March 2020, we disposed of ProTrace Engineering, a small,
loss-making and non-core electrical engineering services business
in Canada which was inherited through the original acquisition
of Chromalox.
At £24.6 million, the adjusted operating profit was flat due to the
increased contribution from Thermocoax, however declined 11%
organically. In 2020, Chromalox closed out a loss-making customer
project that had a £1.7 million negative impact on operating profit in
the year.
The adjusted operating profit margin was up 50 bps to 13.8%, up
10 bps on an organic basis, driven by improved operating efficiencies
and supported by cost containment initiatives as well as a positive mix
impact from the higher margin Thermocoax.
Statutory operating profit was down 39% from £7.9 million
in 2019 to £4.8 million, largely due to the restructuring costs
incurred in the business during 2020 as disclosed in Note 2 to the
Financial Statements.
Strategy update
We carried out a strategy review for the Electric Thermal Solutions
business in the first half of 2020, and the subsequent “Engineering
Premium Solutions” strategy was approved by the Board in June.
Targeting high margin, high growth sectors, the main components
of this strategy include a drive towards total customer solutions,
sustainability and sectorisation. It is designed to deliver value
to customers and stakeholders, while enhancing the business’
operating efficiency and profitability. We strengthened our senior
and executive teams through several strategic appointments
including: Vice President of Global Sales; Vice President of Human
Resources; IT Director; EH&S Director and Manufacturing Manager
in France. This enhanced leadership team will be key to supporting
the implementation of the strategy as it is deployed to colleagues
during 2021.
In February 2020, construction commenced on a new manufacturing
site and office facility in Normandy, France, to integrate Thermocoax’s
four existing sites into a new purpose-built facility which is expected
to complete in the second half of 2021.
Operational improvements across the Electric Thermal Solutions
business delivered a reduction of underlying manufacturing costs,
an increase in On-Time Delivery (OTD) and improved most Health &
Safety Key Performance Indicators (KPIs).
Electric Thermal Solutions introduced 20 new products throughout
the year. Chromalox’s new ChromaTrace™ for Buildings 1.0 design
software, a free heat tracing system design programme specially
created for the Building & Construction market, architects and
engineers, was released to the public. Chromalox also expanded
its DirectConnect™ MV Boiler product line to 11MW, offering the
advantages of electric process heating, emissions-free operation
and significant cost savings over low-voltage, higher installation cost
designs. Thermocoax launched two new chucks (heating plates
used during the process of atomic layer deposition) and new heating
solutions for the Semiconductor market, as well as continuing
the development of new InCore instrumentation systems for the
Nuclear sector to measure key areas of plant operation, including
temperature, neutron flux and reactor water level.
47
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operations Review continued
Electric Thermal Solutions continued
Outlook
Industrial production growth rates are forecasted to recover in the
core markets of the Electric Thermal Solutions business in 2021, with
over 5% growth in the USA (that accounted for more than 60% of
sales in 2020) and over 7% growth on a global basis. We will continue
to benefit from broadening our geographical direct sales footprint,
as well as from the sales of new products launched during 2020,
which align strongly with customer trends such as decarbonisation,
emissions control, energy efficiency, process productivity
and digitalisation.
We therefore anticipate underlying organic sales growth to be similar to
global industrial production growth. Electric Thermal Solutions ended
2020 with a higher-than-normal order book, with shipment of these
orders anticipated to add at least a further £8 million to sales in 2021.
As a result of underlying performance improvement initiatives
progressing across Chromalox, the non-repeat of 2020 project
losses, the reversal of close to half the £3 million cost containment
measures and the operational gearing from the strong sales growth,
we anticipate the adjusted operating profit will expand by more than
twice the rate of the 2021 organic revenue growth.
2019
Exchange
Organic
Acquisitions and
disposals
2020
Organic
Reported
Revenue
Adjusted operating profit
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
£186.1m
£24.7m
13.3%
£7.9m
4.2%
(£1.6m)
(£0.5m)
(£21.7m)
(£2.7m)
£15.2m
£3.1m
£178.0m
£24.6m
-12%
-11%
-4%
0%
13.8%
£4.8m
2.7%
+10 bps
+50 bps
-39%
-150 bps
Strategy in action
Thermocoax, which became part of the Group in 2019, has
been designing and providing electrical heating technologies to
customers for over 60 years. To meet the growing demand for its
products and to improve efficiency, the company took the decision
to consolidate four manufacturing facilities in Normandy (France)
into one single purpose-built site.
The new facility, consisting of a two-storey building and 13,000m2
factory, has been designed with sustainability in mind. It is being
equipped with solar panels and specialist technology that will
improve process efficiency. The new site is near to Thermocoax’s
existing sites ensuring its highly skilled workforce are retained.
Thermocoax Managing Director, Inès Hamon, said: “Thermocoax
has a unique know-how and industrial capacity, and this combined
with the technical expertise of our highly skilled and professional
colleagues, enables us to work in support of high-technology
operators and original equipment manufacturers. The opening
of our new purpose-built facility is a major milestone in the long
history of Thermocoax, it will ensure we can continue to produce
high quality products and is a key part of our sustainable future.”
Handover of the new facility is scheduled for the end of 2021.
A carefully planned and phased transition plan for the sites will
begin after handover with minimum disruption to operations
and customers.
48
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Watson-Marlow
Revenue £m
Reported
Organic
£321.3m +7% +9%
2019: £300.9m
Group revenue %
Revenue £m
2020
2019
2018
2017
2016
321.3
300.9
265.2
248.2
193.9
Adjusted operating profit £m Reported
Organic
£107.3m +12% +15%
2019: £95.8m
2020
2019
2018
2017
2016
107.3
95.8
84.8
80.3
64.3
Adjusted operating margin % Reported
33.4%
2019: 31.8%
+160 bps
Organic
+180 bps
Electric Thermal Solutions at a glance (at year end)
48
operating units*
43
countries with
a resident direct
sales presence
1,685
employees
* Operating units are business units that invoice locally.
27%
Sales of £321.3 million were up
7% or 9% up on an organic basis.
All regions delivered strong year-
on-year sales growth with Asia
Pacific particularly strong.”
Andrew Mines
Managing Director,
Watson-Marlow
Key market performance
Industrial production growth rates, 2020*
• Contraction in industrial
production in many
geographical markets
• Exceptional growth
in Pharmaceutical &
Biotechnology; growth in Food
& Beverage
• Water & Wastewater and
Mining & Precious Metal
Processing lower
<-10%
<-5 to -10%
≤0% to -5%
>0% to 2%
>2% to 4%
>4%
unavailable
* Compared with the prior year. (Source: Oxford Economics, February 2021.)
Positive
Neutral
Negative
49
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Operations Review continued
Watson-Marlow continued
Market overview
Watson-Marlow was similarly impacted by economic conditions and
industrial production growth rates as those experienced by the Steam
Specialties business, albeit with a different geographical footprint as
sales carry a higher weighting in the Americas and a lower weighting
in Asia Pacific.
Progress in 2020
Sales of £321.3 million were up 7% or 9% up on an organic basis.
All regions delivered strong year-on-year sales growth with Asia
Pacific particularly strong. Following the earlier impact of COVID-19
compared with the rest of the world, China and the Asia Pacific region
sustained a faster and more robust recovery.
Demand from the Pharmaceutical & Biotechnology market was very
robust, boosted by the development of COVID-19 vaccines and the
commencement of a global production roll-out. Customers in this
sector ramped up their existing manufacturing capacity to meet the
increased COVID-19 vaccine production demand, diverting their
focus from other activities such as gene therapies. As a result, sales
to the Pharmaceutical & Biotechnology sector grew over 20% and
Watson-Marlow ended the year with a sizeable order book for delivery
in the first half of 2021.
Sales to the Food & Beverage and Water & Wastewater sectors were
also strong in 2020, but overall sales across non-Pharmaceutical &
Biotech industrial sectors were down 3%.
Serving so many critical customers on the front line of the pandemic,
it has been essential for Watson-Marlow’s supply locations to remain
fully operational. Having implemented rigorous health and safety
processes on site, we have been able to operate our manufacturing
sites at close to normal capacity, with minimum disruption throughout
the height of the pandemic, no production stoppages linked to
suppliers and all suppliers remaining in business.
The combined impact of sales growth and prudent cost controls are
reflected in Watson-Marlow’s 2020 strong operating profit.
Watson-Marlow’s adjusted operating profit was a record
£107.3 million, up 12% or 15% up organically, the difference being
the result of exchange rates. The 33.4% adjusted operating profit
margin was up 160 bps or up 180 bps on an organic basis.
Statutory operating profit was up 24% from £82.7 million in 2019
to £102.2 million, for the same reasons as those improving the
adjusted operating profit and also the impact of the UK pension
scheme’s closure to future accrual, as detailed in Note 2 to the
Financial Statements.
Strategy update
Watson-Marlow progressed its geographical expansion plans in 2020,
establishing new sales companies in Hungary, Norway and Finland.
A new sales company was also established in Czech Republic which
began trading in January 2021.
We are investing to increase manufacturing capacity at our main
UK facility in Falmouth, including an expansion of the clean rooms
to add a third tube extrusion line, as well as trebling our offsite
warehousing capacity.
We are also investing in two new UK manufacturing facilities for
Aflex and BioPure. The new £23 million, 16,200m2, state-of-the-art
manufacturing site for Aflex, in Yorkshire, delivered its first production
output during the second quarter of 2020. This facility consolidates
Aflex’s original five sites into one purpose-built site, with four of these
having successfully transitioned to the new site in 2020 and the final
site due to complete its move in 2021.
In 2020, the Board approved a £24 million investment to construct
a new 11,000m2 manufacturing facility in Portsmouth for BioPure;
a supplier of niche fluid path technologies for the Pharmaceutical &
Biotechnology sector, acquired in 2014. Five times the size of the
current site, the new site will also have a six-fold increase in machines
and a five-fold increase in cleanrooms. This significant investment
will further support Watson-Marlow’s strength and growth in the
Pharmaceutical & Biotechnology sector.
Manufacturing investment continued into 2021 with the
announcement of a planned new manufacturing facility in North
America. Representing an investment of US$88 million, the 12,800m2
facility on a 25.4 acre site in Massachusetts will be Watson-Marlow’s
first regional manufacturing hub in the USA and is expected to start
production by the end of 2022. When complete, the facility will
improve lead times and customer service in the USA and its adjacent
markets, significantly increase Watson-Marlow’s global capacity and
speed of response to growing customer demand.
2020 was a successful year for product launches, with seven new
products released throughout the year. In June, we commenced
a targeted launch of a revolutionary new pump head, utilising
Conveying Wave Technology (CWT), the ReNu 30 CWT, which fits
onto our existing range of Watson-Marlow Qdos pumps. The new
patented-technology pump head delivers superior accuracy and in
chemical resistance for metering and dosing applications, establishing
the next level of high performance for our industry. An evolution
in long-life chemical metering, it expands our addressable market
downstream into sectors requiring higher flow, pressure and
enhanced chemical resistance.
Also launched during the year were three new EtherNet/IP™ Watson-
Marlow process pumps which broaden our range and provide digital
connectivity, as well as a range of model extensions for the MasoSine
Certa™ pump and the MasoSine 800 pump.
During the first half of the year, Watson-Marlow also undertook a
comprehensive strategic review and the refreshed business strategy
received Board approval in June. With a strong history of profitable
growth and clear market fundamentals “Strategy 25” focuses on
further strengthening the business to sustain profitable growth.
Within the strategy we prioritise the key industries and markets
where we have potential to increase our addressable market,
accelerate people development, drive technical innovation, achieve
excellence in the supply chain and deliver improvements in our
sustainability performance.
50
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Outlook
During 2020, many of our Pharmaceutical & Biotechnology
customers repurposed some of their capacity, which would have
been designated for gene therapy applications, towards expanding
their research and manufacturing capabilities for COVID-19 vaccine
development and production. This resulted in significantly stronger
sector demand, especially in the fourth quarter, driving the sector to
represent over 55% of sales in 2020 and end the year with a higher-
than-normal order book that will ship in 2021. Strong COVID-19
related demand is anticipated to continue into 2021 with customers
also seeking to rebuild gene therapy related capacity later in the year.
As a result of both stronger underlying demand and a larger opening
order book, we anticipate over 35% organic sales growth to the
Pharmaceutical & Biotechnology sector in 2021. Across Watson-
Marlow’s other industrial sectors, we anticipate organic sales growth
to be consistent with global industrial production.
Meeting this extraordinary demand growth will require additional
short-term capacity expansion investments in some of our
manufacturing facilities. Alongside this, we continue our medium-term
investment programmes to increase manufacturing capacity across
Watson-Marlow globally. As production from new sites ramps-up,
including in 2021, we anticipate some dilution to margins as we incur
additional manufacturing overheads ahead of realising the benefits
from increased sales and economies of scale. We will also continue to
invest in our direct sales and new product development capabilities in
support of future organic sales growth and we expect the £3 million
cost containment measures of 2020 to reverse entirely in 2021.
The expected currency headwind combined with the increased
operational costs listed above, will partially offset the operational
gearing benefits from higher sales. We therefore anticipate a
moderate adjusted operating profit margin improvement in 2021.
Revenue
Adjusted operating profit
Adjusted operating profit margin
Statutory operating profit
Statutory operating profit margin
Organic
£25.4m
£13.9m
2019
Exchange
(£5.0m)
(£2.4m)
£300.9m
£95.8m
31.8%
£82.7m
27.5%
Acquisitions
and disposals
2020
Organic
Reported
–
–
£321.3m
£107.3m
+9%
+15%
+7%
+12%
33.4% +180 bps
+160 bps
£102.2m
31.8%
+24%
+430 bps
Strategy in action
In support of its strategic focus on sectorisation and digital
adoption, Watson-Marlow’s marketing team embarked on a three-
year project to restructure and upgrade its website. The aim was
to “future proof” the site by adopting technology and best practice,
to support expansion geographically, by sector and by brand.
To ensure the best possible user experience for customers, the
team completed functional user acceptance testing with 66
Watson-Marlow colleagues. The tests were based on the critical
tasks understood to deliver the most value to its customers while
using the site, “the user journey”.
Some of the most significant upgrades included a new Product
Information Management (PIM) system and AX integration.
These upgrades have enabled Watson-Marlow to create
master product data or “one version of the truth”. This feeds
consistent, accurate data into the website as well as the technical
and marketing collateral helping to support productivity and
consistency and therefore customers are able to find what they
need more easily.
Watson-Marlow’s new website has delivered a rich and targeted
online browsing experience which also supports clearer
identification and engagement with its brands, products and areas
of expertise resulting in longer viewing times, more page visits and
measurable conversions.
The website launched with the UK and US versions in December
2020 and the localised roll-out will continue throughout 2021.
51
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Financial Review
We delivered a robust financial
performance and increased the
dividend, while continuing to invest
in the capacity, capability and
quality of our businesses to build
a sustainable future.”
Nimesh Patel
Chief Financial Officer
The Group reports under International Financial Reporting Standards
(IFRS) and also uses adjusted and organic figures where the Board
believes that they help to effectively monitor the performance of
the Group and aid readers of the Financial Statements to draw
comparisons with our peers. Certain alternative performance
measures also form a meaningful element of Executive Directors’
variable remuneration and some are used in calculating debt
covenants. Adjusted results quoted in the text below are referred
to as “adjusted” (see Note 2 to the Financial Statements).
A reconciliation of adjusted operating profit to statutory operating
profit is provided below and more detail can be found in Note 2 to the
Financial Statements.
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. Therefore, we also refer to organic
performance measures, which strip out the effects of the movement
of foreign currency exchange rates and of acquisitions and disposals,
not included in the prior year. The Board believes that this allows
readers of the Financial Statements to gain a further understanding of
how the Group has performed.
Revenue
Group sales in 2020 were £1,193.4 million (2019: £1,242.4 million),
down 3% on an organic basis that reflects a strong performance
against a backdrop of between 4% to 5% contraction in global
industrial production. Currency movements had a 2% negative
effect on sales during the year, while the full year effect of sales from
Thermocoax, acquired in May 2019, resulted in a 1% increase.
Sales for the Group were down 4% compared to 2019.
Steam Specialties experienced an organic decline of less than
6%, reflecting the decline in global industrial production, with
sales in all three geographical reporting segments down year-on-
year: 7% in EMEA, 5% in Asia Pacific and 3% in the Americas.
Electric Thermal Solutions experienced a 12% organic sales decline.
Chromalox secured a US$14 million order from the US Navy,
the largest single order in our Group’s history, contributing to a
significantly larger order book at the end of the year. Watson-Marlow
had an excellent year, delivering organic sales growth of 9%, as sales
to the Pharmaceutical & Biotechnology sector grew by 20%.
Operating profit
2020
£m
Operating profit
margin 2020
%
Operating profit
2019
£m
Operating profit
margin 2019
%
Europe, Middle East and Africa
Asia Pacific
Americas
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Adjusted operating profit
Post-retirement benefit plan in the UK & Canada being closed
to future accrual
Restructuring costs
Amortisation of acquisition-related intangible assets
Acquisition-related items
Reversal of acquisition-related fair value adjustments to
inventory
Impairment of goodwill
Statutory operating profit
54.1
72.4
27.8
154.3
24.6
107.3
(15.8)
270.4
10.5
(4.3)
(26.6)
–
(1.0)
–
249.0
17.5%
30.9%
18.6%
22.2%
13.8%
33.4%
22.7%
67.0
72.5
38.4
177.9
24.7
95.8
(15.7)
282.7
–
–
(26.8)
(2.6)
(4.1)
(4.2)
245.0
20.0%
29.0%
22.6%
23.6%
13.3%
31.8%
22.8%
52
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Adjusted operating profit and margin
Adjusted operating profit was £270.4 million (2019: £282.7 million),
down 4% at reported exchange rates and 1% down on an organic
basis. Steam Specialties was down 9% compared with 2019 on
an organic basis and a negative exchange impact resulted in profit
being 13% down on an adjusted basis. Electric Thermal Solutions
was down 11% on an organic basis and flat on an adjusted basis.
Watson-Marlow was up 15% organically and 12% up on an adjusted
basis, impacted by a currency headwind.
Currency movements negatively impacted adjusted operating profit
with translational losses of £8.9 million and an additional transactional
loss of £3.1 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.
The net effect of the acquisition of Thermocoax in 2019 and the
disposal of ProTrace Engineering in the first half of 2020, added 1%
to adjusted operating profit on a constant currency basis.
Associates
The Group has one Associate holding, a 26.3% interest in Econotherm,
a heat pipe technology business. Econotherm’s performance
weakened in 2020, with our share net of tax, falling to a loss of
£0.2 million (2019: £0.2 million profit).
Adjusted profit before tax
Adjusted profit before tax was £261.5 million (2019: £274.5 million),
down 5% at reported exchange rates. On an organic basis, adjusted
profit before tax declined 1%.
Statutory profit before tax
The statutory profit before tax was £240.1 million
(2019: £236.8 million) and includes the items listed below that have
been excluded from the adjusted profit before tax:
• a charge of £26.6 million (2019: £26.8 million) for the amortisation
of acquisition-related intangible assets;
• a £1.0 million (2019: £4.1 million) reversal of acquisition-related fair
value adjustments to Thermocoax;
The Group adjusted operating profit margin of 22.7% was down
10 bps due to a negative currency impact. On an organic basis,
the adjusted operating margin improved by 40 bps.
• a credit of £10.5 million (2019: £nil million) resulting from the defined
benefit retirement plans in the UK and Canada being closed to
future accrual; and
Steam Specialties’ adjusted operating profit margin was down
80 bps organically and 140 bps down on an adjusted basis due to
the impact of currency movements. Declines in adjusted operating
profit margin in EMEA and the Americas were partially offset by a 200
bps organic increase in Asia Pacific. Electric Thermal Solutions was
up 50 bps on an adjusted basis as a very positive contribution from
Thermocoax was partially offset by a small currency headwind and
an organic margin decline in Chromalox. Watson-Marlow was up by
160 bps driven by a strong 180 bps organic margin expansion.
Statutory operating profit and margin
Statutory operating profit of £249.0 million was up from £245.0 million
in 2019, primarily as a result of a £10.5 million credit from defined
benefit retirement plans in the UK and Canada being closed to future
accrual. As a result, the statutory operating profit margin of 20.9%
was up 120 bps (2019: 19.7%).
Finance costs
Net finance costs increased slightly to £8.7 million from £8.4 million
in 2019. Net bank interest increased to £6.0 million from £4.9 million
in 2019, due to the refinancing of the Revolving Credit Facility and
issuing of a private placement bond in the second quarter.
Net costs under IAS 19 in respect of the Group’s defined benefit
pension schemes decreased to £1.5 million (2019: £2.2 million).
The IFRS 16 interest charge for the year was £1.2 million
(2019: £1.3 million).
We anticipate total net interest charges to be at a similar level in 2021.
• a restructuring charge of £4.3 million (2019: £nil million) relating
to the reorganisation of Chromalox’s French operations and
divestment of its small Canadian subsidiary, ProTrace.
The principal reasons for the movement between years are explained
in the “Statutory operating profit and margin” section above.
Taxation
The tax charge on the adjusted profit before tax decreased by
100 bps to 27.5% (2019: 28.5%), due to the claiming of additional
deductions in the year and innovation tax relief. The Group’s overall
tax rate reflects the blended average of the tax rates in nearly 50
tax jurisdictions around the world in which the Group trades and
generates profit. The Group comprises in the region of 130 operating
units, the majority of which are small, reflecting our local direct sales
business model. On a statutory basis the Group’s effective tax rate
was 27.6%.
For 2021, we currently anticipate that based on the forecast mix of
adjusted profits, the Group effective tax rate will be approximately
27%, absent a potential rise in the US Federal Tax rate.
In April 2019, the European Commission’s investigation into the UK’s
Controlled Foreign Company regime concluded that certain aspects
constituted State Aid. This requires the UK tax authority to recover the
benefit from affected taxpayers and a Charging Notice for £4.6 million
was received on 1st March 2021. No provision has been recognised
and further details are included in Note 9 to the Financial Statements.
Earnings per share
Adjusted basic earnings per share declined 3% to 256.6 pence
(2019: 265.7 pence). Statutory earnings per share were 235.5 pence
(2019: 226.2 pence). The fully diluted earnings per share were not
materially different in either year.
53
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Financial Review continued
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 53-year
record of dividend progress, with a compound annual increase of
11% over that period and an 11% per annum increase over the last
10 years. The Board is proposing a final dividend of 84.5 pence per
share for 2020 (2019: 78.0 pence) payable on 21st May 2021 to
shareholders on the register at 23rd April 2021. Together with the
interim dividend of 33.5 pence per share (2019: 32.0 pence), the total
Ordinary dividend for the year is 118.0 pence per share, an increase
of 7% on the Ordinary dividend of 110.0 pence per share in 2019.
The total amount paid in dividends during the year was £82.5 million,
8% above the £76.3 million paid in 2019.
Brexit
Despite the continuing uncertainty surrounding Brexit throughout
2020, its impact on market confidence was very quickly
overshadowed by the global pandemic. Overall, Brexit uncertainty
had a relatively limited impact on our business during 2020 as over
90% of our sales and operating profit are generated outside the UK.
In 2020, to mitigate the risk of delays at ports, we maintained over
£5 million of buffer stock of raw materials and components in the UK
and finished goods outside the UK.
We are well prepared and well placed to take on the challenges
and identify the opportunities resulting from the UK exiting 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.
Capital employed
Capital employed
Property, plant and equipment
Right-of-use assets (IFRS 16)
Software & Development costs
Inventories
Trade receivables
Prepayments and other current assets
Trade, other payables, current provisions and current tax
Capital employed
Acquired intangibles including goodwill
Investment in Associate
Post-retirement benefits
Net deferred tax
Non-current provisions and long-term payables
Lease liabilities
Net debt
Net assets
Adjusted operating profit
Adjusted operating profit (excluding IFRS 16)
Average capital employed
Average capital employed (excluding IFRS 16)
Return on capital employed
Return on capital employed (excluding IFRS 16)
54
Research and development
The development of innovative new products and the speed with
which we launch those products in-market, is an important element
of our strategy for growth. The Group’s total spend on research and
development in 2020 was £12.7 million (2019: £13.4 million) of which
£2.7 million was capitalised (2019: £3.2 million).
Total capital employed has decreased by 1% at reported exchange
rates and at constant currency. This compares with an organic sales
decline of 3%.
Tangible fixed assets (PPE and IFRS 16 right-of-use-assets) increased
by £5.6 million to £297.6 million.
Total working capital decreased by £13.4 million. The ratio of working
capital to sales (at constant currency) reduced by 40 bps to 21.2%
(2019: 21.6%), and the Group continued to hold over £5 million of
Brexit buffer stock. Going forward, we anticipate maintaining a similar
percentage of working capital to sales.
Return on capital employed (ROCE)
ROCE measures effective management of fixed assets and working
capital relative to the profitability of the business. ROCE decreased
to 45.8% (2019: 50.8%), due to the reduction in adjusted operating
profit and the full year effect of the adoption of IFRS 16. Excluding the
effect of IFRS 16, ROCE declined 380 bps. At constant currency,
excluding acquisitions, disposals and IFRS 16, ROCE declined by
350 bps. ROCE is defined in Note 2 to the Financial Statements.
2020
£m
261.3
36.3
37.1
180.1
226.3
41.3
(194.9)
587.5
665.6
–
(98.6)
(28.5)
(7.1)
(34.1)
(228.8)
856.0
270.4
269.3
591.0
552.5
45.8%
48.7%
2019
£m
251.2
40.8
36.2
185.9
240.7
44.6
(205.0)
594.4
685.4
0.2
(71.3)
(43.1)
(5.2)
(38.9)
(295.2)
826.3
282.7
281.4
556.0
535.6
50.8%
52.5%
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Return on invested capital (ROIC)
ROIC measures the return on invested capital, both equity and debt,
relative to the adjusted operating profit after tax. ROIC fell to 17.2%
(2019: 18.7%), due to the reduction in adjusted operating profit and
the full year effect of the adoption of IFRS 16. Excluding the effect of
IFRS 16, ROIC declined 130 bps. At constant currency, excluding
acquisitions, disposals and IFRS 16, ROIC declined by 40 bps.
ROIC is defined in Note 2 to the Financial Statements.
Post-retirement benefits
The net post-retirement benefit liability under IAS 19 increased to
£98.6 million (2019: £71.3 million). Assets rose by £43.9 million
(9%), reflecting greater than expected returns. Liabilities rose by
£71.2 million (13%), largely due to a change in market conditions
that resulted in reductions in the AA corporate bond rates used to
discount future cash flows.
The main UK schemes, which constitute 89% of assets, were closed
to new members in 2001 and closed to future accrual with effect from
30th June 2020. 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. The Canadian scheme was also closed
to future accrual from 30th September 2020. Following actuarial
valuations of the three UK schemes, deficit reduction programmes
were agreed with the Trustees and contributions of £4.0 million were
made in 2020. The main UK scheme was subject to an actuarial
valuation during 2020 and total contributions for all UK schemes in
2021 are expected to be £5.2 million.
Adjusted cash from operations is a measure of the cash flow
generated from our companies which reflects the components
within the control of local management. A reconciliation between
this and statutory operating cash flow can be found in Note 2 to the
Financial Statements.
Adjusted cash from operations improved by £37.7 million
to £275.8 million (2019: £238.1 million) representing 102%
cash conversion.
Movements in working capital are discussed in the Capital
Employed section.
The capital intensity of our business is low, with capital expenditure
typically between 4% and 6% of sales. During the year, our
capital expenditure was £49.6 million, equivalent to 4% of sales.
Capital expenditure decreased by £12.8 million, principally as a result
of expenditure incurred during 2019 on a new purpose-built factory in
the UK for Aflex. The Group continued to invest during 2020 in other
significant projects and development of our digital capabilities.
We would expect capital expenditure in 2021 to be at the top-end of
our typical range as we invest in new production facilities for Watson-
Marlow and increase spending on projects such as OPAL.
Tax paid in the year decreased by £6.5 million to £71.9 million in
line with the decrease in profitability during 2020 and the reduction
in the effective tax rate. Free cash flow increased to £196.7 million
(2019: £154.3 million) as a result of improvements to working capital
and the decrease in capital expenditure and tax.
Dividend payments were £82.5 million, including payments to
minorities (2019: £76.3 million) and represent the final dividend for
2019 and the interim dividend for 2020.
Cash flow and treasury
Cash flow
Adjusted operating profit
Depreciation and amortisation (excluding IFRS 16)
Depreciation of leased assets
Cash payments to pension schemes more than the charge to adjusted operating profit
Equity settled share plans
Working capital changes
Repayments of principal under lease liabilities
Capital expenditure (including software and development)
Capital disposals
Adjusted cash from operations
Net interest
Income taxes paid
Free cash flow
Net dividends paid
Purchase of employee benefit trust shares/Proceeds from issue of shares
(Acquisitions)/Disposals of subsidiaries and restructuring costs
Cash flow for the year
Exchange movements
Opening net debt
Net debt at 31st December (excluding IFRS 16)
IFRS 16 lease liability
Net debt and lease liability at 31st December
2020
£m
270.4
36.7
12.1
(3.9)
7.0
13.4
(12.2)
(49.6)
1.9
275.8
(7.2)
(71.9)
196.7
(82.5)
(12.5)
(9.4)
92.3
(25.9)
(295.2)
(228.8)
(34.1)
(262.9)
2019
£m
282.7
34.3
11.3
(5.2)
6.2
(21.4)
(11.2)
(62.4)
3.8
238.1
(5.4)
(78.4)
154.3
(76.3)
(12.5)
(138.5)
(73.0)
13.6
(235.8)
(295.2)
(38.9)
(334.1)
55
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Financial Review continued
There was a cash outflow of £4.8 million related to deferred
consideration payable for the acquisition of Qonqave, a small German
pre-revenue company acquired in 2018 within Watson-Marlow as
well as an additional £4.6 million outflow relating to restructuring
within Electric Thermal Solutions. The net of share purchases and
new shares issued for the Group’s various employee share schemes
resulted in a cash outflow of £12.5 million (2019: £12.5 million)
reflecting the move to acquire shares on the open market rather than
issue new equity.
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. While currency effects can
be significant, the structure of the Group provides some mitigation
through our regional manufacturing presence, 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.
The fundamentals of our financial resilience
The operational and financial performance of our Group during 2020
– an unprecedented and challenging year - provides a strong indicator
of current and future resilience. Against the backdrop of the global
COVID-19 pandemic, we delivered a robust financial performance
and increased the dividend, while continuing to invest in the capacity,
capability, and quality of our businesses to build a sustainable future.
Our products and solutions are used across a broad range of
industries and geographical markets, which links our business
performance to movements in global industrial production (IP).
In 2020, global IP declined for only the second time in the last 20
years due to the effects of COVID-19. As in previous years, our
business model supported our outperformance against global IP due
to our ability to self-generate sales (accounting for 35% of sales) and a
significant base business in maintenance and repair sales (accounting
for 50% of sales). These sales are funded from our customers’
operating budgets. The remaining 15% of sales are related to large
projects, funded from customers’ capital expenditure budgets, which
are more heavily influenced by economic cycles. Over 55% of our
sales are to defensive, less cyclical sectors and no single customer
accounts for more than 1% of Group turnover.
Strong focus on cash generation and liquidity
We remain highly cash generative, delivering an exceptional 102%
cash conversion in 2020. This was delivered due to an inflow from
working capital as inventory and receivables were reduced through
our sustained focus on improving inventory efficiency and cash
collection, while also improving on our customer service metrics.
The capital intensity of our business is low, with capital expenditure
typically between 4% and 6% of sales. During the year, our capital
expenditure was £49.6 million, equivalent to 4% of sales, including
investment in new manufacturing facilities for Watson-Marlow.
56
This performance resulted in a strong year-end net debt position,
excluding leases, of £228.8 million (2019: £295.2 million) and a net
debt to EBITDA ratio of 0.7 times (2019: 0.9 times). We successfully
strengthened our balance sheet through a planned refinancing
programme in May, despite the impact of COVID-19 on credit
markets, raising a three year revolving credit facility and adding new
banks to the lending group as well as issuing a US Private Placement
bond. At the end of the year total committed and undrawn debt
facilities amounted to £350 million and Cash & Cash Equivalents
amounted to £224 million, giving us headroom of £574 million.
The average tenor of our debt is 2.5 years with the earliest contractual
repayment in March 2022.
Resilience over the short, medium and long term
Our business model and the investments we have continued to make
in our business, combined with our high cash generation, position us
well to adapt to economic cycles. Our Going Concern and Viability
analysis gives us confidence in the robustness of our business and
our capital structure, even under downside scenarios.
We have undertaken scenario-based modelling of our key risks,
which underpins our confidence in our short and medium-term
resilience. The continued implementation of our strategy, which has
been in place since 2014, supports our longer-term resilience and we
have continued to refresh this strategy, with a focus on the changing
economic, environmental and social factors and their ability to impact
our businesses in the future.
Going concern
The Group’s business activities, together with the main trends and
factors likely to affect its future development, performance and
position (as well as the financial position of the Group, its cash flows,
liquidity position and borrowing facilities) are set out in more detail
in the Financial Review. In addition, the Notes to the Consolidated
Financial Statements include 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 and holds contracts
with a diverse range of customers and suppliers across different
geographical areas and industries.
The Group’s Going Concern analysis looks at the 12-month period
from the signing of the Annual Report and Accounts. In order to
assess the Group’s continued ability to trade as a Going Concern we
model both a reasonable ‘worst case’ scenario and a ‘reverse stress’
scenario. Both scenarios support the Group’s strong positioning and
ability to continue trading during the assessment period.
The ‘worst case’ scenario is predicated upon an immediate 15%
reduction in Group revenue over a 12-month period, with limited
ability for the Group to respond through management of expenditure
or cash flow. This scenario is significantly more challenging than the
Group’s recent experience of the impact of COVID-19 during 2020
as well as the impact of the 2008-9 financial crisis and hence is
considered to provide a reasonable ‘worst case’. Under this scenario
the Group continues to trade profitably and does not breach any of
the Group’s Financial Covenants.
The ‘reverse stress scenario’ is designed to calculate the reduction
in Group revenue, sustained over a 12-month period and without
offsetting management mitigations, which would be necessary before
the Group would breach its financial covenants. The magnitude of this
decline is considered highly unlikely, particularly in light of the recent
experience of the COVID-19 crisis, hence supporting the Group’s
Going Concern assertion.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Long-term resilience
The Group has a long track record, over 130 years, of consistently
adapting to changing macro-economic, environmental and social
factors supported by our business model. While our strategy and
business model lessen any material impact from our principal risk
factors, we nevertheless continuously review our markets, listen to our
customers and adapt our solutions, while working responsibly and in
line with our Values to build long-term sustainability.
We recognise the need to anticipate and mitigate the impact of
climate-related change, although it is not classed as a principal
risk for our Group. In 2020, we refreshed our sustainability strategy
and appointed a Group Head of Sustainability, to accelerate the
implementation of our plans. We undertook analysis to identify climate
change risks which will be addressed through our strategy.
Steam remains the world’s most efficient heat transfer medium with
multiple on-site applications. We have a highly resilient business
and strategy that will remain relevant across different climate-
related scenarios, but we are not complacent and plan to conduct
further scenario and risk analysis at a business level going forward.
We continue to invest in research and development into solutions
which will reduce our environmental impact and support our
customers to reduce their energy use and carbon emissions. We are
exploring synergies within our thermal energy management portfolio,
which will enable us to combine core capabilities from our Steam
Specialties and Electric Thermal Solutions businesses to develop
our products and service capabilities for quantifiable sustainability
benefits. This will enable us to support the evolving needs of our
customers as they seek to mitigate the impact of their operations on
the environment.
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.
The Group’s credit facilities all have a leverage (defined as net debt
divided by adjusted earnings before interest, tax, depreciation and
amortisation) covenant of up to 3.5 times and the Private Placements
have an interest cover (defined as adjusted earnings before interest,
tax and amortisation divided by net bank interest) covenant of more
than 3.0 times. The Group regularly monitors its financial position to
ensure that it remains within the terms of its covenants. As at 31st
December 2020, interest cover was more than 50 times and leverage
was 0.7 times.
Taking all these factors into account, the Directors believe the
Group is well placed to manage its business risks successfully.
The Directors, having made appropriate enquiries, consider that the
Group has 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
and Accounts.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code 2018, the Board has assessed the viability of the Group, taking
into account the Group’s current financial position, business strategy,
the Board’s risk appetite and the potential impacts of the Group’s
principal risks. We set out the eight principal risks we have identified in
Note 1 to the Financial Statements.
Based on this assessment, the Board confirms that it has 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 2023.
The Board has adopted a three-year viability assessment, which it
believes to be appropriate as the timeframe is covered by the Group’s
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; and is in alignment with the Group’s bank
term-loan durations. 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
provides a reasonable degree of confidence while still providing a
longer-term perspective.
In making their assessment, the Board completed a robust
assessment, supported by detailed modelling, of the principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity. As part of the review,
sensitivity and stress testing were undertaken to determine the
potential impacts of the occurrence of one or more of the principal
risks on sales, profit, margin, balance sheet, cash and return on
capital employed. In addition to completing an impact assessment
of the principal risks, the Board considered the probability of the
occurrence of the principal risks, the Company’s ability to control
them and the effectiveness of mitigating actions. In every modelled
scenario the Group is able to demonstrate that it continues to
remain viable.
While no Board can ever fully foresee all possible risks facing
the business in the future, the Board is 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. Furthermore, the Board remains confident in the Group’s risk
management process and the risk mitigation actions taken to address
identified risks.
57
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 10 year financial summary
Our financial performance demonstrates a strong trajectory of growth and
shareholder value creation.
2011
£m
2012†
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
Revenue
650.0
661.7
689.4
678.3
667.2
757.4
998.7
1,153.3
1,242.4
1,193.4
Operating profit
129.5
125.7
147.0
148.1
142.8
174.1
198.9
299.1
245.0
249.0
Adjusted operating profit*
134.0
136.2
151.6
153.0
152.4
180.6
235.5
264.9
282.7
270.4
Adjusted operating profit
margin*
20.6% 20.6% 22.0% 22.5% 22.8% 23.8% 23.6% 23.0% 22.8% 22.7%
Profit before taxation
132.3
124.1
145.7
144.8
139.7
171.4
192.5
288.8
236.8
240.1
Adjusted profit before taxation*
137.2
134.9
151.1
151.1
151.1
177.9
229.1
254.6
274.5
261.5
Profit after taxation
93.2
87.6
102.3
100.6
96.7
121.3
157.9
223.4
167.0
173.9
Adjusted cash from operations
76.3
129.8
143.0
131.5
146.2
185.0
203.8
242.9
238.1
275.8
Cash conversion
56.9% 95.3% 94.3% 85.9% 95.9% 102.4% 86.5% 91.7% 84.2% 102.0%
Capital expenditure††† to sales
7.1%
5.2%
4.3%
5.0%
5.0%
5.7%
3.8%
3.8%
5.0%
4.2%
Basic earnings
per share
120.0p
112.2p
133.4p
132.8p
129.9p
165.0p
214.4p
303.1p
226.2p
235.5p
Adjusted earnings per share*
124.8p
122.2p
138.8p
140.4p
142.6p
171.5p
220.5p
250.0p
265.7p
256.6p
Dividends in respect
of the year
Dividends in respect
of the year (per share)
38.1
119.5
44.5
139.9
50.6
55.8
64.4
73.6
81.1
87.0
49.0p
53.0p
59.0p
64.5p
69.0p
76.0p
87.5p
100.0p
110.0p
118.0p
Special dividend (per share)
–
100.0p
–
120.0p
–
–
–
–
–
−
Net assets
Return on capital
employed* ^ ††
Return on invested
capital* ††
400.1
436.5
403.5
441.9
398.3
524.4
609.5
766.9
826.3
856.0
39.7% 37.6% 41.8% 41.4% 41.1% 44.8% 49.8% 51.6% 52.5% 48.7%
25.7% 24.8% 27.6% 27.4% 27.1% 28.7% 22.6% 19.3% 19.0% 17.7%
* 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 IAS 19(R), prior years have not been restated.
^ The results for 2011 to 2019 have been restated to incorporate the impact of including capitalised software and development costs within capital employed.
†† The results for 2019 and 2020 exclude the impacts of IFRS 16, which was adopted in 2019.
††† Capital expenditure excludes IFRS 16 lease repayments
58
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Revenue and adjusted operating profit margin £m / %
Dividends and adjusted earnings per share p
30
28
26
24
22
20
18
16
14
12
10
i
%
n
g
r
a
m
t
fi
o
r
P
1,250
1,000
800
m
£
e
u
n
e
v
e
R
600
400
300
250
200
150
100
50
0
e
r
a
h
s
/
p
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
Sales
Adjusted operating profit margin
DPS
EPS
Special dividend
Return on capital employed and return on invested capital %
60
50
40
30
20
10
%
2011
ROCE
2012
ROIC
2013
2014
2015
2016
2017
2018
2019
2020
* 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 IAS 19(R), prior years have not been restated.
^ The results for 2011 to 2019 have been restated to incorporate the impact of including capitalised software and development costs within capital employed.
†† The results for 2019 and 2020 exclude the impacts of IFRS 16, which was adopted in 2019.
††† Capital expenditure excludes IFRS 16 lease repayments
59
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Risk management
Key actions were undertaken by the
Group during 2020 in addition to the
regular monitoring of existing and
developing risks.”
Nicholas Anderson
Group Chief Executive
Risk likelihood, control and impact
S trategy
4
2
1
8
3
Principal risks
1
2
3
4
5
6
7
8
Economic and political instability
Significant exchange rate movements
Cybersecurity
Failure to realise acquisition objectives
Loss of manufacturing output at any Group factory
Breach of legal and regulatory requirements (including ABC laws)
Inability to identify and respond to changes in customer needs
Solution specification failure
Likelihood
Trend
6
P
e
o
p
l
e
7
5
al
n
Operatio
High
Low
Impact
No change
Decrease
from
FY2019
Increase
from
FY2019
Control
High
Medium
Low
High
Medium
Low
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 and 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.
Further reading
The numbers relate to the principal risks.
See pages 62-65
60
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
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
Key risk management actions during 2020
The following key actions were undertaken by the Group during 2020
in addition to the regular monitoring of existing and developing risks:
• Top-down risk review: the Committee received high quality
responses from its Group companies to the questions posed and
determined that the Group companies have sufficiently robust
measures in place to effectively mitigate the Group’s principal risks;
• Risk register: the top-down risk review informed the annual review
and update of the risk register;
• COVID-19 pandemic: the key risks impacted by the COVID-19
pandemic were reviewed and revised and the risk register was
updated on an exceptional basis during the course of 2020;
• Climate change: the risk and impact, both short and long term,
of climate change on our Group was closely monitored over the
course of 2020 and reflected in the risk scoring, which saw the risk
advance up the priority list and the trend increase;
• Risk Appetite Statement: the Committee confirmed the
statement, which can be found on page 117; and
• Brexit: the Committee continued to inform and shape the Group’s
strategy in preparation for a smooth transition through Brexit at
the end of the 2020 including any adjustments to provide for the
revised framework under the Trade and Cooperation Agreement
signed between the UK and the EU at the end of 2020.
The Committee’s analysis of the principal risks affecting the Group,
before mitigation, is set out in the diagram on page 60.
Assessment of risks in light of the
COVID-19 pandemic
The Committee determined that the COVID-19 pandemic was not a
risk in itself but was rather of a magnitude where it affected many of
the risks on our risk register and that it would be more meaningful for
the risk register to be comprehensively revised to take account of the
COVID-19 pandemic. This included changes in the level of risk posed
and testing the controls in place to deal with such increased level of
risk. Therefore, an exceptional review and revision of the Group’s risk
register was overseen by the Committee in 2020. This assessment
resulted in a number of revisions, including:
• an increased risk in economic and political instability (please see
section below for action in relation to this increase); and
• an increased risk in cybersecurity due to more frequent phishing
attacks being managed during the COVID-19 pandemic.
Improved financial controls and liquidity
In response to the increased risk of volatility in the currency exchange
markets, in 2020 we moved to a programme that systematically
hedges our transactional exposure to the major currency pairs and
mitigates swings in foreign exchange. Despite our resilient business
model and spread of our business, both geographically and across
industrial sectors, we also expanded our Group’s Revolving Credit
Facilities and raised banking covenants to ensure access to higher
liquidity during the COVID-19 pandemic. The Group did not take
advantage of state aid available in any of our markets (e.g. furlough in
the UK). Neither did we access COVID-related government loan
facilities. The Board was delighted to be in a position to make
both final 2019 dividend and 2020 interim dividend payments
to shareholders.
Emerging risks
In addition to the principal risks faced by our business, we recognise
that there are risks which are more uncertain in nature and difficult
to assess or that have the potential to develop and increase in
severity over time. The Committee monitors closely all emerging
risks that have the potential to increase in significance and affect
the performance of the Group and its ability to meet its strategic
objectives. Whilst we acknowledge that such risks are not as easily
accommodated on the risk scoring matrix or prescribed risk appetite
ratings, the Committee meetings and the risk register are both used
to identify and closely monitor such risks.
The Group responded to the Trade and Cooperation Agreement
agreed between the UK and the EU at the end of 2020 and swiftly
implemented all contingency plans to minimise any potential
disruption to be caused to the business.
The Board, the Group Executive Committee and the Committee are
continuing to monitor the impact of the COVID-19 pandemic and any
post-Brexit challenges affecting our business.
61
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Risk management continued
Risk register review
Following the review of the risk register and principal risks, the ranking
and order of the principal risks remained unchanged in 2020.
The elevation in ranking of climate change in our risk register
demonstrates the fluid and dynamic nature of our risk
assessment processes.
Recognising the continued growing impact and importance of climate
change, the risk was elevated in ranking in the risk register, albeit
not made a principal risk given the current level of risk and potential
impact to our business in the short term.
The year-on-year trend for each principal risk was assessed
and updated and risk appetite ratings validated for each of the
principal risks.
Principal risks
The following table sets out the Group’s principal risks and describes
the links to strategy, the mitigation measures and the appetite
for each risk. The trend column sets out the direction of change
from 2019.
The table includes those risks that we have identified as currently
most relevant to the Group.
Key
Trend
Increased risk
No change to risk
Decreased risk
Link to strategy
Direct link
Indirect link
No link
Risk appetite ratings defined:
Very low
Following a marginal-risk, marginal-reward approach
that represents the safest strategic route available.
Low
Balanced
High
Seeking to integrate sufficient control and mitigation
methods in order to accommodate a low level of risk,
though this will also limit reward potential.
An approach which brings a high chance for success,
considering the risks, along with reasonable rewards,
economic and otherwise.
Willing to consider bolder opportunities with
higher levels of risk in exchange for increased
business payoffs.
Very high
Pursuing high-risk, unproven options that carry with
them the potential for high-level rewards.
Principal risk and
why it is relevant
Trend
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 sales
operations and broader
risks to credit, liquidity
and currency.
• Strong internal controls, including internal audit and
appropriate insurance.
• Operating in accordance with the Group Treasury
Policy, including currency exchange hedging and
cashpooling arrangements.
• Externally-facilitated scenario planning.
• Resilient business model.
• Well spread business by geography and sector.
• Increased liquidity through more headroom on Group
debt facilities.
Executive sponsor: Nicholas Anderson
Risk
appetite
rating
Rationale for rating
Very high
High
Balanced
Low
Very low
We have the
background and
know-how to
successfully manage
the unique challenges
in economically and
politically volatile
territories. We are
willing to accept
these challenges
where opportunities
for growth exceeded
the impact of this risk.
Change: This risk has increased due to various factors including
the impact of the COVID-19 pandemic on world trade and
markets and continued trade friction between the USA and a
number of other nations in 2020 including China and Iran.
Link to strategy:
1 2 3 4 5 6
62
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Principal risk and
why it is relevant
Trend
Key mitigation, sponsor
and explanation of change
2. Significant exchange rate movements
The Group reports its
results and pays dividends
in sterling. Operating and
manufacturing companies
trade in local currency.
With sales companies
and manufacturing spread
across the globe, the
nature of the Group’s
business necessarily results
in exposure to exchange
rate volatility.
3. Cybersecurity
Cybersecurity risks include
risks from malware,
accident, statutory and
legislative requirements,
malicious actions and other
unauthorised access by
third parties.
Risk
appetite
rating
Rationale for rating
Very high
High
Balanced
Low
Very low
We take a balanced
view of this risk as 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.
• Maintain the spread of manufacturing across currency areas.
• Consideration of exchange rate exposures in the
manufacturing strategy.
• Forward cover where appropriate and in line
with the Group Treasury Policy on hedging currency
exchange movements.
• Focus on reducing manufacturing cost.
Executive sponsor: Nimesh Patel
Change: This risk has increased primarily as a result of the
increased potential for volatility in the currency exchange markets
due to the COVID-19 pandemic.
Link to strategy:
1 2 3 4 5 6
• Global assessment of our IT environment against UK cyber
essentials framework and prioritising actions for improvement.
• Deploying security tools to limit the impact and spread
of ransomware.
Very high
High
Balanced
Low
Very low
• Further strengthening of security for centrally-managed
systems for heightened protection and consistency.
• Cyber insurance cover for all Group companies.
• Mandatory cybersecurity training rolled out globally.
Executive sponsor: Shaun Mundy, Group IS Director
Change: This risk has increased due to increased threats of
phishing during the COVID-19 pandemic.
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.
Link to strategy:
1 2 3 4 5 6
4. Failure to realise acquisition objectives
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.
• 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
Very high
High
Balanced
Low
Very low
warranty claims.
• Use of insurance as protection against seller breach and non-
disclosure.
• Ensuring valuation models show a healthy return
on investment.
• Regular monitoring of performance by the Board against the
approved investment case.
Executive sponsor: Nicholas Anderson
Change: No change.
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.
Link to strategy:
1 2 3 4 5 6
63
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Risk management continued
Principal risk and
why it is relevant
Trend
Key mitigation, sponsor
and explanation of change
5. Loss of manufacturing output at any Group factory
Risk
appetite
rating
Rationale for rating
The risk includes loss
of output as a result of
natural disasters, industrial
action, accidents or any
other cause. 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.
• Investment in new sites to provide availability of alternate lines
of supply.
Executive sponsors: Neil Daws*, Andrew Mines and
Dominique Mallet
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.
Link to strategy:
1 2 3 4 5 6
6. Breach of legal and regulatory requirements (including ABC laws)
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-blowing hotline.
• Group Litigation Report and on-going monitoring of cases.
• Regular updates on Corporate Governance and Stock
Very high
High
Balanced
Low
Very low
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.
Exchange rules.
• General Data Protection Regulation compliance
plan implemented.
• Conducting supplier audits.
• Engaging suppliers to commit to compliance with the principles
of the Supplier Sustainability Code.
• Monitoring of changing laws and regulations arising as a result
of Brexit.
Executive sponsor: Andy Robson
Change: No change.
* Neil Daws retired from the Board and its Committees on 31st December 2020. Maurizio Preziosa, Managing Director, Steam Specialties, was appointed to the Committee on 1st January 2021.
Link to strategy:
1 2 3 4 5 6
64
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Principal risk and
why it is relevant
Trend
Key mitigation, sponsor
and explanation of change
Risk
appetite
rating
Rationale for rating
7. Inability to identify and respond to changes in customer needs
This risk could lead to a
loss of business as a result
of a failure to respond
rapidly to changes in the
needs of customers or
technology shifts.
• Stronger presence of sales engineers, compared with
competitors, in the market place.
• Watson-Marlow implemented a product development pipeline
process which tracks trends and changes in each industry sector.
Very high
High
Balanced
Low
Very low
• New product ideas generated by market development
managers from close alignment with sales engineers
and customers.
• Sales and competitor analyses undertaken to identify any
trends or technology shifts.
• Digital strategies for Steam Specialties, Watson-Marlow and
Electric Thermal Solutions are under preparation with longer
term implications on investment, resource levels, new skills
and need to develop external partnerships.
Executive sponsor: Neil Daws*
Change: This risk has increased because of market
change dynamics.
The Group continues
to focus on its market
awareness, invests
in technical and
sales knowledge
via the Spirax Sarco
Academy and,
through Customer
first sectorisation,
seeks to be more
closely attuned
to its customers.
There is therefore a
good level of control
effectiveness, but a
low appetite for risk.
Link to strategy:
1 2 3 4 5 6
8. Solution specification failure
This risk relates to loss
of output at a customer
plant due to a faulty
product potentially
leading to customer
product contamination
and/or customer loss of
manufacturing output and
thereby contractual liability
and loss of sales.
• Product Life Cycle Management rolled out across the Steam
Specialties business providing improved failure visibility
and analysis.
• Product data management system rolled out.
• Watson-Marlow electronic quality system rolled out.
Very high
High
Balanced
Low
Very low
• Strengthening compliance and quality resource in critical areas
including audit of localised manufacturing and establishing global
quality and compliance activities to identify high risk.
• Additional buyer assumption of liability on Original Equipment
Manufacturer products.
• Customer approval process for complex orders and
engineered solutions.
Executive sponsor: Neil Daws*, Andrew Mines and
Dominique Mallet
Change: No change.
With our direct
market approach,
our risk from a
control and mitigation
perspective is well-
managed as we
are able to respond
to our customers
in a timely manner.
From a financial
standpoint, the
price (and hence the
margin) we command
provides a strong
foundation for some
risk appetite.
Link to strategy:
1 2 3 4 5 6
* Neil Daws retired from the Board and its Committees on 31st December 2020. Maurizio Preziosa, Managing Director, Steam Specialties, was appointed to the Committee on 1st January 2021.
Committee focus for 2021
• Bottom-up risk review and annual review of risk register.
• Board review of risk management process.
• Continue to closely monitor COVID-19, taking action to mitigate its effects,
particularly the impact on workforce.
• Closely monitor the impact of Brexit.
• Assess emerging risks, including climate change, with focus on risk appetite
in light of digital strategies and geographic expansion.
• Reflect on accelerated sustainability implementation and whether this
impacts positively on our risks and risk management.
Further reading
Information on the Group’s approach to risk, including risk
appetite, along with the roles, responsibilities and actions of the
Risk Management Committee.
See pages 114-117
Our Viability Statement.
See page 57
Our Going Concern Statement.
See pages 56-57
65
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Sustainability Report
Operating sustainably requires a
long-term view to ensure that we
consider the impacts of our actions
not just now but in the future too
and help our customers to do
the same.”
Sarah Peers
Group Head of Sustainability
Managing sustainability
Group Chief
Executive
Named Board member
with responsibility
for sustainability.
Board of
Directors
Group Executive
Committee
Group Head of Sustainability
Group Sustainability Committee
During 2020, Committee members included: Group
Head of Sustainability; Steam Specialties Supply Chain
and Group EHS Director; Divisional Director Spirax Sarco
Americas; Divisional Director Spirax Sarco EMEA; Group
EHS Executive; Watson-Marlow Global HR Director;
Watson-Marlow Sustainability Coordinator; and Electric
Thermal Solutions Environmental, Health, Safety and
Sustainability Director.
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 operating units.
Sustainability strategy project
leaders and teams
Establish strategic priorities, with sponsors, and oversee
strategic implementation.
Colleagues and organised colleague groups
Participate in, oversee, record and report on strategic
implementation and performance within their
local workplaces.
Sustainable value creation
We strive to embed long-term thinking across our decision-making
and operate in a way that promotes sustainable value creation
for all our stakeholders as we engineer a more efficient, safer and
sustainable world. Operating sustainably requires a long-term view,
beyond the normal time horizons of a regular business strategy, to
ensure that we consider the impacts of our actions not just now but
in the future too, and act to manage emerging risks – such as climate
change – and help our customers to do the same. In the words
of our Group Chief Executive, “we want to leave a world to future
generations that is better than the one we inherited” and that is what
we are trying to do, every day.
Sustainability governance
During 2020 we further developed our Sustainability governance
structures. In July, I was appointed Group Head of Sustainability,
a new position for the Group, reporting to the Group Chief Executive
and this has strengthened Management and Board oversight of
sustainability. Each of our three businesses committed to appointing
a full-time Head of Sustainability, reporting to a member of the
business’s Executive Committee.
The Group Sustainability Committee continued to meet throughout
the year, receiving reports and updates on performance and progress.
In 2021, the Committee membership will be refreshed to align with
our new governance structure. Sustainability is now a standing
agenda item at every monthly Group Executive Committee meeting,
during which I provide a progress and performance update, allowing
time for discussion, challenge and decision making. We formalised
the Board’s oversight of sustainability, with our Directors now receiving
a report on sustainability at every Board meeting, which is provided by
either the Group Chief Executive or myself.
The adjacent diagram outlines the Sustainability management
structure in operation throughout 2020.
Commitments
During 2020 we made a series of public commitments in relation to
climate change and biodiversity.
Climate change commitments include:
• Achieve net zero greenhouse gas (GHG) emissions before 2040.
• Source 50% of our electricity from renewable sources by 2030.
• Designate Board accountability for GHG emissions.
• Extend our reporting to include Scope 3 GHG emissions.
• Certify our GHG emission reduction efforts with an external body.
66
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Biodiversity commitments include:
• Identify any harmful direct impacts and dependencies our business
has on nature and biodiversity and set targets for reducing them.
• Establish a biodiversity net gain target.
• Commit to publishing the results of our work.
We have begun to address each of these commitments as part of a
Sustainability strategy refresh. More information is provided below.
2020 Sustainability strategy refresh
In October we commenced a strategy refresh, supported by an
independent sustainability consultancy, Challenge Sustainability.
The first stage of the refresh, the strategic review, was completed in
January 2021. The review included, but was not limited to, internal
and external stakeholder engagement, a materiality assessment, a
risk and opportunities assessment, climate change scenario analysis,
a net zero greenhouse gas readiness review and a biodiversity impact
and dependencies assessment. A brief overview of some of the
work undertaken is outlined below. More detailed information will
be provided in our 2021 Annual Report, together with the refreshed
Sustainability strategy.
Stakeholder engagement
We recognise that the decisions we make and the way we operate
have an impact on our stakeholders. As a result, we engaged with
stakeholders to understand what sustainability topics are important
to them; how our operations are affecting or could affect them, either
positively or negatively; and to harness their knowledge to ensure that
our refreshed Sustainability strategy focuses on the most material
topics for us and our stakeholders.
Stakeholder engagement took two forms: in-depth interviews
and surveys of both internal and external stakeholders. Nearly 50
comprehensive interviews were conducted, covering colleagues,
customers, suppliers and shareholders and over 600 survey
responses were received. The responses to both the interviews
and surveys helped to inform our materiality assessment.
Materiality
We assessed the materiality of 15 social, environmental and
economic sustainability topics. Building on the Framework,
we defined a topic as material if it could substantively affect the
organisation’s ability to create value in the short, medium or long
term. As sustainable value creation for all stakeholders is central to
our Company purpose, this definition of materiality strongly resonated
with us.
The output of the assessment was four materiality matrices, one
for each of our three businesses and a consolidated matrix for the
Group. The matrices plot “importance to external stakeholders”
against “importance to internal stakeholders”, with importance to
internal stakeholders assessed on the impact on value creation and
the probability or likelihood of that impact occurring.
While there were some minor variations in the position of the points
across the three business matrices, there was a significant degree
of overlap and importantly, no material differences between the
businesses. With the three matrices being highly aligned in their
assessment of materiality, the consolidated Group matrix (below) is
representative of our individual business, as well as Group, materiality.
In December 2020, we began to develop the refreshed Sustainability
strategy, referring to the materiality matrix. While informing the
strategy’s development, the materiality matrix is being used with
judgement. For example, the most material topics, found in the top
right-hand side of the matrix, will feature in the strategy only if they
are not being strategically addressed elsewhere in the business.
A number of important topics, such as H&S, cybersecurity and
Diversity & Inclusion, have their own distinct governance structures
and strategies and are being actively managed across the Group.
It is therefore not expected that they will feature in the refreshed
Sustainability strategy. However, we will continue to report on relevant
metrics across a range of topics, where we feel that disclosure
is useful for stakeholders’ understanding of our business and
performance. Conversely, some topics that have been identified as
less material to the business in terms of value creation or importance
to external stakeholders, such as biodiversity, are likely to feature
Group Materiality Matrix
Business conduct and ethics
Human rights and labour standards
Sustainability in
the supply chain
Remuneration and payment practices
Occupational health,
safety and wellbeing
Water, waste,
effluents, air emissions
Community wellbeing
Tax and local
economic contribution
Biodiversity
Product design and life
Energy use and GHG emissions
Cybersecurity and data privacy
Talent attraction
development
and retention
Low carbon transition
and climate impacts
Diversity, inclusion and
equal opportunities
l
s
r
e
d
o
h
e
k
a
t
s
l
a
n
r
e
t
x
e
o
t
e
c
n
a
t
r
o
p
m
I
Importance to internal stakeholders (impact on value creation x likelihood)
67
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020
Sustainability Report continued
in the strategy because we recognise them as important global
sustainability challenges that we believe we have a responsibility to
help address and because they provide opportunities to engage
our people.
Biodiversity impact assessment
In June 2020 we committed to complete an assessment of our
impacts and dependencies on biodiversity, in advance of setting a
biodiversity net gain target. We appointed an ecological consultancy
to support us in this work. During the last quarter of the year, we
conducted a desk-based biodiversity impact assessment on 30 of
our global manufacturing sites and our head office in Cheltenham,
UK. We chose to focus this initial assessment on our manufacturing
sites because, within our direct operations, our manufacturing sites
are significantly more likely to impact biodiversity than our office sites.
The desk-based assessment, supported by a questionnaire
completed by each site, classified biodiversity interest in a 10km
radius of our manufacturing sites, reviewed the nature of our
operations in each of those sites and identified any impact pathways
through which operations at our sites could affect biodiversity.
Each site was then scored as high, medium or low risk for
biodiversity impacts.
The assessment found that the majority of our sites are low risk for
biodiversity impacts: 28 of our 31 sites were classified as low risk,
three were classified as medium risk (although in two of these sites
this related to the risk of impact under exceptional conditions – such
as fire or flooding – and not during normal operating conditions)
and no sites were classified as having a high risk. The medium risk
sites were: Spirax Sarco Argentina, where the Rio Reconquista runs
close to the site and flows into a network of regionally-important
wetlands; Chromalox Mexico, where the Rio Grande River flows close
to the site, which is home to two IUCN Endangered Species (the
Rio Grande Silvery Minnow and the Golden-cheeked Warbler); and
Spirax Sarco USA, which adjoins a local woodland and, as a result,
could have a minor local impact on wildlife during normal operations
as a result of disturbance from noise or light.
During 2021 we will conduct further work at the sites classified as
medium risk to review environmental management plans and, if
required, put in place extra processes to mitigate risk during normal or
exceptional circumstances.
The assessment also reviewed our direct dependencies on
biodiversity and found no significant direct dependencies in any of our
manufacturing sites, but some dependency on ecosystem services,
notably water and raw materials.
Following the survey, the Group Executive Committee committed to
a four-step approach, over the next five years, to achieve biodiversity
net gain. First, we will manage our own operations to minimise their
impact on biodiversity, with a particular focus on those sites identified
as having a medium risk; second, we will deliver a biodiversity
offset, equivalent to at least our global operational footprint; third,
we will require all of our operating units to participate in at least one
biodiversity enhancement project, on site or in their local community,
within the next five years; and fourth, we commit to delivering a
biodiversity net gain of 10% during the construction of all new
manufacturing facilities.
Risk and opportunities assessment
During late 2020, and extending into early 2021, we conducted
a qualitative, high-level risk and opportunities assessment of
five sustainability topics identified as most material to the Group
(excluding cybersecurity, which is assessed through the existing
68
Group Risk Management process). Each risk was broken down
into sub-risks, to facilitate a more granular assessment. We applied
the criteria used in the Group’s regular risk assessment process
and received input from each of the Group’s three businesses. As a
result of the assessment, we identified additional mitigation activities
that could be utilised to improve risk management and made a
recommendation for further quantitative analysis where risks were
identified as having a high likelihood of occurrence and the possibility
of a relatively higher impact.
In line with the recommendations of the Task Force on Climate-related
Financial Disclosure (TCFD), the risk and opportunities assessment
was further supplemented by climate change scenario analysis.
For more information, see page 79.
Net zero roadmap
Having made a commitment to achieve net zero greenhouse gas
emissions before 2040, with the support of external consultants,
Challenge Sustainability, we conducted a net zero readiness review
and began to develop our Group-level net zero roadmap, which will
continue throughout 2021. Further detail will be provided in the 2021
Annual Report. It is our intention to align with best-practice when
developing our net zero roadmap, with a primary focus on reducing
our energy consumption and carbon emissions to minimise the use
of carbon offsets. While our net zero target specifically relates to
our Scope 1 and 2 emissions, we have committed to report on and
address value chain emissions, through the establishment of Scope 3
targets, once we have confidence in the accuracy of the data.
Reporting review
During 2020 we undertook a review of our corporate reporting
on sustainability. We have enhanced our disclosure to ensure full
alignment with the new Streamlined Energy and Carbon Reporting
(SECR) requirements, disclosing UK greenhouse gas emissions, a UK
greenhouse gas emissions intensity ratio and related methodology, for
the first time (see page 79). In addition, we have enhanced our TCFD
disclosure by reporting on our use of scenario analysis for analysing
the risks and opportunities associated with climate change (see page
79). It is our intention to further develop our TCFD disclosure in our
2021 Annual Report.
We recognise that there is a need for better consistency in
sustainability reporting standards globally and believe that corporate
reporting of sustainability metrics should be aligned with business
materiality, to ensure useful and transparent disclosure to users of
Annual Reports. The Sustainability Accounting Standards Board
(SASB) seeks to address these needs.
SASB designates Spirax-Sarco Engineering plc as being in the
“Engineering and Construction Services” sector. During 2020 we
reviewed SASB’s reporting requirements for this and other related
sectors and assessed them for materiality. We have disclosed, to the
fullest extent possible, against the requirements of the Engineering
and Construction Services Standard, in respect of 2020, which can
be found on our website https://www.spiraxsarcoengineering.com/
investors/results-reports-and-presentations/year/2020.
Focus for 2021
• Complete the strategy refresh, including target setting.
• Further develop the Group’s net zero greenhouse gas
emissions roadmap.
• Undertake Scope 3 carbon emissions assessment.
• Launch the refreshed strategy and commence implementation.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 2020 Sustainability strategy overview
The content that follows relates to the Sustainability strategy and targets that were in place during 2020. Our refreshed Sustainability strategy
and updated targets will be set out in our 2021 Annual Report.
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; operating in accordance with laws
and regulations; managing our social and environmental impacts; acting ethically; and managing our 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 in each.
Sustainability overview 2020
Sustainability
area
Material
sustainability
topic
Objective
Our workplaces
Health & Safety
To achieve Health and Safety (H&S) excellence through
engagement, empowerment and fostering good
behaviours while targeting zero accidents.
Target in place during 2020
Zero accidents
Further
reading
Pages
70-71
Employment
practices
To promote diversity and equality through employment
practices that are free from discrimination and in
accordance with international human rights principles.
33% of women on our Board,
as opportunities arise
Pages
72-73
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
People
development
To invest in developing the knowledge and skills of
our people.
Increase the impact of our technical
and leadership training offering
Our supply chain End-to-end
supply chain
To focus on continuous improvement in our supply chain
with particular emphasis on sustainability.
97% of Phase 1, 2 and 3 suppliers
and 90% of Phase 4 suppliers
to have signed our Supplier
Sustainability Code
Product
responsibility
To incorporate sustainability factors into our product
design process, including energy efficiency, emissions,
serviceability, recyclability and the availability of compliant
and ethically sourced materials.
Continuing compliance with all
applicable EHS standards, while
meeting customer expectations
of performance and cost
Our environment Water and waste To limit the environmental impacts of our operations
through reducing water use and minimising and managing
effluent and waste.
Energy
and carbon
To minimise the environmental impacts of our operations
by managing energy consumption with the aim of reducing
carbon emissions.
To reduce waste intensity by 10%
and water intensity by 5% over
three years to 2021
To reduce our energy intensity
by 10% over three years to 2021,
with an accompanying reduction
in carbon emissions
Page
73
Page
74
Page
75
Page
76
Page
77
Pages
78-80
Our customers
Customers
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.
Enhance our reporting of customer
sustainability benefits
Pages
81-83
Our communities Community
engagement
To engage positively with the communities in which we
operate and to offer financial support to approved charities.
All Group companies to
participate in at least one
community engagement
activity annually
Pages
84-85
69
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Our workplaces
Health and Safety
Overview
Safety is one of our Company Values. The safety and wellbeing of
our people is always our first consideration. Whether working on our
own premises, on a customer’s site, or working from home, we want
our colleagues to be safe. We also extend the same standards to
contractors or visitors to our sites.
We strive for excellence in Health and Safety (H&S) and have a
target of zero accidents. While this is a challenging target, we
believe that it is achievable. With the necessary controls in place and
everyone understanding and acting on their individual and collective
responsibilities to keep themselves and their colleagues safe,
accidents are preventable.
Across the Group we utilise robust H&S management systems.
All Group companies are required to operate to the highest safety
standards. Our Group Chief Executive, Board of Directors and
Executive management teams monitor H&S performance and
progress, with H&S a standing agenda item at every Board meeting
and every Group Executive Committee meeting. We also have an
extensive network of H&S professionals across the Group leading and
driving improvements in our H&S processes and performance.
2020 performance and actions
Throughout the year, protecting the health of our colleagues and
their families from COVID-19 was a key priority. However, this did not
distract us from implementing our ongoing plans for H&S process and
performance improvements, with good progress made during the
year despite the pandemic.
COVID-19
We responded quickly to the emerging threat in the first quarter of
the year, first in China and then beyond as the pandemic took hold
around the world.
During 2020, it was and continues to be essential that we support
customers, many of whom are on the frontline fighting the pandemic.
Other than a few short-duration localised shut-downs, in response
to national pandemic restrictions, our manufacturing sites remained
operational throughout the year. Sales and service engineers used
digital technology to engage with customers if site visits were not
permissible. Remaining operational required our workplaces to be
COVID-secure and our engineers protected when visiting customer
sites. In addition, with large numbers of office-based colleagues
working from home, we took steps to support their health and
wellbeing and ensured that all necessary precautions were put in
place to keep our office environments safe for those who could not
work from home or who chose to return to our workplaces when local
or national restrictions allowed.
Across the Group we established minimum COVID-19 workplace
standards that applied to all Group companies, regardless of
whether the standards were higher than those imposed by national
governments. The standards stipulated that COVID-19 risk
assessments be completed at every site, to include all areas of our
workplaces; a requirement for two metre social distancing, with all
necessary steps taken to ensure that this was possible, such as one-
way systems, staggered start, finish and break times, rotational/shift
work, reorganisation of office spaces, or the installation of screens if
social distancing was not possible; and COVID-19 signage across
70
sites. The minimum requirements also specified the types of personal
protective equipment to be used by colleagues.
Hygiene and cleanliness requirements included the necessity for hand
sanitiser to be available at all entrances/exits and at key positions
throughout the site. A daily deep clean procedure was required at
all sites, in addition to the normal cleaning routine, with cleaning
of touchpoints, such as door handles and handrails, increased to
at least twice daily. Visitors to our sites were kept to a minimum,
but all visitors, contractors and sub-contractors were required to
be temperature checked before being allowed on site, with many
of our sites also requiring colleagues to be temperature checked.
Before returning to our workplaces following a period of home
working, colleagues were required to undergo COVID-19 training and
understand the requirements for working on site.
As a result of these and other localised measures, the COVID-19
infection rate in the workplace amongst our people was kept
extremely low.
Over three-day lost time injury rate per 1,000 employees
2020
2019
2018
2017
2016
2.9
3.6
4.9*
4.6
6.0
* 2018 rate increased due to the full-year effect of the Chromalox acquisition
One to three-day lost time injury rate per 1,000 employees
2020
2019
2018
2017
1.3
1.4
1.7
* 2018 rate increased due to the full-year effect of the Chromalox acquisition
Near misses per 1,000 employees
2020
2019
2018
2017
298
195
89
H&S concerns raised per 1,000 employees
2.2*
370
2020
2019
2018
2017
868
3,325
2,291
1,954
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Behavioural Based Safety (BBS)
We recently established a new Group standard BBS programme.
Rolling out the programme and training colleagues in BBS was an
important area of focus during 2020. Phase 1 Leadership training
was rolled out to over 450 managers in Watson-Marlow during the
year, having previously been rolled out across the Steam Specialties
business in 2019. Within the Steam Specialties business, over 2,300
colleagues were trained in Phase 2 Personal Safety and over 1,350 in
Phase 3 Team Safety.
Safety management
During 2020, we established a new EHS audit framework and trained
EHS leaders within the Steam Specialties business.
We commenced aligning Thermocoax with Group H&S programmes.
Detailed implementation plans have been created and regular
meetings took place throughout the year to track implementation.
Actions included, but were not limited to, investments in new machine
guard solutions and working at height equipment.
During 2020, a new First Aid Policy was written and communicated
across the Group. The Policy specifies a minimum number of trained
first aiders within each Group company. As a result of the policy, we
provided training to over 500 new first aiders and have mandated that
new defibrillators be installed across all our sites.
Lagging indicators: lost time injury rate
During 2020, our over three-day lost time injury rate per 1,000
employees improved to 2.9 per 1,000 employees (2019: 3.6), a
reduction from 28 injuries in 2019 to 23 in 2020. We also saw an
improvement in our one to three-day lost time injury rate, which
fell to 1.3 per 1,000 employees (2019: 1.4), a reduction from 11
injuries in 2019 to 10 in 2020. All lost-time accidents were thoroughly
investigated and learnings shared across the Group. As in previous
years, we had no fatalities.
Leading indicators
Reflecting the increasingly well-embedded safety culture, the
number of safety concerns raised by employees increased to 3,325
per 1,000 employees (2019: 2,291). The number of near misses
reported also increased to 370 per 1,000 employees (2019: 298).
All safety concerns and near misses were assessed and corrective
action taken to reduce the likelihood of an accident occurring in the
future. 129,106 H&S training hours were delivered across the Group
(2019: 134,341 training units), we increased the number of full-time
qualified EHS professionals across the Group to 52 (2019: 48).
We completed 7,586 Behavioural Based Safety inspections
(2019: 4,406 EHS audits or inspections). 21 of our Group companies
are certified to OSHAS 18001 and 43 are certified to ISO45001.
Notable achievements
Watson-Marlow MasoSine celebrated 21 years without a lost-time
accident, Watson-Marlow Flexicon celebrated 2,000 days,
Spirax Sarco Brazil and Spirax Sarco China sales celebrated
1,000 days without a lost-time accident, and Spirax Sarco’s UK
manufacturing site achieved a Royal Society for the Prevention of
Accidents Gold award for the third year running.
Focus for 2021
• Complete the implementation of BBS Phase 2 Personal Safety and
Phase 3 Team Safety across Steam Specialties.
• Complete the implementation of Phase 1 Leadership Safety within
Watson-Marlow and launch Phase 2 Personal Safety.
• Commence the implementation of the BBS Phase 1 Leadership
Safety within Electric Thermal Solutions.
• Launch an enhanced new Root Cause Analysis programme across
the Group.
Safety during the pandemic
The following example of Spirax Sarco UK is reflective of the
actions taken across our Group to protect our people while
maintaining our critical service to customers.
On 5th February 2020, Spirax Sarco UK’s Incident
Management Team (IMT) convened and began enacting plans
to prepare for a possible outbreak of COVID-19 in the UK.
The IMT initiated a range of actions such as the installation
of hand sanitiser dispensers, an assessment of equipment
needed for home-working and guidance to colleagues if
they or someone they had been in contact with became
unwell. Throughout February and into March, personal
protective equipment (PPE) was purchased and plans were
further developed.
On 23rd March, office-based staff began working from home.
Home-working risk assessments were conducted to ensure
colleagues could work safely and to assess whether they
needed any additional help or alternative working arrangements
to support their mental or physical wellbeing. Ahead of the
relaxation of the national lockdown and the re-opening of our
offices, plans were put in place to make the office workplaces
COVID-secure, with risk assessments completed, signage,
one-way systems, the provision of PPE, temperature checking
devises, protective screens, new office layouts and additional
cleaning rotas put in place. Mandatory return-to-work training
was planned and small numbers of office staff returned to work
on a phased basis, with many choosing to continue to work
from home.
From March, all non-essential customer site visits were
cancelled or conducted virtually. Where site visits were
essential, particularly on critical sites such as hospitals, sales
and service engineers were permitted to attend, having first
conducted a risk assessment, wearing PPE and practicing
social distancing.
The company’s manufacturing site remained operational with
colleagues recognised as critical workers. The site was made
COVID-secure with risk assessments completed, temperature
screening, social distancing, an internal “track-and-trace”
system implemented, advanced cleaning, limited room
occupancy, one-way systems, split shifts, staggered break
times, limited visitors and mandatory use of PPE all required.
The workplace infection rate has been extremely low, and we
anticipate a similar way of working for the foreseeable future.
71
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Our workplaces continued
Our people
Overview
Our Values of Safety, Excellence, Customer Focus, Integrity,
Collaboration and Respect are the guiding principles that underpin
decision-making, guide our conduct, define our culture and inform
our employment practices. Our HR policies and systems support
us in protecting the rights of our people and ensure their fair and
equitable treatment.
Workforce diversity
We believe that diversity of culture, gender, age, experience and
expertise enhance our ability to operate effectively and ethically, while
increasing the sustainability of our business. We are acutely aware
that our business is more sustainable, and therefore better able to
drive value for all our stakeholders, if we can draw on a wealth of
diverse experience. We seek to increase diversity at all levels of the
organisation, with a particular focus on gender diversity. Our Diversity
and Inclusion Policy outlines, amongst other things, our commitment
to provide equality, fairness and respect for all colleagues, regardless
of background; to oppose all forms of unlawful discrimination; and
to operate in accordance with the Equality Act 2010, avoiding
discriminating on the basis of any protected characteristics.
Our recruitment policies ensure decisions are fair and made without
bias and our remuneration policies are designed to recognise skills,
experience and achievement.
2020 Performance and actions
Employee wellbeing
The safety and wellbeing of our people has always been of primary
importance but took on a new level of focus during 2020 because of
the pandemic. In April we expedited the launch of a global Employee
Assistance Programme to benefit all staff and their dependants globally.
With many of our office-based employees required to work from home
during the pandemic we utilised our e-learning platform to offer new
training modules to support employees with new ways of working.
In addition to the rigorous safety measures put in place to keep our
workplaces COVID-secure, we also offered voluntary seasonal flu
immunisations to all employees globally.
Employee engagement
Given the unprecedented circumstances presented by the COVID-19
pandemic we significantly increased the frequency of employee
communications, establishing regular COVID-19 updates from our
Group Chief Executive to all colleagues; daily, weekly or fortnightly
communications – at different stages of the pandemic – at a business
and local level; introduced new channels to allow colleagues to
provide feedback on how the Group was responding to the crisis; and
undertook a short survey to test sentiment and ensure we were doing
everything possible to provide suitable support to our colleagues.
The special measures taken as a result of the pandemic did not
detract from on-going action plans that resulted from our 2019 global
employee survey, which continued to progress, demonstrating our
continued commitment to acting on the feedback of our colleagues.
A number of new initiatives have been developed as a result of survey
feedback, including virtual quarterly town hall meetings, increased
direct communication from senior leadership and the introduction of
local employee recognition schemes.
72
The Board Employee Engagement Committee has matured, in its
second year of operation, and completed a full agenda of virtual
employee focus groups, achieving greater Board engagement with
the workforce and enabling it to better act as the voice of colleagues
to the Board.
Diversity
We remain committed to increasing gender diversity across the
business. During 2020, we appointed and promoted a number
of females to leadership roles. At year end, 27% of the Executive
Committee and their Direct Reports were female, an increase from
20% last year. By March 2021 that figure rose to 31%. Following the
appointment of Angela Archon and Olivia Qiu as Non-Executive
Directors, 45% of our Board was female, and 27% of Board
members were ethnically diverse at year end.
Gender diversity 2020*
Board of
Directors
Male
Female
Total
Senior
Managers
Male
Female
Total
Total
Workforce
Male
Female
Total
2020
Numbers
2020
%
2019
Numbers
6
5
11
55
45
100
7
3
10
2020
Numbers
2020
%
2019
Numbers
489
125
614
80
20
100
493
122
615
2020
Numbers
2020
%
2019
Numbers†
6,010
1,836
7,846
77
23
100
6,224
1,852
8,076
2019
%
70
30
100
2019
%
80
20
100
2019
%
77
23
100
* At year end 2020
† Restated due to a reporting error
We continue to report our gender pay gap in the UK and starting
salaries are regularly analysed by our regional HR teams, using
an in-house modelling system, to ensure parity at the time of hire.
Our Executive Mentoring Programme, designed to accelerate the
development of high-potential women and strengthen the pipeline of
female talent was expanded to include 14 additional females in 2020,
bringing the total number participating in the programme to 33.
During 2020 we rolled-out mandatory Inclusive Leadership training
to our senior leadership teams and Unconscious Bias e-learning to
all colleagues globally. We also celebrated a number of events such
as International Women’s Day, International Women in Engineering
Day and Black History Month to acknowledge the diversity of our
organisation and the communities in which we operate. We have
appointed a Head of Inclusion, Diversity & Wellbeing who will bring
focus to our continued progress in this area and will look to increase
diversity, in all its forms, across our organisation.
Focus for 2021
• Employee demographic data to be collected more rigorously to
improve central understanding of our global population and our
ability to meet their needs.
• Biennial global engagement survey to be distributed and action
plans created and started.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our workplaces continued
Ethical business practices
Overview
By operating in accordance with our Company Values and Group
Policies we establish and maintain a culture of ethical behaviour
throughout our global operations.
2020 Performance and actions
We require all 6,300 employees who have a Company email address
to annually complete a suite of online training materials through
the Spirax Sarco Academy, called Group Essentials. The training
materials cover a number of important topics such as Anti-Bribery
and Corruption (ABC), Our Values and Health & Safety at work.
During 2020 we refreshed and added to these training materials.
ABC training
We regularly review the content of our ABC training materials to
ensure it stays relevant, current and informative for colleagues.
During 2020, we updated the content of the ABC refresher course
and established a requirement for the Internal Audit function to assess
completion as part of the audit process. By the end of 2020 nearly
5,700 colleagues had completed ABC training (2019: 5,300).
Corporate Criminal Offence training
During 2020, we developed and rolled out a mandatory course
through the Group Essentials programme called “Corporate Criminal
Offence – Failure to Prevent Facilitation of Tax Evasion”. The course
reviews key legislation, the penalties for non-compliance and how
employees should take personal responsibility to help prevent the
facilitation of tax evasion at Spirax-Sarco Engineering plc. The new
course is available in 16 languages and was completed by 3,950
colleagues during 2020.
Standardised Terms & Conditions
During the first half of 2020, we updated and rolled out across the
Group updated contract practices, including sales, purchasing and
distributor contract templates, with additional ABC clauses, and
provided training to over 1,000 colleagues. The standardisation of
contracts will improve oversight of contractual practices across the
Group, being overseen by the Internal Audit function and will reduce
risk of breaches of ethical business practices.
Whistle-blowing
All colleagues globally have access to a local, independent, third-party
whistle-blowing hotline, hosted by Safecall, through which they can
confidentially raise concerns about potentially unethical behaviour
in the business. During 2020, 14 calls were made to the Group’s
Safecall hotline, all of which were investigated by senior management,
with follow-up action taken if necessary. Summaries of all calls and
related actions were reviewed by the Audit Committee and the Board.
Focus for 2021
• Establish an enhanced controls initiative to raise awareness of
the policies and processes that need to be followed by all Group
companies and all Group employees.
73
Jennifer Forrester, Head of Employee Experience
Women’s Network
Launched in 2020, our global Women’s Career & Personal
Development Network has approximately 400 members and
offers opportunities for female talent to collaborate and offer
peer-to-peer support. During the year, Network members
benefited from quarterly training sessions, as well as the self-
generated content created by the members of the Network.
In May, an external career coach hosted two live interactive
webinars covering the challenges faced by females, advice on
how to develop a growth mindset and strategies to overcome
barriers to progression. In June, Group Chief Executive,
Nicholas Anderson, shared his career journey, top-tips for
being a successful leader and his aspirations for the Company,
explaining why more females in senior leadership is essential
for the sustainability of the business. In October we conducted
virtual “on the sofa” chats with three of our Non-Executive
Directors (NEDs). Caroline Johnstone, Trudy Schoolenberg and
Jane Kingston offered insights into the role of a NED, shared
their own career stories and answered participant questions
on topics such as juggling work and parenting, leading teams
in male dominated environments and how to achieve career
progress. In December, an external leadership development
consultant and executive coach facilitated a session on
Achieving Life Balance and Professional Success.
Members of the Network shared:
“The Women’s Career & Personal Development Network has
been a great way to connect with and support other women in
the business as well as to share insights and success stories.”
Leila Lodwick
“I was very happy that a network was set up for women.
It helps me to keep believing that I am important as a woman in
the male world.” Annet den Hertog
“The Women’s Network has helped me realise how much we
really need likeminded people to inspire each other, learn from
each other, give perspective and challenge us. And cheer us
on!” Kim Walker
“The Women’s Career and Personal Development Network
was established to promote inclusivity by increasing awareness
of the potential challenges our female talent may face. It has
supported our female talent; offered an opportunity to build
networks; and presented a collective voice.” Jennifer Forrester
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Our workplaces continued
People development
Overview
Developing our people is critical to our sustainability. Not only does
it enable us to continually improve the sustainable impact of our
products and services, but it is essential in ensuring that we continue
to improve and evolve as an organisation. Despite the challenges
posed by the pandemic during 2020, we continued to invest in
training and development initiatives during the year.
2020 Performance and actions
Graduate development
During 2020 we focused on strengthening our successful
Global Graduate Development Programme and made a number
of improvements:
• we revised our recruitment and selection processes;
• we developed an online graduate learning curriculum;
• we introduced a consistent performance management approach;
and
• we established a global graduate communication platform.
Our current Graduate Programme is made up of 32 graduates across
11 countries, of which over half are female. Together with 45 alumni of
the programme, this constitutes a global, Group-wide network of 77
talented individuals in 15 countries across all three businesses.
Leadership development
While COVID-19 impacted the quantity and format of leadership
development, it did not diminish the quality. Two senior managers
attended external executive education programmes virtually, both
females who were promoted during the year.
Our LEAP Leadership Development Programme held one programme
this year. A group of 24 delegates from 10 countries, three continents
and multiple time zones, gathered virtually for a week. In addition to
lectures and interaction with senior executives, they authored and
produced a book within 30 hours. In “Leading the Way When the Sky
Falls”, delegates share personal examples and learnings on leading
during crisis.
Digital curricula were also developed for LEAP Alumni as well as for
our Women’s Network, with users completing over 1,000 learning
modules during the year.
Sales Management capability
A development programme for Sales Managers was developed and
launched during 2020. The programme is focused on enhancing
the role of Sales Managers in driving Sales Excellence, and uses
360 feedback and behavioural based assessments to create a
personalised development plan for each manager.
Focus for 2021
• Review and refine our Leadership Development offering.
• Develop our Early Career development approach for alumni of our
Graduate Programme.
• Roll out our Sales Management Development programme.
74
Teeny Parwongphol, Regional
General Manager Southeast Asia
Teeny Parwongphol joined the Company as the General
Manager of Spirax Sarco Thailand in 2015 and since that time
has delivered outstanding and sustainable business growth.
In recognition of her success, in 2019, Teeny’s role was
expanded to General Manager of Thailand and South East
Asia Developing Markets (Myanmar, Cambodia and Laos).
During 2020, Teeny was promoted again and on 1st January
2021 she became Spirax Sarco’s Regional General Manager
for Southeast Asia.
Teeny is a participant in Spirax-Sarco Engineering’s Executive
Mentoring Programme, which was established to accelerate
the Group’s internal talent pipeline by encouraging high-
performing women within the Company to progress and grow
within the business.
Commenting on her career progression and her experience in
the mentoring programme, Teeny said:
“I was nominated for the Executive Mentoring Programme
by my bosses. The idea of the programme is to give women
at senior manager level the chance to gain experience with
someone at executive level and enjoy the opportunity to
diversify. The company always promotes gender equality,
offering both men and women the opportunity to enhance their
skills and develop their leadership potential”.
Teeny said she is glad to have been part of the programme
because, in many companies, the opportunity to talk with
people working at executive level can be rare. She also valued
the advice offered by her mentor, stating:
“It was so beneficial to share my challenges and get the
executive mentor’s advice. His comments were short and
sharp, direct and to the point, but with very clear explanation.
I am now able to apply the advice I learned from my mentor to
my current situation and to my new responsibilities. He really
helped me to prepare and he clearly explained what I needed
to consider for handling a new territory.”
In addition to Executive Mentoring, Teeny says that she has
benefited from other professional development opportunities
offered by the Company. For example, in 2015 Teeny attended
Spirax Sarco’s “ASPIRE” leadership programme in Singapore
and the Company’s Advanced Management Program,
Ashridge Executive Education in the UK in 2017.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our supply chain
End-to-end supply chain
Overview
Throughout our operations, we seek to improve the sustainability
of our end-to-end supply chain by focusing on sourcing materials
ethically, manufacturing responsibly and distributing efficiently, with
the aim of providing high levels of customer service, while managing
our social and environmental impacts. We have 32 manufacturing
sites globally and manufacture close to the point of sale to shorten
lead times, produce to local specifications, reduce transportation of
finished goods, provide local employment, improve customer service
and strengthen our competitive advantage.
Supplier Sustainability Code
Our Supplier Sustainability Code (Code) is central to our commitment
to ethical and sustainable sourcing. The Code outlines the
expectations that we have for suppliers and enables us to embed
sustainability into our purchasing processes. The requirements of the
Code fall within four broad categories:
• Ethics: suppliers are required to comply with all applicable trade
laws and regulations and commit to international ethical business
conventions, including compliance with competition laws, the
rejection of bribery and corruption, a commitment to trace the
origin of materials, the maintenance of records to demonstrate
compliance with regulations, and the use of anonymous grievance
and whistle-blowing mechanisms.
• Human Rights: suppliers are expected to comply with
international Human Rights conventions and, amongst
other requirements, prohibit the use of child labour, eliminate
discrimination in their employment practices, comply with laws
regulating wages, working hours and working conditions, allow
their colleagues freedom of association, and comply with the UK
Modern Slavery Act and the US Dodd-Frank Act.
• Health & Safety (H&S): suppliers must operate a safe working
environment, with a suitable H&S Policy and management system,
and the products produced by suppliers must comply with all
applicable environmental, health and safety regulations.
• Environmental Sustainability: suppliers should implement
initiatives that contribute to the preservation of the environment
and mitigate their impact on natural resources, complying with all
legal environmental requirements and demonstrate continuous
improvement in environmental performance.
2020 Performance and actions
Supplier Sustainability Code roll-out
Our targets for 2020 were for 97% of Phase 1 (direct suppliers of our
Spirax Sarco and Watson-Marlow manufacturing companies), Phase
2 (direct suppliers of our Spirax Sarco and Watson-Marlow sales
companies) and Phase 3 (direct suppliers of our recently acquired
companies Hiter Controls, Aflex Hose, Gestra and Chromalox)
suppliers to have signed the Supplier Sustainability Code, and for over
90% of Phase 4 (suppliers to Thermocoax) to have signed the Code.
Despite the disruption caused by the global pandemic, which required
resources to be redeployed to manage the situation on both our own
and our suppliers’ sites, we achieved our Phase 1 to 3 target with
97% of suppliers having signed the Code. We fell slightly short of our
Phase 4 target but made good progress with 86% of suppliers having
signed the Code. Overall, 96% of Company suppliers have now
signed the Code.
During 2021, we will continue to roll out the Code, with a focus on
Phase 4 suppliers, and maintain our target of over 90% of Phase 4
suppliers to have signed the Code by the end of the year.
Suppliers exited
If suppliers are unwilling or unable to sign the Code, unless in the case
of a serious breach of our standards, our preference is to work with
them on a continuous improvement basis until they are in a position
to sign the Code. However, if suppliers’ standards fall short and they
will not or do not make adequate progress to improve, we exit them.
This is rarely for reasons of sustainability alone. Typically, we find that
when suppliers score well on sustainability criteria they tend to be
well run, well managed companies that are also good at quality and
delivery, and vice versa. As a result, the decision to exit suppliers
is usually for a combination of reasons, with quality, reliability and
sustainability concerns together prompting the decision to exit them.
During 2020, we exited 4 suppliers for the reasons outlined above.
Standardised terms
As an additional mechanism to ensure we are purchasing ethically,
during 2020 we updated and implemented standard terms and
conditions of purchase, and standard long-term supply agreements
across the Group. The updated terms and agreements include a
number of requirements concerning ethical operations, including
provisions addressing a supplier’s obligation to comply with the UK
Modern Slavery Act.
Monitoring supplier sustainability
During 2020 we planned to review our method for monitoring supplier
sustainability. A working group convened early in the year and was
making good progress – identifying the need for a third-party supplier
monitoring system and assessing 11 different providers – before
the pandemic struck and team members needed to redirect their
attention to managing the situation. Although the pandemic is not
yet over, the situation has stabilised, compared with the uncertainty
during much of 2020 and, as a result, it is our intention to reconvene
the working group and make progress on this during 2021.
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 our Modern Slavery Statement in full or view our Supplier Sustainability Code
on our website.
www.spiraxsarcoengineering.com/sustainability/supply-chain
Focus for 2021
• Review our method for monitoring supplier sustainability,
and, if appropriate, identify a third party solution and agree an
implementation plan.
• Achieve progress against our Phase 4 Supplier Sustainability Code
roll-out target.
75
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Our supply chain continued
Product responsibility
Overview
To achieve our Company purpose of engineering a more efficient,
safer and sustainable world, we design, manufacture and supply an
industry-leading range of quality products that are reliable, safe to use,
responsibly-produced and that can help our customers to reduce
their environmental impacts.
Across five principal Research and Development (R&D) centres,
in the UK (Spirax Sarco and Watson-Marlow), Germany (Gestra),
the USA (Chromalox) and France (Thermocoax), we develop new
products to meet our customers’ changing needs, and enhance
existing products. Extensive on-site analysis, test and validation
capabilities, as well as the use of third-party certification, ensure that
our customers can buy from us with confidence.
2020 Performance and actions
Life cycle assessment
As a result of the life cycle assessment undertaken by Watson-
Marlow on the Qdos 30 pump, a cross-business working group
was established to review R&D design practices and principles and
facilitate the sharing of best practice across the Group.
Knowledge management framework
Within the Steam Specialties business, during 2020 the R&D
department implemented a new knowledge management framework
to ensure robust capture and utilisation of lessons learnt during new
product innovation. The new framework was utilised throughout the
second half of the year and will enhance the product development
process going forward.
Customer documentation
The Steam Specialties business identified an opportunity to improve
sustainability documentation on customer Technical Information
documentation. A working group was established to review
requirements and create a plan to improve this going forward.
Product development and eco-design
Across the Group we continued to develop new products that will
help our customers to improve the sustainability of their processes,
applying eco-design principles to reduce the environmental impacts
of products throughout their life cycle. For example, during 2020
Watson-Marlow developed a new range of Maxthane peristaltic
pumpheads. The Maxthane pumpheads not only have broad
chemical resistance and comply with international regulations for
use with all food types, but Maxthane is an eco-friendly, recyclable
material. In addition, less raw material is used in the production of
the pumphead as the nature of the material allows the production of
thinner walled tubing, which ultimately reduces waste and delivers
high-performance pumping with reduced environmental impact.
Focus for 2021
• Life cycle assessments completed on a range of small
Watson-Marlow products, with the results fed back into the
new product development process.
• More widespread adoption of life cycle thinking throughout new
product development across the Group.
76
Watson-Marlow Qdos 30
life cycle assessment
During 2020, Watson-Marlow undertook a product life cycle
assessment (LCA) of a Qdos 30 pump with a ReNu 30
santoprene pumphead, in collaboration with the University of
Exeter Business School’s “Exeter Centre for Circular Economy”,
to investigate the potential environmental impacts of the pump
over a five-year lifetime. The LCA investigated a full range of
environmental impacts of the product, and two additional
replacement pumpheads, from the point of material extraction
from the earth through transportation and manufacture, to use
by a customer and subsequent end of life disposal.
The LCA identified the total carbon footprint of the product
(298 kg of CO2), its carbon footprint through different stages
of its life cycle, the source of supply chain emissions, the
individual product components with the highest carbon
footprint, a range of other environmental impacts, such as
eutrophication potential and acidification potential, the number
of trees that would need to be planted to become carbon
neutral across the product’s life cycle (five), and a comparison
with another similar competitor’s pump (the carbon footprint of
the Qdos pump during its use phase was less than half of the
competitor’s product).
The LCA identified a number of next steps, such as
engaging with the supply chain, specifically the top five
suppliers identified as having the largest contribution to the
product’s embodied carbon, to reduce emissions; identifying
components where a reduction in environmental footprint
is possible, without compromising on quality, performance,
and cost; and reducing the environmental footprint of future
products, using the knowledge gained from this assessment.
The LCA has already led to a number of initiatives driven by
the findings. For example, the business is now developing a
Life Cycle Management framework that will deploy life cycle
thinking across New Product Development, Supply Chain and
Business Intelligence as an enabler to drive innovation and
more effective decision making. This will be developed through
2021 to be deployed in 2022 and, since completing the Qdos
30 LCA, the business has commenced LCA studies of a
number of smaller products such as hoses and clamps.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our environment
Water and waste
Overview
We aim to use water efficiently and responsibly across all our global
operations by monitoring use, controlling leakage and acting to
reduce total consumption. Through the products, solutions and
services we provide to customers, we also help them to do the same.
We operate in compliance with waste regulations wherever we
operate, segregating and storing waste safely and using certified
waste vendors to handle and responsibly dispose of waste.
Any hazardous waste, such as paint residues, chemical waste from
cleaning and degreasing processes, electronic waste or printer toner
cartridges are removed from our site by licensed contractors who
responsibly recover or dispose of the waste. We proactively seek to
reduce waste generation across our sites, utilising monitoring and
management systems to ensure compliance with environmental
regulations, such as the control of pollution and air emissions.
2020 Performance and actions
Water use
During 2020, our global operations used 217,364m3 of water
(2019: 212,027m3), a 3% increase. The increase was largely due
to the inclusion of Thermocoax’s water use data for the first time,
which added 1%, and increased accuracy of water metering at one
of our largest manufacturing facilities resulting in a higher reported
usage. These two additions, mask underlying reductions elsewhere in
the Group.
On an intensity basis, water use increased by 5% compared with
2019, a 2% increase compared with 2018. Disappointingly, we are
not currently on track to meet our three year 5% intensity reduction
target by the end of 2021. However, water management will be
an important focus of our refreshed Sustainability strategy and we
anticipate improvements in water use efficiency in the coming years.
Total water use m3
2020
2019
2018
2017
217,364
212,027
211,540*
167,000
* The increase in 2018 reflects the inclusion of Chromalox and Gestra data for the first time
Water intensity m³ of water per £m of inflation adjusted sales at
constant currency
2020
2019
2018
2017
182.1
173.6
177.8
185.4
Waste
In 2020, our global operations generated 5,343 tonnes of waste
(2019: 5,389). Waste generation was down 1% despite the inclusion
of Thermocoax’s waste data. We also improved reporting of waste
across a number of small sites in 2020, which increased reported
waste data. Excluding Thermocoax, we saw a 5% reduction in waste
generation in 2020. On an intensity basis, waste generation increased
by 1% from 4.4 tonnes per million pounds of inflation adjusted sales
in 2019 to 4.5 tonnes in 2020. With a 9% reduction on an intensity
basis since 2018, we are on track to achieve our 10% three-year
waste reduction target by the end of 2021.
We reduced the amount of waste sent to landfill in 2020 by increasing
the volume of waste recycled or recovered. During 2020, globally
83% of our waste was recovered, recycled or used to generate
electricity (2019: 79%).
Total waste generation tonnes
2020
2019
2018
5,343
5,389
5,843
Waste intensity tonnes of waste per £m of inflation adjusted
sales at constant currency
2020
2019
2018
4.5
4.4
4.9
Management
During 2020, over 60 EHS (environment, health & safety)
professionals from across the Group participated in a training session
with a focus on waste management and resource efficiency.
Our sites have continued to focus on implementing improvements
to reduce waste and manage water. For example, Spirax Sarco
Argentina established a new facility on site to blend, distribute and
recover coolant. By managing this on site, Spirax Sarco Argentina
expects to recover approximately 600 litres of coolant and 400 to
500 litres of water for re-use each month and reduce the frequency of
waste collection by 70% a year.
We are also seeking to reduce waste on our customer sites by
improving our packaging. For example, during 2020 Spirax Sarco
India selected an alternative packaging product with a high proportion
of recycled plastics, which also has a takeback scheme by the
supplier. The product will not only better protect and limit transit
damage compared to the existing material, Styrofoam, but it is also
more easily recyclable. During 2020, Watson-Marlow UK moved to
pulp packaging (similar to cardboard egg cartons) when shipping
pumps and pump-heads, replacing polystyrene packaging.
Focus for 2021
• As part of the Sustainability strategy refresh, review and update
existing water and waste targets.
• Continue to implement locally-identified initiatives to reduce water
use, such as improved monitoring and metering, water-efficient
fixings and promoting behavioural change.
77
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Our environment continued
Energy and carbon
Overview
Climate change is a global challenge and an emerging risk to
economies and businesses, people and societies, natural systems
and biodiversity across the world. We have a role to play in limiting
warming by improving our energy management and limiting carbon
emissions, and by helping our customers to do the same.
2020 Performance and actions
Greenhouse gas (GHG) emissions performance
Our CO2e 2020 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 Engineering plc. 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 to lead 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).
Total Group emissions for the reporting period 1st January 2020 to
31st December 2020 (inclusive) are: 20,060 tCO2e for Scope 1 and
18,178 tCO2e for Scope 2.
TÜV UK Ltd, London, February 2021”
Despite the first-time inclusion of Thermocoax’s GHG emissions,
which joined the Group in 2019, we saw a 12% reduction in
emissions. The reduction was partly a result of energy management
initiatives, but much of the reduction was a consequence of the
impacts of the pandemic on our operations. Scope 1 emissions were
16% lower, largely due to reduced transport emissions as sales and
service engineers carried out less site visits during the year, and lower
use of fuel for process use and building heating as manufacturing
output reduced and home working increased. Scope 2 emissions
declined largely as a result of lower electricity use on Company sites
due to an increase in homeworking and lower manufacturing output,
although split shifts – to allow for social distancing – caused a small
increase in electrical use in some locations.
At 32.0 tonnes per million pounds of inflation adjusted sales at
constant currency, on an intensity basis our Group emissions fell by
10%, compared with the prior year, and were 28% lower than 2013,
our benchmark year.
In 2020, 26% of our GHG emissions were generated in the UK;
a total of 9,980 tonnes. Of this, 7,366 tonnes were Scope 1 and
2,614 tonnes were Scope 2 emissions. UK GHG emissions were
6% lower than the prior year, for the reasons outlined above. On an
intensity basis, UK GHG emissions were 1% lower than the prior year,
at 38.8 tonnes per million pounds of inflation adjusted UK sales at
constant currency.
78
Group CO2e emissions (Scope 1 and 2) tonnes
2020
2019
2018
2017
2016
20,060
18,178
38,238
23,878
19,497
43,375
21,461
20,530
41,991*
17,230
17,354
14,828
13,350
32,058
30,704
■ ■ Scope 1
■ ■ Scope 2
* The increase was due to the acquisition of Gestra and Chromalox, whose emissions
were included for the first time in 2018.
Group CO2e intensity tonnes per £m of inflation adjusted sales
at constant currency
2020
2019
2018
2017
2016
Group energy consumption MWh
2020
2019
2018
2017
111,065
32.0
35.5
35.3
35.6
36.9
149,851
166,218
156,301*
2016
* The increase was due to the acquisition of Gestra and Chromalox, whose energy use
was included for the first time in 2018.
Group energy intensity MWh per £m of inflation adjusted sales
at constant currency
2020
2019
2018
2017
125.6
136.1
131.4
123.3
Methodology
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 or acquired during the year. 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 2019 and 2020, data from
The International Energy Agency 2019 and 2020, ISO 140064-1, and regionally specific
Environmental Reporting Guidelines to calculate our total CO2e emissions figures.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 UK CO2e emissions (Scope 1 and 2) tonnes
2020
2019
7,366
2,614
9,980
7,969
2,630
10,598
■ ■ Scope 1
19,563
■ ■ Scope 2
17,230
UK CO2e intensity tonnes per £m of inflation adjusted sales,
at constant currency from UK operations (including inter-
company sales)
17,354
2020
2019
UK energy consumption MWh
19,563
17,230
17,354
2020
2019
38.8
39.3
48,421
50,616
19,563
UK energy intensity MWh per £m of inflation adjusted sales,
at constant currency from UK operations (including inter-
company sales)
17,230
17,354
2020
2019
188.5
187.7
19,563
Methodology
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 2019 and 2020, data from The International Energy Agency 2019 and 2020,
ISO 140064-1 and regionally specific Environmental Reporting Guidelines to calculate our
total CO2e emissions figures.
17,230
17,354
Carbon emissions intensity is higher in the UK than for the Group as
a whole for a number of reasons. For example, the Steam Specialties
business’ global R&D centre is based in the UK. The facility is relatively
energy intensive but does not directly generate revenue to lower
the associated emissions on an intensity basis. In addition, our UK
manufacturing sites export a significant proportion of their output to
our global sales companies, resulting in higher manufacturing output
relative to revenue than in the Group as a whole.
Energy performance
At 149,851 MWh, total Group energy use fell by 10% in 2020, for the
reasons outlined on the previous page, and by 8% on an intensity
basis, to 125.6 MWh per million pounds of inflation adjusted sales at
constant currency. Energy use in the UK accounted for 32% of the
Group’s total usage in 2020, at 48,421 MWh, and fell by 4% in 2020.
On an intensity basis, UK energy use was broadly flat year-on-year,
at 188.5 MWh per million pounds of inflation adjusted UK sales at
constant currency.
Energy management
Progress was made in reducing energy use through energy
management initiatives. For example, Spirax Sarco France saw
natural gas use fall by 21%. While this was in part due to the impact
of the pandemic, a significant reduction was achieved through a
renewed focus on process steam control and scheduling.
Spirax Sarco Argentina delivered a 14% reduction in electricity largely
as a result of an energy management programme that used real-time
clamp metering, awareness training and new LED lighting.
Within the UK, energy management initiatives included the completion
of a three-year upgrade to LED lighting across our Steam Specialties
site in Cheltenham, which is expected to reduce energy consumption
for lighting by 69%, saving over 160 MWh per year. On the same site,
we installed an Oxygen Trim System, a type of combustion control, to
the 10 Bar boiler. The system constantly monitors the oxygen content
in the flue-gas, which provides a good indication of combustion
efficiency, while the intelligent system compensates for changes in
the ambient air pressure and temperature. Automated feedback to
burner controls minimises excess combustion and optimises the air
to fuel ratio, reducing energy use. This project is expected to have an
18 month payback and save 280 MWh of energy per year.
These energy management examples are reflective of a wide range of
initiatives carried out across the Group in 2020.
Net zero greenhouse gas emissions
During 2020, we established a net zero greenhouse gas emissions
target to be achieved before 2040. Extensive work was undertaken to
develop our net zero roadmap during the year, which will continue into
2021. Further information will be shared in our 2021 Annual Report.
Climate change scenario analysis
Under the recommendations made by the Task Force on Climate-
related Financial Disclosure (TCFD) companies are encouraged to
use scenario analysis as a tool to understand the implications of
climate change and to incorporate longer-term thinking about climate
trends, risks and opportunities into corporate risk analysis and
strategic planning.
During 2020, we appointed consultants, Challenge Sustainability, to
advise on the development of our Sustainability strategy, including our
work on scenario analysis. We conducted analysis on two scenarios,
a 2°C or lower scenario, in which society acts to reduce GHG
emissions and limit global warming in line with the Paris Agreement,
and a 4°C scenario, in which corrective action is minimal and global
temperatures continue to rise.
We reviewed the International Energy Agency’s (IEA) “World Energy
Outlook” and the Intergovernmental Panel on Climate Change’s
(IPCC) “Representative Concentration Pathway 8.5”. We also used
information gathered through internal and external interviews and
the analysis of data and information compiled during the strategy
development process.
The scenarios considered a range of transition and physical risks
and assessed the opportunities arising (in particular) from the low-
carbon transition scenario. The findings will be reviewed by our Group
Executive Committee and our Group Risk Management Committee,
and will be used to strengthen our risk management processes in
relation to climate change. In future we will further evolve this analysis
through additional, quantified, risk and opportunities analysis, at
business-level and will incorporate relevant actions in our refreshed
Sustainability strategy.
Focus for 2021
• Complete the development of our net zero greenhouse
emissions roadmap.
• Establish short-term carbon emissions and energy
reduction targets.
• Develop our Scope 3 emissions reporting.
79
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Task Force on Climate-related Financial Disclosures (TCFD)
Governance
Describe the Board’s oversight of
climate-related risks and opportunities
Describe management’s role in
assessing and managing climate related
risks and opportunities
Strategy
• Our Risk Management Committee, a principal committee of the Board, oversees the management of our climate-
related risks and opportunities. During 2020, day-to-day management of the Group’s climate change mitigation
activities was overseen by the Group Sustainability Committee, and the Group Energy & Environment Manager,
utilising the management structure outlined on page 66.
• The Board has collective responsibility for managing climate-related risks and opportunities. In particular, Neil
Daws, Executive Director, Maurizio Preziosa, Divisional Director Gestra, and Andy Robson, Group General Counsel
and Company Secretary, had specific delegated responsibility for overseeing climate related risks, mitigation
activities and performance in 2020.
Describe the climate-related risks and
opportunities the organisation has
identified over the short, medium and
long-term
• Short-term (0-5 years): customer carbon emission targets and increasing availability of green electricity
could encourage a move towards electric heating solutions that have zero emissions at point of use. While an
opportunity for the Electric Thermal Solutions business, some sales could be at risk in the Steam Specialties
business for applications where steam or electric heating solutions are equally viable.
Describe the impact of climate-
related risks and opportunities on the
organisation’s businesses, strategy and
financial planning
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-
related scenarios, including a 2°C or
lower scenario
• Medium-term (5-10 years): growth in electric vehicles could cause a decline in the oil and gas industry,
particularly refinery demand.
• Long-term (10+ years): large oil, coal and gas fired boilers could be replaced by banks of small electric
generators reducing demand for boiler controls and boiler-house products.
• Increasing frequency of climate related extreme weather events.
• In the short to medium-term, growing awareness of climate change and customer sustainability targets will
continue to provide an impetus for business growth as we provide products, services and solutions that increase
efficiency and reduce customers’ energy use and carbon emissions. To mitigate the risks outlined above, we are
developing a refreshed Sustainability strategy that will inform our business strategy and advance the development
of products and services that help our customers to achieve their carbon reduction targets. Our broad
geographical presence and global manufacturing footprint reduce the risk of disruption caused by an extreme
weather event and we have appropriate insurance cover in place to mitigate the effects of such events. We direct
our financial resources appropriately, for example investing in R&D and allocating capital to projects that increase
our own energy efficiency and reduce our environmental impacts.
• Our Company purpose is to create sustainable value for all our stakeholders as we engineer a more efficient, safer
and sustainable world, and our business strategy supports this, with all three of our businesses offering significant
environmental benefits to customers. With customers in almost all industries worldwide and across 130 countries,
our products are indispensable for the production of foods, beverages and medicines, the generation of power
and the treatment of water and wastewater, and many other essential products. Furthermore, steam remains
the world’s most efficient heat transfer medium with multiple on-site applications. We thus have a highly resilient
business and business strategy that will remain relevant across different climate-related scenarios. However, we
are not complacent and recognise that we will need to continue to develop and adapt, ensuring that our product
offering continues to evolve to meet customer needs now and in the future. During 2020, we undertook analysis of
climate change scenarios, which will inform the development of our refreshed Sustainability strategy. We expect to
conduct further scenario and risk analysis at a business level, going forward.
Risk management
Describe how processes for identifying,
assessing, and managing climate-
related risks are integrated into the
organisation’s overall risk management
• In alternate years, the Group engages in either a top-down or a bottom-up risk review and feeds its results to the
Risk Management Committee. This includes sustainability/climate-related risks. The Risk Management Committee
assesses the climate-related risks identified to understand their severity, identify controls or mitigation required and
monitors such risks on its risk register.
Metrics and targets
Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management process
Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks
• We report various consumption and intensity metrics relating to energy, CO2e, waste and water in our
Sustainability Report, as well as customer carbon, energy and water avoided metrics. Please see pages 77 to 79
and 81.
• Streamlined Energy and Carbon Reporting (SECR) disclosures can be found on pages 78 to 79.
• Throughout 2021, we will use a third-party to help us develop our Scope 3 data, and it is our intention to report
our Scope 3 emissions as soon as we have confidence in the accuracy of the data.
Describe the targets used by the
organisation to manage climate-related
risks and opportunities and performance
against targets
• Our current three year target (2019-2021) is to reduce our energy and CO2e emissions intensity by 10%.
However, in 2020 we established a net zero greenhouse gas emissions target, to be achieved before 2040.
Throughout 2021 we will develop a range of shorter-term targets, aligned to our net zero roadmap. Please see
pages 78 to 79 for details of performance against our current targets.
80
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Our customers
Overview
In accordance with our Company purpose to engineer a more
efficient, safer and sustainable world, we supply products, services
and engineered solutions that deliver environmental benefits to our
customers. We help our customer to lower their carbon emissions,
use energy more efficiently, increase process efficiency, reduce waste
and minimise their water consumption.
2020 Performance and actions
Tonnes of CO2e emissions Steam Specialties
customers saved as a result of purchasing our
energy management products
15.8m*
2020
2019
2018
2017
2016
7.2m†
5.7m
5.8m*
4.4m
* Expanded product range
† Gestra products added
Customer environmental benefits
During 2020, we worked with independent, specialist consultants
Ricardo Energy & Environment to review, update and expand the
scope of our customer sustainability reporting metrics, to better
capture the environmental benefits a select range of our products
deliver to Steam Specialties business customers. On the basis of
the revised methodology, we estimate that our Steam Specialties
customers will save 15.8 million tonnes of carbon emissions annually
as a result of products purchased in 2020, with total annual energy
savings of 218 million GJ of energy annually and water savings of
78.6 million m³ each year.
The methodology used to determine customer energy, carbon
and water savings has been independently assessed by Ricardo
Energy & Environment. Since 2017 the carbon savings methodology
has included a range of seven Steam Specialties product types,
comprising Flash Vessels, Condensate Pumps, Steam Traps,
Steam Meters, Bellow Sealed Valves, Smart Positioners and
EasiHeat heat exchange packages. During 2020, the methodology
was updated to expand the range of products, adding five new
products types, namely Electrical and Pneumatic Controls,
Pressure Regulation Controls, Safety Valves, Steam Separators and
Component Insulation.
Only products that deliver savings that can be quantified with
reasonable accuracy are included in the methodology. Other products
may generate savings when used as part of an engineered solution
and engineered solutions that utilise products included in the
methodology may generate savings greater than the sum of the
component parts; however, as such savings are not easily quantifiable
they are excluded from the methodology. In 2020, the 12 product
ranges included in the methodology accounted for 42% of Steam
Specialties revenue. However, we ascribe savings to only a proportion
of the products sold, which accounted for 18% of Steam Specialties
revenue in 2020.
The revised methodology also applied updated regional emission
factors, rather than global averages, and included a review of steam
system operational data. As a result, the breadth and accuracy of the
emissions savings calculation has been further enhanced. In addition,
the methodology has been expanded to include customer water
savings, for the first time.
Focus for 2021
• Initiate a project to extend the scope of customer sustainability
benefit metrics to also encompass benefits to Watson-Marlow and
Electric Thermal Solutions business customers.
• Align reporting of customer sustainability benefits with the UN
Sustainable Development goals.
Customer environment benefits
Annual customer CO2, energy and
water savings from Steam Specialties
products sold in 2020:
To put these savings into context,
that is the equivalent of:
15.8m
tonnes of CO2 per year
218.0m
GJ per year of energy
78.6m
m3 per year of water
719m
mature trees
absorbing CO2
4.0m
fewer UK households
using energy
31,500
fewer Olympic-sized
swimming pools
of water used
or
or
or
7.7m
cars taken off
the road
605.6bn
fewer kettles boiled
558,000
people not using
any water for a year
81
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Steam
Specialties
82
A plate heat exchanger installation delivering energy, carbon and water savings
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 t
r
o
p
e
R
c
g
e
t
a
r
t
S
i
Engineering a more
sustainable world
Our Spirax Sarco team delivers energy, carbon and water savings
in a can sterilisation application at a Nestlé factory in Peru.
The challenge
With sustainability goals to reduce water
consumption across its operations and to
substantially reduce emissions per tonne
of product, Nestlé invited the Spirax Sarco
team to identify improvement opportunities in
its plant’s steam and condensate system in
Lima, Peru.
The solution
We completed an energy audit of the site,
which identified opportunities to make
significant improvements to a can sterilisation
process that was consuming 18% of steam
generated on the site. Our team designed
and supplied an engineered solution to
improve steam, condensate and energy
management during the sterilisation process.
The solution covered three key areas.
First, instead of sending warm water, a
by-product of the post-sterilisation cooling
process, to a cooling tower to dissipate the
heat, we recommended the installation of
two heat exchangers, with accompanying
control valves, flow meters and temperature
sensors, to recover the thermal energy in
the wastewater.
Second, the installation of valves enabled
the condensate that was produced
during the sterilisation process to be returned
to the boiler, reducing the need to pre-heat
the boiler feed water, reducing energy and
water use.
Third, steam use was optimised, reducing
consumption in the cooling process.
The result
The engineered solution reduced steam
use by 7,908 tonnes (45%) a year; reduced
water use by 17,286m³ (48%) a year;
reduced energy use by 17,702GJ (45%)
a year and reduced CO2 emissions by
1,155 tonnes (43%) a year in the can
sterilisation application.
7,908t
reduction in steam
use annually
1,155t
reduction in CO2
emissions annually
17,702GJ
reduction in energy
use annually
17,286m3
reduction in water
use annually
Spirax-Sarco Engineering plc Annual Report 2020 83
Sustainability Report continued
Our communities
Community engagement
Overview
Wherever we operate we seek to “Engineer better futures” for the
people living in our local communities through colleague volunteering;
in-kind donations of products, equipment, essential goods or the use
of company facilities; and financial donations to registered charities.
Our primary focus is education, particularly in the sciences and
engineering, but we also seek to respond to local needs.
2020 Performance and actions
Group Charitable Fund donations
During 2020, we donated £265,800 to a variety of causes,
making donations earlier in the year to help the charities meet their
immediate needs during the pandemic. Donations included £15,000
to the Cheltenham Open Door charity that supports vulnerable,
disadvantaged and lonely people in our local community; £30,000 to
the National Star College, which provides specialist further education
for young people with physical and learning disabilities; £25,000 to
Engineers Without Borders UK, a charity that seeks to embed global
responsibility into the heart of engineering; and £16,000 to Water Aid,
which provides access to clean water, toilets and good hygiene.
Group Charitable Fund donations £’000
2020
2019
2018
2017
2016
265.8
280.3
263.0
231.1
180.1
Local community engagement activities
Pandemic restrictions made it difficult for our global teams to
participate in volunteering activities during 2020. Despite this, 65%
of our operating companies did manage to undertake community
engagement activities. While short of our target it was a step up on
2019 and reflects a concerted effort by many colleagues around
the world to identify and respond to local needs in challenging
circumstances. During the year, 3,150 hours of working time were
volunteered, £146,000 was donated to charitable causes and
approximately £51,000 of in-kind donations were made and our
colleagues donated approximately £27,000 of their own money to
work-place organised fundraising activities.
Community Engagement Awards 2020
Each year we run our global Community Engagement Awards to
raise awareness of, and recognise, the good work that is being
done by our colleagues. 31 excellent entries were received in 2020.
Three award winners each received £5,000 and three honorary award
winners each received £2,500 to spend on community engagement
activities in 2021.
Focus for 2021
• All Group companies to participate in at least one community
engagement activity.
• Increase colleague volunteering hours (subject to
pandemic restrictions).
84
Large company award
Chromalox Mexico
Colleagues from Chromalox Mexico participated in a wide range
of community engagement activities, despite the pandemic.
Just some of the activities undertaken include delivering food
plates to relatives waiting outside hospital for patient updates;
donating food, clothes, diapers, face masks and antibacterial
gel to low income families, and face masks and antibacterial
gel to first responders; donating medicine to the Red Cross;
donating toys to children with cancer; donating blood; donating
gifts and food to an education and rehabilitation centre; and
building a chapel with donated wooden pallets.
Steam Specialties
honorary award winner
Spirax Sarco France
Colleagues from Spirax Sarco France participated in a
range of activities before and during the pandemic, including
litter picking and cleaning the area around the company’s
premises; collecting food donations at a local supermarket
on behalf of the Red Cross; collecting old medicines, books,
spectacles and used batteries, as well as donating or recycling
them; donating face masks to a local hospital; and donating
protective gowns to a hospital for elderly people.
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Small company award
Watson-Marlow UAE
Despite having just five people, Watson-Marlow UAE took part
in a notable number of activities and colleagues individually ran
the Dubai marathon; taught virtual Mathematics, Physics and
Chemistry lessons during lockdown; climbed the height of the
world’s tallest building using steps at home; supported Dubai
police by cycling with police officers to ensure people were
abiding by lockdown curfews; distributed water and butter milk
packs to construction workers working in the intense summer
heat; and donated AED 6,000 to a charity building a school for
Rohingya Refugees in Bangladesh.
Group Chief Executive’s
choice award
Spirax Sarco Asia Pacific Managers
Before the pandemic, a team of 10 Spirax Sarco senior
managers from across the Asia Pacific region, spent three days
building toilet and washroom facilities for the Banhuaykieang
School in Chiang Mai, Thailand. The team partnered with non-
governmental organisation “Habitat for Humanity”. Thanks to
the hard work of the team, the young children attending the
school now have access to safe and hygienic toilets and
washing facilities, which are essential for reducing the risk of
illness and the spread of disease.
Electric Thermal Solutions
honorary award winner
Thermocoax France
Watson-Marlow
honorary award winner
Watson-Marlow Germany
Thermocoax France, which joined the Group in 2019,
organised a blood donation event at the company’s premises.
During the event 86 colleagues donated blood, which could
save up to 250 lives. In response to the pandemic, the
company donated protective overshoes, gloves, hair nets and
disposable gowns to medical offices nearby in Normandy, and
the company also recycled a range of obsolete components
to raise €5,000, which was donated to a local social
welfare charity.
Watson-Marlow Germany donated €500 for materials to
produce fabric face masks, which colleagues sewed and
donated to elderly and vulnerable people. A team of colleagues
watered young trees that were planted near the office and
planted a wildflower meadow in a local orchard to support
biodiversity. In addition, the company established a bicycling
challenge, donating €1 for every 1km cycled by staff to a local
animal shelter. This raised €1,000 for charity and supported the
health and wellbeing of colleagues.
85
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Sustainability Report continued
Non-Financial Information Statement 2020
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 2020.*
Reporting requirement
Group Policies that guide our approach
Information and risk management, with page references
Environmental matters
• Group Environmental, Health, Safety,
Energy and Sustainability Policy
• Group Management Code
• Supplier Sustainability Code
Employees
• Group Diversity and Inclusion Policy
• Group Management Code
• Group Human Rights Policy
• Group Environmental, Health, Safety,
Energy and Sustainability Policy
Social matters
• Group Human Rights Policy
Respect for
human rights
• Group Charitable Donations Policy
• Group Employee Volunteering Policy
• Supplier Sustainability Code
• Group Human Rights Policy
• Group Sanctions, Embargoes and
Restrictions Policy
• Supplier Sustainability Code
Sustainability Report, pages 66 to 86
Principal risks, pages 61 and 115
Our business model, pages 20 to 23
Section 172 Statement, pages 94 to 95
Company purpose, inside front cover
Sustainability Report, pages 70 to 74
Our business model, pages 20 to 23
Principal risks, pages 61, 64 and 115 to 116
Employee Engagement Committee Report,
pages 96 to 98
Section 172 Statement, pages 94 to 95
Company purpose, pages 88 to 98
Sustainability Report, pages 75 and 84 to 85
Our business model, pages 20 to 23
Strategic Review, page 35
Section 172 Statement, pages 94 to 95
Company purpose, inside front cover
Sustainability Report, page 75
Principal risks, page 64
Anti-corruption and
anti-bribery matters
• Group Anti-Bribery and Corruption Policy
• Group Gifts, Entertainment and Hospitality Policy
• Group Competition Law Compliance Policy
Sustainability Report, pages 73 and 75
Principal risks, page 64
Risk Management Committee Report, pages 60 to 65
• Group Sanctions, Embargoes and
Restrictions Policy
• Group Whistle-Blowing Policy
• Supplier Sustainability Code
Description of the business model
Our business model, pages 20 to 23
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
Risk management and principal risks, pages 60 to 65
Risk Management Committee Report, pages 114 to 117
Sustainability risk assessment, page 68
Climate change risk, page 80
Sustainability Report, pages 66 to 86
Key Performance Indicators, pages 36 to 37
* The policies listed above can be found on our website: www.spiraxsarcoengineering.com/our-approach/corporate-governance/governance-documents. Compliance with our policies is monitored
through the implementation of our Sustainability strategy, through our internal audit function and, locally, by our General Managers.
The use by Spirax-Sarco Engineering plc of any MSCI ESG Research LLC or its affiliates (MSCI) data, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute
a sponsorship, endorsement, recommendation, or promotion of Spirax-Sarco Engineering plc by MSCI. MSCI services and data are the property of MSCI or its information providers and are provided
“as-is” and without warranty. MSCI names and logos are trademarks or service marks of MSCI.
Spirax-Sarco Engineering plc has been
independently assessed according to the
FTSE4Good criteria, and has satisfied the
requirements to become a constituent of
the FTSE4Good Index Series.
MSCI ESG Research provides MSCI ESG
Ratings on global public and a few private
companies on a scale of AAA (leader) to CCC
(laggard), according to exposure to industry-
specific ESG risks and the ability to manage
those risks relative to peers.
86
Strategic ReportSpirax-Sarco Engineering plc Annual Report 2020 Governance Report
Our approach to governance
Governance helps us to ensure our shareholders receive a
good return on their investment; lead our Company through
these difficult times; behave with integrity; treat our customers,
colleagues, suppliers and local communities properly; and respect
the environment.
In the Governance Report we describe the responsibilities of the
Board and its Committees, the key activities during 2020 and the
focus for 2021.
We have summarised some of the key words from the UK Corporate
Governance Code’s (Code) 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 Code.
In relation to Code Provision 1, which deals with the Company
generating value over the long term in the context of future risks and
opportunities, sustainability is addressed in our Sustainability Report,
on pages 66 to 86, and Risk Management Committee Report, on
pages 114 to 117.
The ways in which we have aligned governance to strategy to ensure
compliance with some of the key elements of the Code and our
leadership on these matters are highlighted below.
In this section
1. Board leadership and Company purpose
– Chair’s introduction
– Board of Directors
– Leadership and tone
– Engaging with our stakeholders
– Employee Engagement Committee Report
2. Division of responsibilities
3. Composition, succession and evaluation
– Nomination Committee Report
– Board Evaluation
4. Audit, risk and internal control
– Audit Committee Report
– Risk Management Committee Report
5. Remuneration
– Remuneration Committee Report
– Remuneration at a glance
– Annual Report on Remuneration 2020
– Remuneration Policy 2020
Regulatory disclosures
Statement of Directors’ responsibilities
88
88
90
92
93
96
99
103
103
105
107
107
114
118
118
122
123
138
149
152
Leading an effective and entrepreneurial Board for long-term, sustainable success
Company
purpose
See inside front cover
Strategy
See pages 26-35
Effective controls and
framework
See pages 60-65 and 107-117
Sustainable
thinking
Workforce
practices
Culture
and Values
See pages 19, 27, 35, 66-86 and 94-95
See pages 29, 70-74 and 96-98
See pages 1, 20-21, 73 and 89
Business model
See pages 20-23
Resource/
capital allocation
See pages 54-57
Stakeholder
engagement
See pages 93-95
87
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
1. Board leadership and Company purpose
Chair’s introduction
During 2020, we focused on handling
COVID-19, our culture, strategic risks
and opportunities, including Brexit and
climate change. We also strengthened
diversity and inclusion through our
succession planning for the Board.”
Jamie Pike
Chair
Board changes
Kevin Boyd, Chief Financial Officer and Executive Director, retired from
the Company at the end of September 2020. The Board thanks Kevin
for his contribution to the Group’s growth and prosperity.
Nimesh Patel joined the Company in July 2020 and, following
completion of the interim financial reporting process and an orderly
handover of duties, succeeded Kevin Boyd as Chief Financial Officer
and Executive Director in September 2020. Nimesh was previously
Chief Financial Officer of the De Beers Group, which is majority
owned by Anglo American plc. He has over 22 years of experience
in senior finance roles.
In December 2020, Angela Archon and Olivia Qiu joined the Board
as Independent Non-Executive Directors.
Angela has strong strategic and operational experience, combined
with her ability to drive transformational change and focus on
customer support. She represented IBM for eight years as Board
Liaison for The National Action Council for Minorities in Engineering
and is currently a Board Director of Switch, CommonSpirit Health,
and the National Association of Corporate Directors – Texas TriCities
Chapter. Angela is an American citizen.
Olivia has digital transformation and innovation skills as well as
strong international business experience. She has held a range of
executive positions with large global organisations including Chief
Executive Officer and Board Director of Alcatel-Lucent Shanghai Bell.
She is currently Chief Innovation Officer with Signify (formerly Philips
Lighting). Olivia is a Chinese and French national.
These appointments, and that of Richard Gillingwater (refer to top of
next column and RNS of 9th March 2021), are part of the succession
planning undertaken by the Nomination Committee to recruit
Non-Executive Directors with the skills and experience required to
support the implementation of our strategy for growth.
Neil Daws, Managing Director, Steam Specialties and Executive
Director, retired on 31st December 2020 after over 42 years
of service. The Board acknowledges, with much gratitude, the
significant contribution to the Group’s growth and prosperity made
by Steam Specialties under Neil’s leadership in many diverse and
important roles.
Board biographies at year end can be found on pages 90 to
91. Current Board biographies can be found on our website,
www.spiraxsarcoengineering.com.
On 9th March 2021, we announced the appointment of
Richard Gillingwater as an Independent Non-Executive Director, with
immediate effect, and as Senior Independent Director, with effect
from 1st August 2021, succeeding the current Senior Independent
Director, Trudy Schoolenberg, who steps down from the Board after
completing nine years as a Director. Richard’s strong investment,
financial and non-executive experience, combined with his many
years working with international businesses, will greatly assist the
development of the Group.
A FTSE 100 company
The financial performance of the Group has been impressive,
despite the pandemic. We have successfully integrated and driven
performance improvement in our acquisitions. We are pleased to
have consolidated our presence in the FTSE 100 for a second year.
Good governance
Recent Board changes have provided the opportunity to reaffirm
our individual and collective responsibilities as a Board, realise our
diversity and inclusion objectives and strengthen our understanding of
what good governance means to us and why it is important.
In 2020, we accelerated and significantly increased our approach to
sustainability (see Sustainability Report on pages 66 to 86).
In respect of section 172(1) of the Companies Act 2006 (as amended
by the Companies (Miscellaneous Reporting) Regulations 2018), the
Directors have prepared a statement describing how they have had
regard to the matters set out in section 172(1), when performing
their duty to promote the success of the Company (see pages 94 to
95). The Board ensures that the Company practices good business
ethics by reviewing control mechanisms, such as the Anti-Bribery and
Corruption procedure and whistle-blowing cases, in close association
with the Audit Committee.
Key Board activities 2020
During 2020, we focused on handling COVID-19, our culture,
strategic risks and opportunities, including Brexit and climate
change. We have made good progress on diversity and inclusion,
demonstrating a structural change.
We invested in new manufacturing sites for Watson-Marlow in the
USA, BioPure in the UK, and for the Steam Specialties business
in Italy. We also continue to invest in Electric Thermal Solutions’
Thermocoax business by way of a consolidated site in Normandy.
88
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Statement by the Directors on compliance
with the Code
The Code applied to the Group for the financial year ended
31st December 2020. The Board considers that it has complied in
full with the provisions of the Code, other than provision 38 in respect
of Executive Directors’ pension contributions where, in line with the
2020 Remuneration Policy, incumbent Executive Directors’ maximum
pensions are to be the current blended average in the market in which
the Executive Director is based by 31st December 2022 (see pages
121 and 131), reducing to the new Executive Director level of 10%
by 2023.
We detail our compliance, on a Code provision-by-provision
basis, in the Corporate Governance section on our website,
www.spiraxsarcoengineering.com.
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 financial position, performance,
business model and strategy.
Outcome of 2020
We consider that our performance has been exceptional in 2020:
our financial performance saw profits at 96% of those in 2019 in
the face of the COVID-19 headwind while at the same time we
invested significantly in the manufacturing footprint of Watson-Marlow
in the USA and the UK, strengthened our Group sustainability
function and improved our health and safety performance across all
three businesses.
Focus for 2021
• Sustainability and climate change.
• Business digital strategies.
• Watson-Marlow expansion.
I look forward to meeting our shareholders at our forthcoming AGM.
Jamie Pike
Chair
Further reading
All governance-related policies and procedures are available to view and download:
www.spiraxsarcoengineering.com
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 strong
culture. We ensure our culture and Company Values are aligned with
our strategy.
The creation and work of the Employee Engagement Committee has
achieved greater Board engagement with the workforce, enabling
the Board to gauge and monitor our culture and to ensure it is both
embedded and retained in our Company.
Electric Thermal Solutions
We reviewed our plans for improvements within Chromalox and
our strategy for combining Chromalox and Thermocoax under
Dominique Mallet’s leadership as one business – Electric Thermal
Solutions. We implemented a project to restore profitability to the
Chromalox France manufacturing business refocusing the factory as
the centre of design, project management and assembly of complex
non-standard electric thermal heating systems including medium
voltage solutions.
Brexit
We reported in the 2019 Annual Report on our preparatory actions
for Brexit. The transition period ended on 31st December 2020.
The EU and the UK Government have agreed to enter into a Trade
and Cooperation Agreement and we welcome zero tariffs/zero quotas
on all goods traded between the UK and the EU. We are now ready
to deal with customs controls and VAT for our goods traded between
the EU and the UK. Our products are of the highest quality and we
will ensure they meet all EU and UK product regulations.
We and our supply chains are poised to take advantage of
opportunities that are presented by the new trading relationship.
Diversity
As a Group we are committed to diversity in its broader sense and
to achieving a minimum target of 33% female representation on
the Board, as well as the Group Executive and their direct reports.
We ensure this target is taken into account in our succession planning
and recruitment. At the time of publication, we have 45% female
representation on our Board and 31% across the Group Executive
and their direct reports.
In December 2020, Darren Towers joined the Group as Head of
Inclusion, Diversity and Wellbeing to assist us in progressing this
agenda in 2021. Darren was previously at Stonewall, Europe’s largest
LGBT charity, where he led a number of areas including workplace
partnerships (with organisations including the premier league,
UK police service and national government) and empowerment
programmes (focused on leadership, allyship and role models).
Darren has already met the Board and presented at the February
2021 Board meeting.
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 accepted
Sir John Parker’s recommendation that our Board should have at
least one ethnically diverse Director by 2021 and, at the time of
publication, we have three such Directors that represent 27% of
our Board.
Our Group Diversity and Inclusion Policy is available on our website,
www.spiraxsarcoengineering.com.
89
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 1. Board leadership and Company purpose continued
Board of Directors
At year end 2020
N EE
RK
RK
Jamie Pike MBA, MA, MIMechE
Chair
Appointed to the Board
May 2014
Areas of experience
Engineering, international, senior management,
M&A, strategy
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.
Nicholas Anderson BSc Eng., MBA
Group Chief Executive
Appointed to the Board
March 2012. Appointed Chief Operating Officer
in August 2013 and Group Chief Executive in
January 2014
Areas of experience
Engineering, international, senior management,
M&A, operational, strategy, sales and
marketing, industrial
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 Brazil, starting
his career with the Foseco Minsep Group plc
in Brazil.
External appointments
Non-Executive Director of BAE Systems plc.
Nimesh Patel BSc
Chief Financial Officer
Appointed to the Board
September 2020
Areas of experience
International, senior management, M&A, finance
and accounting, industrial, pensions, tax
and treasury
Background
Before joining the Group in 2020, Nimesh Patel
was Chief Financial Officer of the De Beers
Group. Prior to that he was Group Head
of Corporate Finance at Anglo American
plc, leading a team based in London and
Johannesburg. Previously, Nimesh spent 14
years in investment banking at both JP Morgan
and as a Managing Director at UBS.
External appointments
Trustee of the charity ReachOut.
A EE N R
A EE N R
A EE N R
Angela Archon MSc, BSc
Independent Non-Executive Director
Peter France
Independent Non-Executive Director
Caroline Johnstone BA, CA
Independent Non-Executive Director
Appointed to the Board
December 2020
Areas of experience
Engineering, operational, strategy
Background
Angela Archon held various senior executive
positions while employed by IBM Corporation,
including Vice President Transformation and
Chief Operating Officer of the Watson Health
Division. Angela represented IBM for eight
years as Board Liaison for The National Action
Council for Minorities in Engineering. She is
a member of Tau Beta Pi, the Engineering
Honour Society, and earned a Professional
Engineer’s license.
External appointments
Board Director of Switch, CommonSpirit Health
and the National Association of Corporate
Directors – Texas TriCities Chapter.
Appointed to the Board
March 2018
Areas of experience
Engineering, international, senior management,
M&A, operational, strategy, sales and
marketing, industrial, manufacturing
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.
Appointed to the Board
March 2019
Areas of experience
International, M&A, finance, people
Background
Caroline Johnstone has 40 years’ experience
working with large global organisations on
mergers and acquisitions, culture change
and cost optimisation. She was a partner in
PricewaterhouseCoopers (PwC) and sat on
the UK Assurance Board as people partner.
Caroline is a member of the Institute of
Chartered Accountants of Scotland.
External appointments
Chair of Synthomer plc, Non-Executive Director
and Audit Committee Chair of Shepherd Group
Ltd, a private company which owns Portakabin
Limited, and sits on the Governing Board of the
University of Manchester.
90
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 A Audit Committee
N Nomination Committee
R Remuneration Committee
RK Risk Management Committee
EE Employee Engagement Committee
Denotes Committee Chair
Flag denotes country of citizenship
Further reading
Read about our Board diversity, composition,
succession and evaluation.
See pages 92, 99, 103-105
RK
A EE N R
Neil Daws CEng, FIMechE
Managing Director, Steam Specialties
Appointed to the Board
June 2003
Areas of experience
Engineering, senior management, operational
sales and marketing, product development,
manufacturing
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.
Trudy Schoolenberg PhD
Independent Non-Executive Director
& Senior Independent Director
Appointed to the Board
August 2012
Areas of experience
Engineering, international, senior management,
operational, strategy, product development,
innovation, oil and petrochemical
Background
Trudy Schoolenberg has served as Vice-
President of Global Research & Development
at Wärtsilä Oy, held senior management
positions with Royal Dutch Shell plc, was
Head of Strategy for Shell Chemicals and
served as Director of Integrated Supply Chain
and Research, Development and Innovation,
Decorative Paints Division of AkzoNobel.
External appointments
Non-Executive Director of COVA.
Non-Executive Director and Senior Independent
Director of Accsys Technologies plc,
and Director of the Supervisory
Board of Avantium N.V.
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 M&A, 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.
A EE N R
A EE N R
A EE N R
Jane Kingston BA
Independent Non-Executive Director
Olivia Qiu PhD, BSc
Independent Non-Executive Director
Kevin Thompson BSc, FCA
Independent Non-Executive Director
Appointed to the Board
September 2016
Appointed to the Board
December 2020
Appointed to the Board
May 2019
Areas of experience
Engineering, international, senior management,
operational, people, remuneration
Areas of experience
Engineering, international, digital transformation,
innovation
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 and Remuneration
Committee Chair of Inchcape plc.
Background
Olivia Qiu has held a range of executive
positions with large global organisations
including Chief Executive Officer and Board
Director of Alcatel-Lucent Shanghai Bell.
Olivia was previously a Non-Executive Director
of Renault Group and Saint Gobain.
External appointments
Chief Innovation Officer with Signify (formerly
Philips Lighting).
Areas of experience
Engineering, international, senior management,
M&A, strategy, finance, pensions, tax
and treasury
Background
Kevin Thompson was Group Finance Director
of Halma plc from 1998 to 2018, having joined
Halma as Group Financial Controller in 1987.
Kevin qualified as a Chartered Accountant with
PricewaterhouseCoopers (PwC) and is a Fellow
of the Institute of Chartered Accountants in
England and Wales.
External appointments
Member of the Financial Reporting Lab Steering
Group and Trustee of the Great Ormond Street
Hospital Children’s Charity.
As previously announced:
• Neil Daws retired on 31st December 2020; and
• Richard Gillingwater was appointed as an Independent Non-Executive Director with effect from 9th March 2021.
91
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 1. Board leadership and Company purpose continued
Leadership and tone
Board composition
As illustrated in the Board biographies on pages 90 to 91 and the
Board overview diagrams (at year end 2020) on the left, we are
pleased to have exceeded:
• Sir John Parker’s recommendation that our Board should have
at least one ethnically diverse Director by 2021 – with effect from
1st December 2020 we have three such Directors that represent
27% of our Board; and
• our minimum target of 33% female representation on our Board
– with effect from 1st December 2020 we have 45% female
representation on our Board.
Board dynamics
We are undertaking an external Board review in 2021 with the
objective of making sure we use the skills and expertise of the Board
and the Group Executive Committee in the best way. We want to
be ready for the next move forward we make with our businesses.
We want to ensure we harness the talent that has transformed the
Group and make sure we create the right conditions for this talent
to thrive.
Board dynamics, which will be externally facilitated by Egon Zehnder,
will also look at the most efficient structure of the Board Committees
and the inter-relationship with the Group Executive Committee.
Long-term sustainable success
The Board is focused on long-term corporate and strategic plans.
It engaged in a review and assessment of medium-term plans for all
three businesses and, in addition, reviewed our corporate strategy.
Leading by example
The Board relies on the Group Executive Committee 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 this
regard we appointed new Managing Directors for Watson-Marlow
(Andrew Mines) and Steam Specialties (Maurizio Preziosa) following
the retirement of long-serving leaders.
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 and followed up
their recommendations by way of our internal evaluation in 2020.
The process and actions of this evaluation are detailed on page 105.
Engineering
International
Senior management
M&A
Operational
Strategy
Finance
Sales and marketing
Innovation
People
Product development
Digital transformation
British1
American1
Irish2
Dutch
Chinese3
French3
Males
Females
5+ years
3–5 years
1–3 years
Less than 1 year
Board overview
Core expertise
2 1
9
2
2
3
3
6
9
8
Product development
6
6
Nationality
1
8
1
1
1
2
1 N.J. Anderson holds dual British and American citizenship.
2 J. Pike holds dual British and Irish citizenship
3 O. Qiu holds dual Chinese and French citizenship.
Gender
6
5
Length of service
4
3
1
3
* At year end 2020.
92
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
Engaging with our stakeholders
Our commitment to shareholder engagement
In addition to the five key stakeholder groups detailed on pages
94 to 95, the Board recognises our shareholders as an important
stakeholder group. We maintain an active dialogue with our
principal investors, institutional shareholder advisers and the
investment community.
During 2020, we undertook the calendar of events as shown below,
most of which took place virtually due to the COVID-19 pandemic.
Shareholder engagement calendar 2020
By providing regular forums for meeting and communicating with
shareholders, their advisers and the investment community, we
ensure that we understand the views and opinions of our investors
and are kept informed of any concerns that may arise. We are
also able to give updates on our results and developments within
our businesses.
We communicate using a variety of forums including regulatory
news announcements, interviews, investor and analyst calls/
emails, one-to-one meetings, roadshows, site tours and investor
conferences. During 2020, Nicholas Anderson, Group Chief
Executive, and Kevin Boyd/Nimesh Patel, Chief Financial Officer, held
virtual shareholder roadshows across a number of key countries in
Europe, Asia and North America.
Jan
Feb
Mar
Apr
• Shareholder roadshow,
• Preliminary Results
• Investor and analyst
• Institutional meetings,
London and Cheltenham
Madrid
• Investor and analyst
• Investor and analyst
calls/emails
calls/emails
calls/emails
announcement, analyst
meeting and shareholder
roadshow, London
• Berenberg UK Corporate
and BofA Global Industrials
conferences (both virtual)
• Institutional meetings,
Cheltenham
• Investor and analyst calls
May
Jun
Jul
Aug
• AGM and trading update
• Jefferies Structural
Winners (virtual)
• Investor and analyst calls
• JP Morgan European
Capital Goods CEO
conference (virtual)
• Investor and analyst calls
and “fireside chats”
• Shareholder roadshow
• Half Year
(virtual), USA
Results announcement
• Investor and analyst calls
• Investor and analyst calls
Sep
Oct
Nov
Dec
• Shareholder roadshow,
Asia (virtual)
• Morgan Stanley Industrial
CEOs Unplugged (virtual)
• Shareholder roadshows
(virtual), Europe, Canada
and USA
• Jefferies UK Industrials
• Investor and analyst calls
• Investor and analyst calls
and “fireside chats”
• Trading update
• Shareholder roadshow
(virtual), Nordics
• Baird industrial
conference (virtual)
• Investor and analyst calls
• Goldman Sachs industrial
conference (virtual)
• Investor and analyst calls
and “fireside chats”
93
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
1. Board leadership and Company purpose continued
Engaging with our stakeholders continued
Section 172 Statement
Engaging with our stakeholders and acting in a way that promotes
the long-term success of the Company, while taking into account
the impacts of our business decisions on our stakeholders, is central
to our strategic thinking and our statutory duty in accordance with
Section 172(1) of the Companies Act 2006 (s.172). The content on
pages 94 to 95 constitutes our s.172 Statement, as required under
the Companies (Miscellaneous Reporting) Regulations 2018.
The Board of Directors of Spirax-Sarco Engineering plc consider, both
individually and together, that they have acted in the way that they
consider, in good faith, would be most likely to promote the success
of the Company for the benefit of its members as a whole, having
regard to the stakeholders and matters set out in s.172 (a) to (f) of the
Companies Act in the decisions taken during the year. In particular,
as outlined in a Board assurance statement that accompanied
our business plan for the period 2020 to 2025, and approved by
the Board, our plan is designed to have a long-term beneficial
impact on the Company and its stakeholders, and contribute to
the Company’s continued success in delivering reduced carbon
emissions and increased efficiency, safety and sustainability for our
customers. Our plan is focused on our customers, as exemplified
by our customer-focused business strategy, but also takes into
account other stakeholders, such as our people not least through the
Employee Engagement Committee, and the effective management of
our supply chain, with the aim of delivering value to shareholders.
As a Board of Directors, our intention is to behave responsibly and
ethically at all times, in line with our Values, and to ensure that our
management teams operate the business in a responsible manner
and to the highest standards of business conduct and good
governance, which is particularly important as we address the safety
of our customers and colleagues as a result of COVID-19. As we act
in a way that reflects our Values, we will contribute to the long-term
success of the Company and continue to nurture our reputation as a
responsible, successful Company that delivers stakeholder value, as
outlined in our Company purpose.
We improved our focus on our s.172 duty during 2020.
By way of example, in assessing our new manufacturing sites for
Watson-Marlow (BioPure in the UK and Watson Marlow Inc. in the
USA) and the expansion of our UK Sales and Group offices with
Northcroft House in Cheltenham, we adopted a process to ensure
that all new investments will benefit our shareholders, customers,
colleagues, the environment and the communities where we work.
In the business presentations the Board scrutinised environmental
impact and looked at compliance with our Sustainability Strategy and
biodiversity net gain targets. These sites will also be included in our
community engagement projects in the future.
Our impacts on, and engagement with, five key stakeholders groups
are systematically considered within the implementation of our Group
Sustainability strategy, which is overseen by the Group Chief Executive
and supported by the Board of Directors. The stakeholder groups are:
our colleagues, our customers, our suppliers, our communities and
our environment. How and why we engage with these stakeholders
is summarised on pages 94 to 95. Additional information on how we
engage with colleagues can be found in our Employee Engagement
Committee Report on pages 96 to 98.
In addition, as a Board of Directors, we recognise our shareholders
as an important stakeholder group and treat them fairly and equally,
so they too may benefit from the successful delivery of our plan and
the value we create. For more detail on how we engaged with our
shareholders in 2020, see page 93.
94
Embedding
long-term
thinking
and action
Our colleagues
Why it’s important
Our people are our greatest asset and our success relies on
the application of their knowledge and skills. We aim to be a
responsible employer in our approach to pay and benefits, and
the health, safety and wellbeing of our colleagues is always
a primary consideration. We demonstrated this importance
through our improved health and safety performance across our
businesses in 2020 and our rigorous approach to protecting
our colleagues and our customers with regard to COVID-19.
How we are engaging
• We communicate with colleagues through a variety of
channels including meetings, conferences, videos, email and
written communications.
• Through our global colleague survey we listen to the views
of our colleagues. Survey results are analysed collectively,
by business, by company and, where numbers are sufficient,
by department, with focus groups established and plans to
address those areas our colleagues tell us we could do better.
• Our Employee Engagement Committee ensures that the views
and interests of colleagues are considered at Board level.
Read more on pages 70-74 and 96-98
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Our customers
Why it’s important
We generate value for our stakeholders as we help the
end users of our products to improve the efficiency, safety
and sustainability of their operations. Meeting the needs
of customers now and developing our offering so that we
can continue to meet their needs into the future, requires a
closeness to, and engagement with, customers.
How we are engaging
• Our direct sales business model is the key avenue for
customer engagement, allowing us to deeply understand
their needs and requirements.
• Regular “Voice of the customer” surveys provide valuable
feedback from customers who tell us what we are doing well
and how we can improve.
• Customer requirements are always taken into consideration
during new product development, with customer needs
driving the design and development of products.
Read more on pages 20-23 and 81
Our environment
Why it’s important
We live in a resource-constrained world where human impacts
on the environment are increasingly being recognised as
harmful not only to the natural world but also to the long-term
sustainability of financial systems and societies. Not only is
managing our environmental impacts the right thing to do,
it also helps us to manage and mitigate risk.
How we are engaging
• We actively engage with customers to identify and implement
engineered solutions to reduce their energy use, carbon
emissions, water and waste.
• We educate our colleagues and take steps to reduce our
own environmental impacts.
• We report transparently on our environmental performance
and engage with international reporting frameworks such as
the Carbon Disclosure Project.
Read more on pages 77-81
Our communities
Why it’s important
As a financially successful business, we are well-placed to
“give something back” to our communities. We strive to be
a force for good wherever we operate. While education,
particularly in the sciences and engineering, is our priority focus,
to maximise our positive impact we always seek to identify and
respond to local needs.
How we are engaging
• We respond to requests for much needed charitable funding,
making financial donations to a wide range of local, national
and international charitable causes.
• Our colleagues are encouraged to volunteer their time and
skills, during working hours, to support a range of worthwhile
causes in their local community.
• We work with schools, colleges and universities to raise
aspirations, increase awareness of engineering and develop
the talent of young engineers.
Read more on pages 84-85
Our suppliers
Why it’s important
Our purchasing decisions not only impact our suppliers, but
their stakeholders too. We expect our suppliers to operate
ethically, taking due consideration for the safety and wellbeing
of their workers while minimising their environmental impacts.
By setting high standards for our suppliers, we reduce operating
and reputational risk and promote the long-term success of
the Company.
How we are engaging
• We purchase from suppliers who adhere to our Supplier
Sustainability Code.
• We undertake supplier audits to oversee compliance with
our standards.
• We work with suppliers on a continuous improvement basis
to raise standards.
• We train colleagues on business ethics and encourage the
use of the whistle-blowing hotline to raise concerns about
anything in our end-to-end supply chain.
• We pay our suppliers for properly completed work on 60 day
terms in the UK and follow customary good pay practices in
other countries.
Read more on pages 34, 73 and 75-76
95
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 1. Board leadership and Company purpose continued
Employee Engagement Committee Report
We regularly pose the question
“what would our colleagues
think” whenever we are making
important decisions.”
Caroline Johnstone
Chair of Employee Engagement Committee
Our approach to engagement
with the Group’s workforce
Our workforce is essentially anyone who works in the business,
whether full or part-time, home or office-based, including those on
temporary or fixed-term contracts.
In 2019, the Board reviewed existing employee engagement
mechanisms and the appropriate approach to comply with Provision
5 of the UK Corporate Governance Code. We established a new
Board Committee to focus on matters of workforce engagement
and I was appointed Chair of the Committee because of my previous
people leadership roles in PwC and other businesses.
The Board considered other options and concluded that an Employee
Engagement Committee was best suited for a business with almost
7,900 colleagues, working in 133 operating units, which vary
significantly in size and nature, from large manufacturing operations to
very small sales units, across 69 countries.
Our remit
The principal remit of the Committee is to ensure that the voice of
the workforce is considered in all aspects of the Board’s thinking.
We regularly pose the question “what would our colleagues think”
whenever we are making important decisions.
Committee meetings and operation
The Committee comprises our independent Non-Executive Directors.
Nicholas Anderson, Group Chief Executive, is invited to attend
meetings where appropriate, which enables us to reflect and discuss
feedback from colleagues with the Executive. Amanda Janulis, Group
Corporate Counsel, acts as secretary to the Committee.
During 2020, the Committee worked with Amanda Janulis,
Jim Devine, Group Human Resources Director, and Jenni Forrester,
Head of Employee Experience, in delivering the Committee remit,
developing various colleague support and engagement initiatives and
preparing for the 2021 employee survey. Amanda, Jim and Jenni
have been instrumental in suggesting other opportunities for the
Board to hear colleagues’ views and I thank them for their support.
Members
Our Employee Engagement Committee comprises:
No. of meetings attended/
total no. of meetings held
Attendance
%
100%
100%
100%
100%
100%
100%
Caroline Johnstone (Chair)
Jamie Pike
Trudy Schoolenberg
Jane Kingston
Kevin Thompson
Peter France
Angela Archon
Olivia Qiu
First meeting post-appointment – Feb 2021
First meeting post-appointment – Feb 2021
How the Committee spent its time
55%
15%
Employee meetings
and follow-up
Current engagement practices
and survey results
Committee remit and planning
30%
96
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 engagement update
• Any key matters are referred to in Board discussions and the Board
Key Employee Engagement
Committee activities 2020
Feb
• Terms of Reference
• Employee
engagement survey
• Feedback from focus
group meetings (UK
Supply and UK Steam
Business Development)
• Steam Specialties employee
• 2020 schedule of events
• Annual report –
Employee Engagement
Committee Report
• Update on actions
arising from 2019 focus
group meetings
Jun
• Feedback from focus group
meetings (China - Steam
Specialties, Watson-Marlow
and Chromalox)
• Learnings from COVID-19
• Women’s Network
launch summary
• Female mentoring programme
• Employee
assistance programme
• FRC Lab report
• FTSE 100 – summary of
other approaches
Oct
• Watson-Marlow employee
• 2021 priorities agreed
engagement update
• Feedback from
focus group meeting
(Watson-Marlow UK)
• Employee value
proposition update
• “Coffee talk” project
Chair’s review of 2020 – key areas of focus
Colleague focus groups
We now have a clear programme and agenda for meeting groups of
colleagues across the Group, without management present:
• We have an agreed range of topics on which we seek colleagues’
views, including living up to our Values, and we also allow
colleagues to steer the discussions so they can be sure we
are listening. Some of our colleague groups come with a list of
topics to discuss, others feel more comfortable being prompted
on topics.
• We ensure that all comments are non-attributable and that themes
and issues arising are shared. We seek feedback and agree actions
with local and regional management.
• Following each focus group, the key themes are summarised and
the Committee Chair has a formal debrief with local and/or regional
management. If required, the Committee will relay any key or
immediate matters to management.
• At the subsequent Committee meeting, the key themes covered by
each focus group are discussed by the Committee members and
with the Group Chief Executive.
• A summary of local/regional management responses and action
progress is provided at subsequent Committee meetings.
reflects on colleague views when making its decisions.
In last year’s Committee report, we indicated we would be
considering the use of digital technology to enable focus groups
across the business. Little did we realise that this would become
the norm in 2020 rather than the exception. We held two in-person
meetings in Cheltenham, UK in February 2020 but, as COVID-19
restrictions developed, we decided to maintain our programme and
move some of the meetings online.
In general, it has worked well and everyone who joined the calls had
a chance to speak and share their views. We anticipate that we will
have a mix of virtual and in-person meetings going forward, and this
will allow us to hold more sessions with colleagues than would be
possible otherwise.
The focus groups held in 2020 covered different business units,
activities and geographies. Each focus group provided different
themes, which we discussed and agreed:
• Colleagues were very positive and appreciative of the approach
to COVID-19 across the Group and attendees shared examples
of Company support and the care for colleagues generally.
Examples were provided such as in China where many colleagues
work away from the family home and really appreciated that
working was shared equally across the workforce.
• Many colleagues emphasised their pride in being part of the Group
and appreciated the security this provided them and their families.
• Our Values are very well embedded across the focus groups we
spoke with – all colleagues recognised their safety as the Group’s
top priority and many provided other good examples of the
business living up to our Values and how much our Values mean
to them.
• We were able to raise suggestions for improvement:
– While communications have been more frequent in 2020 and
very well received, COVID-19 prevented our manufacturing
colleagues meeting in the usual way and, given that they do
not routinely work on email, it presented a challenge. In 2021,
we will consider using digital tools to increase our internal
communications capability.
97
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 1. Board leadership and Company purpose continued
Employee Engagement Committee Report continued
Committee focus for 2021
• Focus groups: the Committee has planned a series of
focus group meetings in 2021. During 2020 we were
keen to have an in-person focus group with colleagues
at Aflex Hose, based in Huddersfield, UK, where we have
recently consolidated four sites into a new state-of-the-art
manufacturing site. This will be scheduled in 2021.
We will also hold focus groups by special interest group in
2021. We plan to have feedback from the Women’s Network
(see the Sustainability Report on page 73) and graduates
across the business.
• Board interaction: as well as the Board visit to Aflex
Hose, members of the Board will also attend the annual
global graduate conference and the International Women
in Engineering Day celebrations, which are scheduled to be
held in 2021.
• “Coffee talks” with colleagues: part of the Committee’s
remit has been exploring new ways of interacting with
colleagues, in a less formal setting. The Group started an
initiative to connect colleagues across the business and
implemented “coffee talks” for colleagues to voluntarily
connect with another randomly selected colleague.
Committee members have asked to participate in this
excellent initiative providing further insight to colleagues’
views across the Group.
• Employee survey: the Group will roll out its biennial
employee survey in 2021 and the Committee will focus on
key themes and the actions arising.
– More sharing across the Group; for instance, some colleagues
in sales felt they could benefit from knowing more about the
manufacturing operations.
– An operations supervisor commented on the arrangements for
machine maintenance and felt we could be more efficient in
reducing machine down-time. Management are working on a
plan for this in 2021.
– In one focus group, some of our manufacturing operators
welcomed the opportunity and asked for reassurance that their
views would be heard and that the Committee would discuss
those views with management. Employee engagement activities
are being adapted by management and we will review progress
in due course.
Following up on employee engagement survey actions
Alongside Committee meetings, we have sought ways in which to
understand colleague views and how management is addressing
related issues. At each Board meeting, there is one or more business
presentation which will, amongst other things, specifically address key
areas of the employee engagement, the engagement survey, actions
taken and progress made. The Board, therefore, has the opportunity
to hear colleague views and gain assurance that colleague views are
taken seriously and addressed positively.
Board site visits and colleague interaction
We are aiming to visit one or more sites in 2021, as restrictions
around the pandemic recede. The Board visit will not only include a
site tour but also an opportunity for the Committee to meet a range of
colleagues, without management present, and hear their views.
Employee engagement activities
The Committee has worked closely with Human Resources and they
have shared the range of employment support and engagement
activities implemented and progressed in 2020. The Committee
receives an update on this work at each meeting and has the
opportunity to challenge and reflect on the impact and relevance to
the colleague feedback.
In October 2020, the three female members of the Board participated
in sessions with the Women’s Network to share their career
experience and to connect with this group. Over 80 members of the
Women’s Network attended these voluntary sessions.
A survey to assess colleague sentiment on the actions put in place
to ensure colleague safety during the pandemic was undertaken.
98% of staff surveyed reported being satisfied with the steps taken to
safeguard their health and wellbeing while they were in the workplace
or considering a return.
I look forward to meeting and am always happy to answer any
questions from shareholders.
Caroline Johnstone
Chair of Employee Engagement Committee
98
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 2. Division of responsibilities
The Chair
Independence
Jamie Pike has been a member of our Board since May 2014.
Having served over six years on the Board, we consider him to have
retained his independent status.
Responsibility
Jamie’s responsibilities are outlined in the table on page 100. In his
tenure to date we consider him to have upheld the responsibility
of the Chair as described in the Principle of the Code, such as his
independence, ability to work well with others and leadership skills.
At the time of publication of this Annual Report, Jamie has no other
FTSE directorships.
A balanced Board
During 2020, in compliance with the Code, the number of
Non-Executive Directors was always more than the number of
Executive Directors (excluding the Chair). At the time of publication,
our Board comprises two Executive and eight Non-Executive
Directors (excluding the Chair). This 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.
Senior Independent Director
Dr Trudy Schoolenberg was appointed as Senior Independent
Director in May 2019. With expertise in engineering, product
development and having significant executive and non-executive
experience over many years, the Board is satisfied that Trudy has the
necessary qualities and experience for this role.
The Senior Independent Director carried out an interview with all
Directors to facilitate the appraisal of the Chair as part of our Board
and Committee annual internal evaluation process.
Trudy will step down from the Board at the end of July after
completing the maximum nine years allowed by the Code. On behalf
of our shareholders the Board acknowledges with gratitude
Trudy Schoolenberg’s significant contribution to the Group’s growth
and prosperity over the last nine years. As Senior Independent
Director, Trudy has been crucial in guiding the business through
significant changes and challenges whilst maintaining the highest
governance standards.
Richard Gillingwater, who I am delighted to say joined the Board on
9th March 2021, will take over from Trudy as our Senior Independent
Director. Richard has strong investment, financial and non-executive
experience, combined with international business experience.
Richard brings competencies that will greatly assist the development
of the Group.
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 90 to 91 and a
summary is provided in the table below.
External listed company appointments
Only external positions of listed companies or equivalents in other
jurisdictions are counted in accordance with the provisions of the
guidelines published by ISS and other proxy advisers.
At year end
Independent Non-Executive Directors
No. of other
Non-Executive
roles
No. of other
Executive
roles
Jamie Pike (Chair)
Trudy Schoolenberg
Jane Kingston
Kevin Thompson
Caroline Johnstone
Peter France
Angela Archon
Olivia Qiu
Full-time Executive Directors
Nicholas Anderson
Nimesh Patel
Neil Daws1
–
2
1
–
1
–
1
–
1
–
–
–
–
–
–
–
1
–
–
–
–
–
1 N.H. Daws retired from the Board on 31st December 2020.
Non-Executive Director meetings
As per best practice, our Non-Executive Directors met with the
auditor and Korn Ferry, independent remuneration consultants,
separately from our Executive Directors. The Employee Engagement
Committee meets with groups of colleagues separately
from management.
Division of responsibilities
An overview of the division of responsibilities, as set out in the Code,
is provided in the table on page 100 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 and Assistant Secretaries
The Group General Counsel and Company Secretary, and the
Assistant Secretaries, support 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.
99
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
2. Division of responsibilities continued
Division of responsibilities (based on Code Principles F–I)
Chair
Board (key matters)
Senior Independent Director
Non-Executive Directors
• 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
• Matters reserved to the Board under the Group Delegated Authorities Policy
• Provides a sounding board to the Chair
• Serves as an intermediary for the other Directors and shareholders
• Leads an annual meeting of Non-Executive Directors to appraise the Chair’s performance
• 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
• Responsible for employee engagement
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
Governance structure
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.
Group Board
See pages 90-91
Employee
Engagement
Committee
See pages 96-98
Nomination
Committee
Audit
Committee
See pages 103-104
See pages 107-113
Risk
Management
Committee
See pages 114-117
Remuneration
Committee
See pages 118-121
Further reading Board Committees overview
The Terms of Reference for all Board Committees are set out in detail on the Group’s
website. These terms are subject to regular review.
www.spiraxsarcoengineering.com
100
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 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.
The Board also has a Group Delegated Authorities 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 2020, the Board met ten 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 2020*
Board meetings
Attendance
J. Pike
N.J. Anderson
N.H. Daws
N.B. Patel1
G.E. Schoolenberg
J.S. Kingston
K.J. Thompson
C.A. Johnstone
P. France
A. Archon2
O. Qiu2
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* K.J. Boyd attended eight meetings prior to retiring on 30th September 2020.
1 N.B. Patel was appointed to the Board on 11th September 2020.
2 A. Archon and O. Qiu were appointed to the Board on 1st December 2020.
How the Board spent its time
5%
20%
10%
20%
15%
15%
15%
Operations and risk
including COVID-19
Strategy
Finance
Governance
and shareholders
People and succession
Acquisitions
New product
development
Board activity 2020
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 the bottom left of the page,
we have set out how the Board spent its time during 2020.
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 2020, the Board devoted
considerable time to ensuring that the Group could progress
with manufacturing footprint for Watson-Marlow in the USA and
the UK (BioPure), strengthened our Group sustainability function
and improved our health and safety performance across all three
businesses while at the same time sustaining excellent financial
performance. The Board also ensured that the Group had strong
and adequate financial facilities including drawdown of the Private
Placement Shelf Facility, a cash pooling arrangement with Bank
Mendes Gans, a foreign exchange risk management policy and a
revolving credit facility provided by Barclays Bank plc and HSBC
plc. The Group was able to perform exceptionally well without using
COVID-specific state aid in any of our markets, whether in the form
of government loans or utilising furlough schemes. The Board was
delighted to approve both the 2019 final dividend and the 2020
interim dividend payments to shareholders.
We also reviewed the implementation of our strategic plan and had
an update on our corporate strategy in June.
We monitored the significant investment we are making in Aflex
Hose, Yorkshire, where we have consolidated our four sites into a
purpose-built facility that will streamline our processes and prepare us
for the growth we anticipate in this business. This site has now been
completed and, due to COVID-19, the Board visit was delayed until
2021. In addition, in accordance with our Section 172 obligations,
the Board also scrutinised the investments in Watson-Marlow in
the USA and the UK (BioPure), together with the investment in
Northcroft House in Cheltenham, all three to address continued
expansion of our businesses.
Health and safety and sustainability are of fundamental importance to
the Group and they are both considered at the top of the agenda at
each Board meeting and 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 the UK’s exit from the EU.
The Board continued to engage with shareholders on governance,
remuneration and trading during the period.
Board focus for 2021
• Continue to support the Group Executive Committee
and the three businesses with their growth plans
through the implementation of their medium-term plans.
Key management presentations and discussions are
planned in 2021 across all of our businesses, including
Watson-Marlow expansion, business digital strategies and
new product developments.
• Further consolidate our position through both organic and
inorganic growth and continue to progress the Group in the
face of COVID-19.
• Focus on sustainability and climate change.
• Board dynamics, as set out in detail on pages 92 and 105.
101
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
2. Division of responsibilities continued
Key Board activities in 2020, by meeting
Standing agenda items
• Health and safety and sustainability updates are the first two operational matters 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
• Updates by Committee Chairs, where relevant, on Committee meetings held prior to each Board meeting
• The Group General Counsel and Company Secretary regularly updates the Board on all material legal matters and on our
compliance programmes
• Company share performance and shareholder/analyst feedback is discussed at most Board meetings
Feb
Mar
Aug
Dec
• Approval of appointment
of Chief Financial Officer
• COVID-19 update
May
• Liquidity update
• 2019 final dividend
May
• Business review – Asia
Pacific (Steam Specialties)
• Management
presentation – Steam
Business Development
(Steam Specialties)
Jun
• Succession planning
• Business and
corporate strategy
• Talent strategy
• Chromalox
European operations
• Draft Annual Report
• COVID-19 update
• Group litigation
• Chromalox
European operations
• Business review – Gestra
• Management
presentations –
Thermocoax and
Watson-Marlow
Supply Chain
• Cybersecurity update
• Deloitte Academy
governance update
Mar
• COVID-19 update
• 2019 financial results
• 2019 final dividend
• Review and approval
of Annual Report and
Circular to Shareholders
• UK pension provision
• Business review – EMEA
(Steam Specialties)
• Management
presentation – MEAWE
(Steam Specialties)
• Approval of revised
Company purpose and
Modern Slavery Statement
• Hampton-
Alexander review
102
• UK pension schemes
• Approval of budget
• 2021 Plan and
Business presentations
• Internal Board
effectiveness review
• Draft Annual Report and
Circular to Shareholders
• Management presentation
– sustainability
• Approval of appointment
of Non-Executive Director
(Angela Archon)
• Purchase of
Northcroft House
• 2020 interim dividend
• Group litigation
• Group Sustainability
strategy update
• Project OPAL update
• Business review –
Watson-Marlow
• Management
presentations –
Watson-Marlow
Northern Europe and
Southern Latin America
(Steam Specialties)
Oct
• Group Digital Strategy
• Chromalox US
Navy Project
• Watson-Marlow US
manufacturing site
• Management
presentation – Americas
(Steam Specialties)
• Cybersecurity and
preparedness update
• Approval of Group
Delegated Authorities
• Approval of appointment
of Non-Executive Director
(Olivia Qiu)
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
3. Composition, succession and evaluation
Nomination Committee Report
We now have greater diversity on
our Board, across the Group and in
our Executive succession planning.
We have 45% female representation
on our Board and 27% of Directors
are ethnically diverse.”
Jamie Pike
Chair
Meetings
The Nomination Committee met six times in the year to address the
following matters:
• Executive Director succession planning;
• Non-Executive Director and Senior Independent Director
succession planning; and
• Managing Director, Steam Specialties succession.
The Group Chief Executive and Chief Financial Officer were invited to
meetings where appropriate.
Key Nomination Committee activities 2020
Members
Our Nomination Committee comprises:
No. of meetings attended/
total no. of meetings held Attendance
Jamie Pike (Chair)
Trudy Schoolenberg
Jane Kingston
Kevin Thompson
Caroline Johnstone
Peter France
Angela Archon1
Olivia Qiu1
100%
100%
100%
100%
100%
100%
100%
100%
1 A. Archon and O. Qiu appointed on 1st December 2020.
How the Committee spent its time
Feb Mar
Mar
Oct
40%
30%
30%
Executive succession
Non-Executive succession
Diversity and inclusion
• Executive Director
succession planning
• Recommendation of
appointment of Chief
Financial Officer
Jul
• Non-Executive Director
succession planning
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.
• Managing Director, Steam
Specialties succession
• Non-Executive Director
succession planning
• Recommendation of
appointment of Non-
Executive Director
(Olivia Qiu)
Dec
• Non-Executive
Director/Senior
Independent Director
succession planning
• Ratification of
recommendation of
appointment of Non-
Executive Director
(Angela Archon)
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
3. Composition, succession and evaluation continued
Nomination Committee Report continued
Chair’s review
Board changes
In July 2020, we welcomed Nimesh Patel to the Group and, following
completion of the interim financial reporting process and an orderly
handover of duties, Nimesh succeeded Kevin Boyd as Chief Financial
Officer and Executive Director in September 2020.
We are delighted that Angela Archon and Olivia Qiu joined
the Board as Independent Non-Executive Directors effective
1st December 2020.
Details of their respective skills and experience are set out on pages
90 to 91.
MWM Consulting (for Nimesh Patel) and Egon Zehnder and Russell
Reynolds (for Angela Archon, Olivia Qiu and Richard Gillingwater,
see below) were appointed in relation to the specification, search
and evaluation of these appointments and were instructed to include
candidates that advanced both our gender and ethnic representation.
It is our policy to consider overall Board balance and diversity when
appointing any new Director. MWM Consulting, Egon Zehnder and
Russell Reynolds are independent search and recruitment agencies.
On 31st December 2020, Neil Daws retired from the Board.
As previously announced, Richard Gillingwater was appointed as an
Independent Non-Executive Director with effect from 9th March 2021
and as Senior Independent Director with effect from 1st August 2021,
when Trudy Schoolenberg steps down from the Board.
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 72, we have made progress with our
diversity and inclusion agenda, which is particularly relevant given the
broad international reach of the Group.
Diversity and inclusion are key elements in our Group strategic
sustainability project where we undertook the following initiatives:
• Appointed Darren Towers, previously from Stonewall, as Head of
Inclusion, Diversity and Wellbeing to assist us in progressing this
agenda in 2021;
• Training on unconscious bias and micro-incivilities delivered by
leading inclusion specialist, Professor Binna Kandola, for the wider
executive team and senior management teams;
• Mandatory unconscious bias online training for all colleagues in
multiple languages, which was completed by approximately 1,000
of our colleagues within two months of becoming available;
• Succession planning and talent development activities designed to
ensure we continue to have a strong, diverse bench strength for the
management and operation of our businesses, including a female
executive mentoring programme and in-house leadership courses;
• A Global two-year Graduate Programme offering the ability to hire
the best graduates from all over the world who are often globally
mobile and strive for leadership positions;
• Sponsorship and promotion of multiple science, technology,
engineering and mathematics (STEM) initiatives amongst schools in
the communities in which we operate;
• Further internal and external communications on our commitment
to Diversity and Inclusion, such as an additional page on our
careers website, on-going support of global events such as
International Women’s Day and International Women in Engineering
104
Day, and educational communications campaigns on the
importance of diversity and the challenges faced by minority
groups; and
• On-going commitment to undertaking a UK equal pay audit across
all our UK business units.
Gender reporting
By the end of 2020, Board gender diversity changed with six males
and five females.
During 2020, we participated in the FTSE Women Leaders
(Hampton-Alexander) Review.
Hampton-Alexander Review for 2020, published on
24th February 2021:
• We are one of the top four improvers for board gender
diversity in the FTSE 100;
• Our Board gender diversity of 50% places us joint third in the
FTSE 100; and
• Across the FTSE 350, we outperform our sector (Industrial
Engineering) average for women on boards (sector average
39.5% vs our 50%) and average for combined Executive
team and direct reports (average 21.6% against our 27.3%).
The combined Executive/direct reports figure places us
second in the sector from the FTSE 350.
Since 2015, we have enhanced our focus and expanded our
activities regarding succession planning and talent development
at the executive levels of the Group so that we continue to have a
strong, diverse bench strength for the management and operation
of our businesses. Practical achievements in this field include the
development and implementation of a successful executive female
mentoring programme and the internal promotion and external
recruitment of 18 women for higher executive positions. In addition,
we have achieved 58% female representation when recruiting for
our two-year Global Graduate Programme. We recognise that
further actions need to be taken and will continue to increase the
representation of women in our Company.
As a Group we are committed to gender diversity and we made
good progress in 2020 exceeding our minimum target of 33% female
representation on the Board. We will work to progress the same
target that also applies to the Group Executive Committee and their
direct reports. We ensure that this target is taken into account in our
succession planning and recruitment.
More detailed figures on gender diversity can be found on page 72 in
our Sustainability Report.
Committee focus for 2021
In 2021, we will focus on succession planning at Executive
levels of the Group and promoting talent across the Group so
that we continue to have a strong and diverse bench strength
for the management and operation of our businesses, with
particular focus on diversity at senior executive levels.
Jamie Pike
Chair of Nomination Committee
Further reading
Our Diversity and Inclusion Policy can be found on our website.
www.spiraxsarcoengineering.com
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Board evaluation
Board evaluation process
In 2018, we commissioned an independently-facilitated Board
effectiveness review conducted by Independent Audit. (Independent
Audit provides no other services to the Group and is independent.)
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.
In 2020, as in 2019, we followed up on the recommendations of
Independent Audit and the Board carried out an internal evaluation
of the performance of the Board and the Board Committees, in
accordance with the provisions of the Code. The Chair circulated
a comprehensive questionnaire to members of the Board covering
all issues related to the effective running of the Board and the
functioning of the Committees. The responses were consolidated and
anonymised and common themes identified in order for the Board
to determine key actions and next steps for improving Board and
Committee effectiveness and performance.
Evaluation cycle – three year
2018 External (complete)
2019 Internal (complete)
2020 Internal (complete)
Board dynamics
external evaluation 2021
The 2020 internal effectiveness review supported the overall
conclusion of the 2018 external evaluation that the expertise
and experience of the Board provided guidance and support on
important decisions. In particular, it was noted that the Board
is well-balanced across skill sets and backgrounds, and has
a good dynamic with open discussion and the ability to table
challenging points of view.
The main recommendations, following the review, are:
• Review of risk management; and
• Identifying priority areas for 2021.
Outcome and agreed focus for 2021
• Strategy progression including a digital strategy for
each business.
• Sustainability and climate change.
• Board dynamics aimed at ensuring the best use of our
Board (refer to page 92).
• Taking the lessons of COVID-19 into business as usual,
including colleague wellbeing.
• Risk management reviewed by Board in early 2021.
Strategic risks scheduled for discussion in June 2021.
We have a strong business model
that has performed in the toughest
of times.”
Nimesh Patel
Chief Financial Officer
Nimesh Patel’s early reflections
I joined the Group in the midst of a year which presented us with
multiple challenges and was immediately impressed by the way
in which our people across the world came together to respond.
I felt the path we charted together really embodied our values; we
maintained our focus on safety, worked collaboratively and harnessed
new technology and ways of working, all to respond swiftly to the
needs of our customers, many of which are on the frontline fighting
the global pandemic. We’ve also continued to engage in supporting
our local communities at a time when it has never been more
important to help others.
In my first few months I sought to meet as many of my colleagues
as possible, albeit virtually. I have spent a good proportion of my
time with the Executive team, including the Managing Directors
of the three businesses, the global finance team, the Board and
many of our teams in our international operating companies. I look
forward to being able to meet them in person, as well as visiting our
manufacturing and sales operations, when circumstances allow.
I have been struck by the resilience of our business model and the
essential role our products and solutions fulfil in our customers’ critical
industrial processes. Alongside developing my understanding of our
business model and strategy, I also focused on building a community
of our global finance professionals and have started a dialogue
around shaping the role that finance should play in helping to deliver
our strategy.
Our balance sheet is strong and we’ve demonstrated the resilience
of our cash generation. I am now looking forward to supporting our
continued growth as we harness the opportunities afforded to us
through helping our customers to improve their safety, sustainability
and efficiency, underpinned by our investments in our manufacturing
footprint and developing new digital tools.
105
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
3. Composition, succession and evaluation continued
My time with the Group saw a
period of unprecedented growth
with sales and profits doubling.”
Kevin Boyd
Chief Financial Officer
This unique business model has
delivered strong returns for all
our stakeholders.”
Neil Daws
Managing Director, Steam Specialties
(Retired 30th September 2020)
(Retired 31st December 2020)
Kevin Boyd’s reflections
When I took over from my predecessor, David Meredith, I remember
him saying that although the word “unique” was much overused, he
believed that Spirax-Sarco Engineering was a truly unique Company.
Having spent a fantastic four and a half years with the Company, I can
only agree with him.
My time with the Group saw a period of unprecedented growth with
sales and profits doubling and the market capitalisation more than
trebling, catapulting us into the FTSE 100 in 2019.
As the size of the business increased and we welcomed many
more colleagues into the business, I was delighted that we were
able to maintain the unique culture David spoke about which was
evidenced by the resilience with which the Group tackled the
COVID-19 pandemic.
I was pleased that we were able to secure Nimesh Patel as my
successor and have been very impressed with how quickly he was
able to get up to speed, despite joining in the midst of the pandemic.
I wish Nimesh, Nick and all my colleagues at Spirax-Sarco
Engineering all the very best for the future.
Neil Daws’ reflections
42 years with the same company is perhaps unusual in the modern
era. However, the constant profitable growth and an ever-evolving
business strategy fuelled my continuous personal development in a
Company that has its colleagues at the core of its success.
I joined in 1978 as an engineering apprentice, which offered a
comprehensive grounding on what makes our Group a success.
At that time our business was predominantly UK and European
based with some strength in Latin America. I witnessed, and was later
very involved in, strong geographic expansion into Asia and the USA,
the major acquisitions of Watson-Marlow, Gestra and Electric Thermal
Solutions, all of which added significant value to the Group.
During my career I held positions in R&D, Supply Chain, Marketing
and Sales, culminating proudly in leading Steam Specialties as
Managing Director. I also had the pleasure of completing over
17 years on the Board, which provided challenge and made me
proud in equal measure.
The significant success achieved is due to a special combination of
the highest quality colleagues, brand, strategy, and solutions that are
totally focused on serving our customers through long term added
value partnerships. This unique business model has delivered strong
returns for all our stakeholders and will, I’m sure, continue to do so.
I would like to express my sincere thanks and appreciation for the
support received from around the Group, the Board and the many
stakeholders I have met. I wish the Group continued success
and I know that Steam Specialties will be in safe hands with
Maurizio Preziosa as Managing Director.
106
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 4. Audit, risk and internal control
Audit Committee Report
Members
Our Audit Committee comprises:
No. of meetings attended/
total no. of meetings held Attendance
100%
100%
100%
100%
100%
Kevin Thompson (Chair)
Trudy Schoolenberg
Jane Kingston
Caroline Johnstone
Peter France
Angela Archon
Olivia Qiu
First meeting post-appointment – Mar 2021
First meeting post-appointment – Mar 2021
How the Committee spent its time
20%
10%
10%
15%
15%
15%
15%
Risk management
and controls (including focus
on remote working)
Corporate governance,
training and whistle-blowing
External audit
Internal audit
Results review and reporting
Financial resilience
Presentations by
Divisional Finance Directors
Committee role and responsibilities
The overall purpose of the Audit Committee is one of oversight
and monitoring of the entire financial reporting and control process,
to ensure the integrity of the Group’s Financial Statements and
assurance over them. The Committee fulfils this remit by undertaking
the following roles and responsibilities:
• 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;
During 2020, the key areas of
focus for the Committee included
monitoring the financial resilience
of the Group and the impact of, and
the response of the Group to, the
COVID-19 pandemic.”
Kevin Thompson
Chair of Audit Committee
• 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 financial position,
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 four times during 2020. Relevant members of
the Group’s senior management, including the Group Chief Executive
(in his capacity as Group Chief Executive and not as a member of
the Committee), Head of Internal Audit, Chief Financial Officer and
Group Financial Controller, were also in attendance at these meetings.
Implementing one of the outcomes of the 2019 Audit Committee
self-assessment, 2020 saw the Group’s Divisional Finance Directors
being invited to attend and present to the Committee (further detail on
page 109).
During 2020, 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.
107
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 4. Audit, risk and internal control continued
Audit Committee Report continued
All new Committee members undertake an induction programme
and continue to further their knowledge via on-going training, such
as attendance at technical seminars and receipt of regular topical
updates from Deloitte.
A more detailed summary of the qualifications, skills and experience
of each Committee member can be found on pages 90 to 91.
Chair’s review of 2020
As Chair of the Audit Committee, I am pleased to present the
Committee’s report for the year ended 31st December 2020.
While the Committee’s overall aim and core duties remained the same
during 2020, the COVID-19 pandemic that quickly spread across
the globe early last year resulted in changes to the working practices
of the Committee and also led to an increased focus on internal
controls systems and risk management practices. Remote working
became an established practice for the Committee and, crucially, the
Internal Audit team, who adapted well and continued to undertake
the majority of their originally scheduled audits. Similarly the
External Audit team worked remotely and, together with Internal
Audit, maintained the high standards to which the Committee has
become accustomed.
The Committee welcomed Angela Archon and Olivia Qiu in December
2020 (upon their appointment to the Board as Non-Executive
Directors) and we took the opportunity to share their induction
materials with all Committee members. The Committee was also
pleased to welcome Nimesh Patel, who joined the Group as its new
Chief Financial Officer effective September 2020.
In terms of Committee meetings, in 2019 the Committee agreed
that more time should be devoted to Committee business and 2020
saw an additional meeting added to the agenda (in May). In addition
to ensuring that the Committee members receive adequate training
as well as exposure to senior finance executives, the additional
meeting enabled further review and implementation of increasing
governance and reporting requirements. This additional meeting also
proved timely, as it meant the Committee was in a position to monitor
the impact of, and assess the Group’s response to, the COVID-19
pandemic fairly soon after the outbreak occurred. In particular, the
Committee focused on the controls environment in light of the rapid
change in working practices for the majority of the Group’s colleagues
across the globe.
With an external performance assessment of the Committee
scheduled for 2021, the Committee used the opportunity in 2020 to
undertake a self-assessment of its performance. The responses and
comments from members were positive and showed the Committee
is progressing well.
The Committee has a high level of confidence in, and a good
understanding of, the Group’s risk management process undertaken
by the Risk Management Committee. The Committee felt this could
be enhanced by additional Board risk management discussions,
including a review of the current process, risk appetite and emerging
risks. This is scheduled for the first half of 2021.
Key Audit Committee activities 2020
Mar
Aug
• Reviewed the Annual
Report including:
• Reviewed the half-
year results
– Key judgements
• Reviewed the auditor
– Going Concern basis and
interim report
financial resilience
– Viability Statement
– That it is fair, balanced
and understandable
– Report of the auditor
• Reviewed internal
financial controls
• Reviewed integration
of Thermocoax
• On-going review of risk
and control areas such
as cybersecurity, remote
working and whistle-
blowing
• Consideration of Audit
Committee performance
• Agreed updates to the
Internal Audit Charter
for 2020
May
Oct
• Update on accounting,
reporting and half-
year review
• COVID-19 impact and
risk assessment
• On-going review of the
Steam Specialties Core
Systems upgrade and
the Standard Contract
Terms projects
• Divisional Finance Director
update (Watson-Marlow)
• External audit planning
(including review and
approval of audit scope
and fees)
• Reviewed effectiveness of
internal audit process and
plan for 2021
• Approved amendments to
the Terms of Reference
• Financial Controls
framework review
• Divisional Finance
Director update (Electric
Thermal Solutions)
Committee competence and governance
The Audit Committee operates under Terms of Reference, which were
subject to minor updates in October 2020, with a more substantive
review scheduled for 2021. The Terms of Reference set out the
membership and experience requirements of the Committee and can
be found on the Group’s website, www.spiraxsarcoengineering.com.
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 Board is satisfied
that Kevin Thompson (Chair) and Caroline Johnstone have recent,
extensive and relevant financial experience and the required
competence in accounting. All members of the Committee have a
depth of financial and commercial experience in various industries, as
well as the industrial engineering sector in which the Group operates.
108
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 During 2020 the key areas of focus for the Committee, in addition
to its on-going core responsibilities of monitoring the integrity of the
Group’s Financial Statements and the effectiveness of its controls,
were:
• monitoring the financial resilience of the Group;
• monitoring the impact of, and the response of the Group to, the
COVID-19 pandemic (in particular, reviewing the Group’s risk
management and internal control systems);
• enhancing internal audit with increased attention to use of analytics,
KPI reporting and closure of action items;
• increasing Committee exposure to senior finance executives
and training;
• ensuring the internal control environment remains fit for purpose;
and
• the on-going review of 2020 improvement areas (including the
Steam Specialties Core Systems upgrade project, the Standard
Contract Terms project and cybersecurity).
The following matters considered by the Committee were of
particular note:
The COVID-19 pandemic
The COVID-19 pandemic has been an unprecedented challenge
faced by all businesses, changing the way people live and work.
Significant decisions and adjustments have had to be made by
organisations, often quickly and frequently. It is during such times
that the systems, controls and processes of a company are tested.
Accordingly, in addition to the planned 2020 focus areas, the
Committee paid particular attention on the topics most likely to be
impacted by the pandemic, including fraud and other risk assessment
and internal control, key judgements (as it is harder to forecast with
certainty) and any accounting implications.
From the beginning of the pandemic, the Group Executive Committee
assumed direct responsibility for crisis management and ensured
there was clear direction and communication to sub-management
teams. The Group Executive Committee provided regular updates to
the Committee and Board.
The Committee and Board reviewed the Group’s stress testing with
management in light of the pandemic. The Committee is satisfied that
this is appropriate in supporting the Group as a going concern.
The Committee also received regular updates on the steps taken by
management to further strengthen the Group’s liquidity for the likely
duration of the crisis and recovery period beyond. The Committee
is satisfied that the increased liquidity risk because of the impact of
COVID-19 has been reduced by these measures.
The findings of the control reviews undertaken by each of the three
businesses indicated that management are of the view that the
control environment has not been detrimentally impacted by the
COVID-19 crisis. This self-assessment view was corroborated by the
Internal Audit team who reported that whilst there has been a minor
deterioration in controls in certain areas as a result of COVID-19 (with
management addressing such areas), none were material.
The Committee will continue to monitor the Group’s internal
controls and the Group’s response to risks posed by the pandemic
throughout 2021.
Divisional Finance Director presentations
Implementing its own proposal for improvement, following a
self-assessment exercise in 2019, the Committee invited the
Divisional Finance Directors to each attend a Committee meeting over
an annual cycle and directly update the Committee about priorities,
activities and topics relevant to their particular business (for example,
the integration of Thermocoax into the Group was covered by Electric
Thermal Solutions). These presentations were well received and
the opportunity to discuss topics directly was appreciated by both
the Committee and Divisional Finance Directors. This process will
continue in 2021.
Standing agenda items
Cybersecurity
The Committee continued to receive updates on the implementation
and maintenance of cybersecurity systems and the work undertaken
to improve the Group’s cybersecurity capabilities. The Group is
continuing to consider lessons learnt from external third party high-
profile cybersecurity cases.
Steam Specialties Core Systems upgrade
The Committee continued to monitor this project (which commenced
in 2019) to implement a new integrated IT system which would
incorporate ERP (Enterprise Resource Planning), CRM (Customer
Relationship Management), CPQ (Configure, Price, Quote) and
BI (Business Intelligence) modules. Despite challenges raised by
COVID-19, the project continued to progress well in 2020 with
a number of important milestones achieved (see page 43 for
further information).
Standard Contract Terms project
One of the areas identified by the Committee for improvement in
2019 was the Group’s standard contracting processes and a new
process was established and rolled out to all Group companies
in 2020. The project includes the processes and procedures that
all Group sales and purchasing teams are to follow to ensure that
no Group business is exposed to unacceptable contractual risks.
Accompanying the new contracting procedures was the provision
of new template documents for use by all Group companies.
The Committee will continue to monitor the adoption, and impact, of
these new mandatory practices throughout 2021.
Taxation
The Group Taxation Strategy was reviewed in December
2020 and can be found on the Group’s website,
www.spiraxsarcoengineering.com (under Governance documents).
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 Group is subject to the UK HMRC Senior Accounting Officer
review and in June 2020 a clean certificate was issued by the Senior
Accounting Officer for the year ended 31st December 2019.
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.
109
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 4. Audit, risk and internal control continued
Audit Committee Report continued
The Committee receives regular updates from management
throughout the year and an annual management paper on the
effectiveness of the Group’s internal controls to support its own
review. As noted under “The COVID-19 pandemic” above, the
Committee paid particular attention during the early stages of 2020
to the effectiveness of controls, in light of the shift to a largely remote
working environment for colleagues who would usually be office-
based.
Oversight of the effectiveness of risk management procedures and
the operation of controls is undertaken by the Group Executive
Committee and Risk Management Committee, and further detail on
these processes can be found on page 116.
The Group recognises the importance of the internal control
environment and continues to evaluate it, implementing
enhancements as required. In this context the Committee welcomes
the review by the Chief Financial Officer and his team of the Group’s
control framework in 2021. This “financial controls journey” has the
aim of further improving the controls environment and setting out
clear expectations for each Group company, backed up with new
policies and procedures and supported by training to colleagues.
The Committee will continue to monitor its progress during 2021.
Sources of assurance
In fulfilling its responsibility of reviewing the effectiveness of the
Group’s control systems, the Committee relies on a number of
sources of assurance. These include external audit, internal audit and
regular management updates, including those from the Divisional
Finance Directors.
In addition, there are a number of measures in place at local, divisional
and Group level that provide assurance that risks are being managed
in line with the Group appetite for risk. The key measures include:
a strong corporate culture of doing the right thing, supported by
the strong “tone at the top”; oversight of financial performance and
operations by the Group Executive Committee and leadership teams;
detailed processes and procedures applied across a number of
areas, assisted by on-site reviews by central and divisional functions
of Group Company compliance; and a dedicated internal audit
function, which performs regular audits of all Group Companies, and
manages an annual self-assessment process.
Going concern, Viability Statement and
financial resilience
The Committee reviewed the 2020 Going concern and Viability
Statements and were satisfied that these represented accurate
assessments of the Company’s position at the date of the
Statements. For further detail on the Going Concern and Viability
Statements, and for additional information on the resilience of the
Group, please refer to pages 56 and 57.
Whistle-blowing
The Group’s Safecall facility, a confidential colleague whistle-blowing
hotline, continued to be utilised across the Group. The Committee
received updates on the use of Safecall at its meetings and noted
that, on the whole, this hotline continued to be used for its intended
purpose by colleagues. The Committee assessed management’s
responses to the reported cases (of which there were 14 in 2020) and
considered them to be appropriate and satisfactory.
Section 172 disclosures
The Committee is cognizant of the Board and management’s
on-going attention to their duties under section 172 of the Companies
Act 2006 and, in particular, their consideration of the matters to which
the Board and management should have regard when performing
their duty to promote the success of the Company when making
decisions. The Committee considers such factors in carrying out its
own responsibilities.
Detection and prevention of fraud
Instances of fraudulent activity within the Group are extremely rare
and there are control systems in place intended to detect and
prevent such activity. A breach of the Group Management Code
was identified by our Internal Audit team in 2020 and prompt action
was taken by the divisional management team with lessons learned
shared across the Group. There was no material financial loss.
The Board, who is responsible for safeguarding the assets of the
Company and for taking steps for the detection and prevention of
fraud and other irregularities, will continue to identify ways to improve
Group systems. Working with management, the Committee will
look to build on the fraud risk assessment and reporting processes
during 2021, starting with the output from management’s fraud risk
workshop in February 2021.
Significant issues
The Committee is responsible for assessing whether suitable
accounting policies have been adopted and whether management
has made appropriate judgements and estimates. During 2020,
the Committee considered and addressed the following significant
issues in relation to the Group’s Financial Statements and disclosures.
The Committee received regular reports from management on these
significant issues. The reports were discussed at the Committee
meetings where the half year and year end reporting was considered
giving Committee members the opportunity to directly question and
discuss the reports with management. The Committee also received
a detailed report on these issues from Deloitte. Significant issues
were considered in the context of COVID-19 impacts and the
manner in which the Group’s internal controls applied in the remote
working environment. Disclosure in financial reporting was also
considered including the re-classification on the Consolidated
Statement of Financial Position. The Committee was able to reach
satisfactory conclusions.
(i) Revenue recognition
In view of the profile of revenue and profit recognition in the final
quarter of the year (a period when, in some Group companies,
a higher proportion of the annual external revenue is recognised
compared to the rest of the year), the need to focus on any new
significant contracts and revenue cut-off for certain businesses was
highlighted to ensure the appropriate recognition of revenue for the
year ended 31st December 2020.
How this was addressed
The Committee received regular updates from management on new
significant contracts throughout the year and monitored the adequacy
of the control environment for revenue recognition. In particular, the
Committee reviewed adherence to the Group’s policy to recognise
revenue when performance obligations have been fulfilled which, in
the majority of cases, is at time of dispatch or delivery. Taking the
evidence together, the Committee was able to conclude that revenue
recognition was appropriate during 2020 and at the year end.
110
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 (ii) Pensions
The Group operates five main defined benefit pension schemes
(three in the UK, one in Germany and one in the US). During 2020,
the Group closed the main UK schemes and a smaller Canadian
scheme to future accrual in June and September respectively.
There are judgements and estimates made in selecting appropriate
assumptions in valuing the Group’s defined benefit pension
obligations, including discount rates, mortality and inflation (see
note 23 on pages 195 and 198). These variables can have a
material impact in calculating the quantum of the defined benefit
pension liability.
How this was addressed
The Committee considered reports by the Group, including
those from independent external specialists and, in particular, it
considered the accounting and disclosures in those reports relating
to the Group’s closure to future accrual of the main UK schemes.
Management’s selection of assumptions was challenged and
key assumptions were examined against external benchmarks.
Based on this review (including reports from the external auditor) and
consideration of the valuation methods applied, the Committee is
comfortable that the key assumptions and accounting treatment are
reasonable and appropriate.
(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 colleagues.
Management is responsible for ensuring the internal controls are
followed across the Group. 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.
With the increase in remote working in 2020, there are additional
potential risks.
How this was addressed
The Committee discussed with management, and with Divisional
Finance Directors in their regular Committee presentations, the
mitigation of control risks, in particular in the remote working
environment. The Committee also noted the high quality of response
by management to any deviations from Group policies. Regular cycles
of internal and external audits by independent parties have been
put in place to review financial information. The audits are objective
reviews on compliance with the Group’s accounting policies.
The Group also continues to provide additional resource to its internal
audit function having appointed its fourth dedicated internal auditor in
2020 and invested in the increased use of data analytics.
Management has commenced a programme to further review the
internal financial control environment and the Committee receives
regular updates on progress. The Committee remains satisfied
with the Group’s monitoring of the effectiveness of the internal
control systems.
(iv) Acquisitions and goodwill
There is a high level of judgement surrounding the valuation of
goodwill and intangibles and the risk of impairment in respect of major
acquisitions such as the Electric Thermal Solutions business.
How this was addressed
The Committee received detailed reports from management
outlining their review of potential impairments and the basis for
key assumptions.
The Committee focused on the key assumptions around valuation of
goodwill for the Electric Thermal Solutions cash-generating unit and,
in particular, sales and earnings before interest and tax (EBIT) growth
and EBIT margin forecasts as well as cash generation assumptions.
Discount rates used and sensitivities on reasonable possible changes
to key assumptions were examined and challenged.
The Committee concluded it was comfortable that key assumptions
were reasonable and resulted in value in use exceeding carrying
values with no impairment required, including when sensitivities
were applied.
(v) Financial resilience
The ability of the Group to fund its business in the short, medium and
long term is critical to the success of its business model. Liquidity,
financial capacity and compliance with bank terms and covenants are
key elements.
How this was addressed
Whilst not considered a significant concern within the Group’s
Financial Statements, during 2020 (against the backdrop of the
COVID-19 pandemic) the Committee was focused on monitoring
the Group’s financial resilience and the steps taken by the Group
to strengthen its liquidity. The Committee was kept updated by
management of their actions in this regard, including the Group’s
focus on improving working capital and the completion of a planned
refinancing programme in May 2020, which further strengthened
the Group’s balance sheet. The Committee noted that the Group
operated throughout 2020 very comfortably within its banking
covenants. Further detail of the Group’s financial resilience can be
found on page 56 to 57.
Critical judgements and key sources of
estimation uncertainty 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 sources of estimation uncertainty, 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 (including those within the
significant issues noted on pages 110 to 111). The Committee
discussed the significant issues with Deloitte during the external audit
planning process and at the finalisation of the year-end audit, and is
satisfied that the Committee’s conclusions are in line with those drawn
by the auditor in relation to these issues.
The Committee reviewed the 2020 Going concern and Viability
Statements (see pages 56 to 57 for further detail) and was satisfied
that these represented accurate assessments of the Company’s
position at the date of the Statements.
External audit process
This is the seventh 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 from
20th May 2014.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 4. Audit, risk and internal control continued
Audit Committee Report continued
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 content of the Financial Reporting Council’s (FRC) 2019/2020
Audit Quality Inspection Report covering its conclusions of a review
of a selection of Deloitte audits, together with Deloitte’s response
and actions;
• evidence gathered first-hand by the Committee about the
performance of the auditor, in particular (i) the quality and scope
of the planning of the audit which is provided and presented to
the Committee early in the audit cycle (in October 2020 for the
2020 audit) with clear initial judgements on materiality; and (ii)
presentations from the audit partner and his team at each of the
Committee meetings, in which they clearly and efficiently highlight
key matters arising and any areas on which they have challenged
management; and
• feedback from all audited Group companies, the Group Finance
team, management and Directors on the audit process and the
quality and experience of the audit partners engaged in the audit
by way of completion of a post-audit questionnaire (such feedback
indicating that overall Deloitte performed all audits well). There is a
follow-up process in place to resolve all issues raised.
Based on this evidence, the Committee was able to conclude
positively on the external audit quality and the performance of
Deloitte. The Independent Auditor’s Report on pages 154 to 161
contains a summary of their audit approach.
Andrew Bond continued as audit partner for a second year.
Andrew took over the position in 2019, in line with the requirements to
rotate the audit partner at least every five years.
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)”.
Audit fees and auditor re-appointment
During 2020, the Committee reviewed and approved the proposed
audit fees and terms of engagement for the 2020 audit and
recommended to the Board that it proposes to shareholders that
Deloitte LLP be re-appointed as the Group’s external auditor for 2021
at the AGM to be held on 12th May 2021.
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 for determining whether it is appropriate to engage the Group’s
auditor for non-audit services. This policy has been updated in 2021
in line with the current FRC’s Ethical Standard and its definitions
of permitted and prohibited services. The 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. Further, where the fees for any individual engagement
in relation to the non-audit services are in excess of £100,000,
pre-approval is required from the Committee.
112
A cumulative annual cap of £300,000 is set in respect of non-audit
services provided by the auditor, above which all individual
engagements must be pre-approved by the Committee. In addition
to the Group’s policy, the auditor runs its own independence
and compliance checks, prior to accepting any engagement, to
ensure that all non-audit work is compliant with the FRC’s Ethical
Standard in force and that there is no conflict of interest. The Auditor
Engagement Policy can be found on the Group’s website,
www.spiraxsarcoengineering.com (under Governance documents).
During the year, the Group spent £0.1 million on non-audit services
provided by Deloitte LLP, which included work undertaken on the
interim review. These non-audit fees equate to 5% of the average of
Group audit fees charged over the past three years. Further details
can be found in Note 7 on page 181. No significant non-audit
services were provided by Deloitte LLP.
Auditor payments 2020 £m
Non-audit fees
0.1
Audit fees
1.9
1.7
16
17
Internal audit
Throughout 2020, the Committee assessed the effectiveness of
the internal audit process, following the significant progress made
over the past three years. In addition to reviewing and approving
the internal audit charter, the Committee reviewed the schedule
of planned internal audits undertaken in 2020 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. The Committee also has oversight of the internal audit
budget and resources available and it has satisfied itself that the
Internal Audit function has the appropriate level of resources and
funds available to undertake its role. The function has a good level
of expertise and an active skills development programme with a
continued focus on building analytics skills.
Indeed, during 2020, the Internal Audit team was strengthened by
the appointment of another senior internal auditor and together they
performed a total of 31 internal audits, with the majority conducted
remotely. 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. To the extent that any internal audit action items
become overdue, the Divisional Finance Directors are notified to assist
with ensuring they are closed as soon as possible. The Committee
noted that with the increased internal audit resource and coverage,
more action items were generated. However, the Committee also
noted that throughout 2020 management devoted significant
resource to their resolution, with Divisional Finance Directors now also
monitoring progress and supporting prompt resolution by their teams.
The Committee receives regular reports on closure rates and will
continue to monitor outstanding actions.
In 2020 an Internal Audit quality assurance review was carried out by
the Committee in line with the Institute of Internal Auditors standards.
Further improvements from 2019 have been achieved. A high level
of compliance was recorded. The main areas for improvement being
formalisation of information sharing with other assurance providers
and more complete evaluation of risk management processes
(scheduled for 2021).
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 A more formal external quality assessment of the Internal Audit
function is scheduled for 2021 (noting such a review is required every
five years).
Ensuring a fair, balanced and understandable
Annual Report
During 2020, 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;
Committee focus for 2021
In addition to on-going monitoring of risks, internal audit
reviews and the quality of the Financial Statements, reporting
and governance, the focus of the Committee for 2021
will include:
• monitoring and supporting the Group’s assessment of its
financial and fraud risks and the continued strengthening of
its internal controls environment;
• reviewing sources of assurance and development of an Audit
and Assurance policy;
• risk areas set out in the Risk Management Committee Report;
• ensuring compliance with an expected increase in
• receipt of regular strategy reports from the Group Chief Executive
and operational reports from the Divisional Directors;
• reviews of the budget and operational plan; and
• consideration of judgements and estimates.
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.
One of the most important 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
2020 Annual Report. 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 financial position,
performance, business model and strategy. An overview of the
processes involved to achieve this are set out in the following table.
governance requirements;
• continuing to monitor the quality of internal audits and
external audits, particularly those that have to be conducted
remotely as a result of the pandemic; and
• assessing the Group’s non-financial information reporting
(including information covered by The Task Force on Climate-
related Financial Disclosures).
I will be attending the Company’s AGM in May 2021 and will be
happy to answer any questions on this report or the activities of
the Committee.
Kevin Thompson
Chair of Audit Committee
Further reading
Our Viability Statement.
See pages 56-57
See page 57
Our Going Concern Statement.
See pages 56-57
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.
• 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.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
4. Audit, risk and internal control continued
Risk Management Committee Report
We reassessed our risks and
mitigation strategies in light of
the COVID-19 pandemic.”
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, including all workforce-related risks;
• determining our appetite for risk;
• monitoring any emerging risks on the horizon;
• accepting and managing within the businesses those risks which
our colleagues have the skills and expertise to understand and
leverage; and
• identifying appropriate risk mitigation techniques
and countermeasures.
Meetings
The Committee met five times in 2020. A summary of the
Committee’s activities throughout the year is set out on page 115.
Members
Our Risk Management Committee comprises:
No. of meetings attended*/
total no. of meetings held
Attendance
%
Nicholas Anderson (Chair)
Neil Daws
Jim Devine
Dan Harvey
Dominique Mallet
Andrew Mines
Nimesh Patel1
Andy Robson
100%
100%
100%
100%
100%
100%
100%
100%
* K.J. Boyd attended three meetings prior to his retirement on 30th September 2020.
1 N. Patel appointed to the Committee 27th July 2020.
How the Committee spent its time
30%
15%
15%
20%
20%
Principal risks and COVID-19
Internal audit
Top-down review
Internal controls (including
on-boarding Thermocoax)
Crisis management plan
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Key Risk Management Committee activities
Jan
Aug
• Risk appetite rating
validated two risks:
(1) Inability to identify
and respond to
changes in customer
needs and (2) Solution
Specification Failure
May
• Risks identified to be
reassessed in light of
COVID-19
• Benchmarking of
principal risks against
eight peer organisations
and consideration of
any suggestions in light
of review
• Consideration of responses
to the top-down review
• New Terms of
Reference adopted
• Updated and approved
risk register, based on
top-down review and
exceptional changes
arising from the impact of
COVID-19
Oct
• Discussion of results of
risk scoring and changes
in year-on-year trend
Dec
• Final approval of principal
risks and risk register
• Validation of risk appetite
scores of principal risks
Chair’s review of 2020
Summary of key focus areas 2020
In keeping with the goals set for the year, in 2020 the Committee
closely monitored the COVID-19 pandemic and revised the risk
register accordingly in line with its impact. In addition to that
process, the Committee executed its plans for Brexit, including any
adjustments to provide for the revised framework under the Free
Trade Agreement signed between the UK and the EU at the end
of 2020.
The Committee completed its biennial top-down review of risks, and
updated the Group risk register accordingly. The Committee also
continued to monitor the impact of climate change and elevated the
risk in its risk register.
Anti-Bribery and Corruption (ABC)
The Group has continued to reinforce the message of zero tolerance
for bribery and corruption within its businesses.
In 2019, new ABC training was hosted by the Spirax Sarco Academy
as part of the Group Essentials training module. By the end of 2020,
the new training was available in 16 key languages and almost 5,700
colleagues (including Directors) worldwide have undertaken the ABC
training. The Group also uses an independent, third-party whistle-
blowing hotline to enable colleagues to anonymously report any
suspected unethical, illegal or otherwise concerning conduct.
Additionally, in line with our Gifts, Entertainment and Hospitality Policy,
we maintain an online gift register, where colleagues 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 73.
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 2021 Statement can be found on the Group’s website,
www.spiraxsarcoengineering.com, under Sustainability (Our
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 2020, 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 2020 review are
set out in the Strategic Report on pages 62 to 65. Our approach to
emerging risks is further described on page 61.
Climate risk
As climate-related risks continue to evolve, we are regularly assessing
and monitoring the same with the aim of mitigating their impact where
possible. We also recognise the importance of considering climate
risks and opportunities in our business decisions and acknowledge
that adopting the recommendations of the Task-Force on Climate-
related Financial Disclosures (TCFD) is an important step in supporting
the transition to a low-carbon economy. Our disclosures, set out
on pages 78 to 80, demonstrate how we are managing our climate
impact and how our business is evolving in response to the risks and
opportunities arising.
Willis Towers Watson annually assess the impact of climate change
on our Group companies using Global Peril Diagnostic and Property
Quantified Results.
Going forward, climate risk will be managed holistically by the
Committee with regular updates to the Group Executive Committee
and the Board. We will also progress further with the implementation
of the TCFD recommendations, including alignment of our short,
medium and long-term outlook on climate risk with our Group’s
broader risk time horizons.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 4. Audit, risk and internal control continued
Risk Management Committee Report continued
(ii) Internal control systems
The Group employs 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.
Every year, via a self-certification questionnaire backed up by rigorous
internal audit reviews, compliance with the policies, procedures
and minimum requirements for an effective system of internal
controls is undertaken. 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.
While 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 acquisition.
The internal audit system is a crucial part of the risk management
process. The internal audits are conducted by our internal audit team
led by Dan Harvey, Head of Internal Audit, who has over 20 years of
professional experience.
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.
(iv) Fraud risk assessment
A fraud risk assessment will be completed by the Head of Internal
Audit during the first half of 2021 and any areas for improvement
identified in the Group’s fraud countermeasures will be remediated
during the latter part of the year.
As a first stage, a fraud risk workshop was held in February 2021 with
the Chief Financial Officer, Group General Counsel, Audit Committee
Chair and senior managers from across the divisions and Group
functions in attendance. This identified the six key fraud risk areas that
will be considered as part of the exercise.
COVID-19
The onset of the COVID-19 pandemic at the end of 2019 was an
event that few businesses could have foreseen. The Committee
determined that the COVID-19 pandemic was not a risk in itself
but was rather of a magnitude where it affected many of the risks
on our Risk Register and that it would be more meaningful for the
Risk Register to be comprehensively revised to take account of the
COVID-19 pandemic.
Accordingly, the COVID-19 pandemic triggered a closer review
of our approach to risk assessment. For instance, it emphasised
the importance of having localised countermeasures and robust
decision-making processes. It also initiated a deeper review of our
impact assessment and mitigation plans for a number of key risks.
Additionally, the COVID-19 pandemic highlighted the need to focus
on colleague safety and wellbeing to ensure we have a capable and
productive long-term workforce. This included considerations such as
remote working and cybersecurity.
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. This includes all risk related to that company’s
workforce. 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 below.
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.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Committee focus for 2021
• Bottom-up risk review and annual review of risk register.
• Board review of risk management process.
• Continue to closely monitor COVID-19, taking action to
mitigate its effects, particularly the impact on workforce.
• Closely monitor the impact of Brexit.
• Assess emerging risks, including climate change, with
focus on risk appetite in light of digital strategies and
geographic expansion.
• Reflect on accelerated sustainability implementation
and whether this impacts positively on our risks and
risk management.
Nicholas Anderson
Chair of Risk Management Committee
Further reading
Risk management and principal risks
See pages 60-65
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.
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 in detail on pages 62 to 65.
In summary, the Group has a very low appetite for risks that could
lead to violations of health, safety and environmental legislation,
breaches of legal and regulatory requirements and climate change
that affects its operations.
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.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code 2018, the Board has assessed the viability of the Group, taking
into account the Group’s current financial position, business strategy,
the Board’s risk appetite and the potential impacts of the Group’s
principal risks. We set out the eight principal risks we have identified,
along with our mitigation measures, in our Risk Management report.
Based on this assessment, the Board confirms that it has 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 2023.
The Viability Statement is set out in full on page 57 of the
Financial review.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration
Remuneration Committee Report
The Committee, together with the
Board, would like to thank all of our
colleagues who have demonstrated
personal commitment, courage
and resilience throughout this
extraordinary year.”
Jane Kingston
Chair of Remuneration Committee
Key Remuneration Committee activities 2020
Feb Mar
Apr
Dec
• Shareholder
consultation update
• 2020 Remuneration Policy
• Statement of
Committee Chair
• Annual Report on
Remuneration 2019
• Annual bonus – 2019
outcome and 2020 targets
• LTIP – 2017 outcome
and 2020 targets
• New Chief Financial
Officer’s compensation
Aug
• Retiring Chief Financial
Officer’s arrangements
• New Managing Director,
Steam Specialties’
compensation
• Retiring Managing
Director, Steam
Specialties’ arrangements
• Executive remuneration
landscape update
• Group Chief Executive
pay ratio reporting
• Pay and
benefits landscape
• Forecast performance
against AIP and LTIP
• 2020 Remuneration
recommendations
for Executive
Directors and Group
Executive Committee
Members
Our Remuneration Committee comprises:
No. of meetings attended/
total no. of meetings held
Attendance
%
Jane Kingston (Chair)
Trudy Schoolenberg
Kevin Thompson
Caroline Johnstone
Peter France
Angela Archon1
Olivia Qiu1
100%
100%
100%
100%
100%
100%
100%
1 A. Archon and O. Qiu appointed on 1st December 2020.
How the Committee spent its time
5%
30%
10%
10%
15%
15%
15%
Bonus achievement and target
setting
Executive Succession
Gender pay gap and wider
workforce pay
Shareholder consultation
PSP achievement and target
setting
Remuneration Policy
Market updates
Committee role and responsibilities
The Committee determines the philosophy, principles and policy
of Executive and senior manager 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 under
the UK Corporate Governance Code. The Committee now reviews
remuneration policy and practices that apply to the Group Chief
Executive, Executive Directors, the Group Executive Committee and
senior managers. 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.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
Statement by Committee Chair
Dear shareholder,
On behalf of the Board, I am pleased to present the Directors’
Report on Remuneration for the year ended 31st December 2020.
During 2020, the Committee focused on the Remuneration Policy
renewal and the change of our Chief Financial Officer, together
with managing and mitigating the impact of COVID-19 across all
of our markets. This Report has been prepared in accordance with
Provisions 40 and 41 of the Code.
As highlighted earlier in the Annual Report, COVID-19 first made an
impact on our business in China and many of our Asian markets
early in Q1, affecting both supply from China and orders in general.
This scenario followed in Europe from Q2 and the Americas
thereafter. Due to the dedication of our colleagues and innovation
in digital communication, our operations swiftly adapted and all of
our businesses continued to operate at near to expected capacity.
The financial performance of the Group has been impressive, narrowly
missing the sales and profit targets that were set pre-COVID-19
for 2020.
Throughout 2020, our primary concern has been to ensure the health,
safety and wellbeing of our people, who adapted to new ways of
working in the field, created COVID-19 safe supply environments and
continued to serve our customers around the world. The Committee,
together with the Board, would like to thank all of our colleagues who
have demonstrated personal commitment, courage and resilience
throughout this extraordinary year.
2020 Remuneration Policy
In the early part of 2020, the Committee focused on the renewal
of our Remuneration Policy (Policy) and I would like to thank
shareholders for their advice and support. Our 2020 Policy received
96% votes in favour and ensured we met or exceeded important
governance standards, as we promised our shareholders we would
in 2019. These changes included in-post and post-termination
shareholding requirements, bonus deferral and addressed both new
and incumbent Directors’ pension arrangements.
The Annual Report on Remuneration 2020 explains in detail how we
implemented the Policy, what actions were taken by the Committee
as a result of the pandemic and sets out the performance criteria for
2021. The key points are also set out below.
Impact of COVID-19 on remuneration
While our business has been impacted by the effects of the
global pandemic, we are fortunate to have a more robust and
resilient business.
The Group was able to perform exceptionally well without using state
aid in any of our markets, whether in the form of government loans or
utilising furlough schemes. The Board was delighted to approve both
the 2019 final and 2020 interim dividend payments to shareholders.
Throughout 2020, the Committee continually monitored remuneration
and employment decisions taken across the Group. We considered
all decisions on Executive Director and senior management
pay during 2020 in this context and assessed the impact of our
decisions on our stakeholders, including shareholders and the wider
communities where we operate.
The Committee was mindful that remuneration decisions could
contribute to wider cost saving initiatives and thus help mitigate the
impact of COVID-19 upon our business. As a result, the following
actions were taken:
• Effective 1st April 2020, voluntary salary reductions were
implemented of up to 20% across all businesses. Over 100 senior
managers and executives, including the Board, participated for
a six-month period. Due to a strong business recovery, we were
able to shorten this period to four months and, in December 2020,
reimbursed the contributions to those who had agreed to the
voluntary salary reduction. We would like to thank our people for
the high level of contribution they made in such a challenging year.
• We concentrated on colleague wellbeing by encouraging remote
close teamwork and implemented an Employee Assistance
Programme, which provided support and counselling.
• Defined benefit schemes were closed to future accruals in the
UK, Germany, Canada and Brazil. In some markets, we improved
and equalised the overall level of retirement benefit implementing
enhanced pension schemes in Aflex Hose in the UK and for all
those at lower salary thresholds in Brazil.
2020 performance-based rewards
I have already mentioned that despite the extreme volatility and
complexities faced in 2020, the Group’s performance was very
resilient, outperforming our markets and many of our industrial peers.
Group revenues declined by 4%, operating profit by 4% and organic
sales declined by 3%. However, due to determined efforts to reduce
short-term costs and preserve cash, our adjusted trading margin of
22.7% was only 10 bps lower than that achieved in 2019 and was up
40 bps on an organic basis.
The Committee carefully considered the impact of COVID-19 on
our colleagues and all other stakeholders together with the strong
business results. We determined that payments to senior managers
and Executive Directors, under both our short and long-term incentive
plans, were appropriate in this context. We did not adjust our
pre-COVID-19 targets. These outcomes are fully detailed in the pages
that follow with the highlights noted overleaf.
Annual Incentive Plan (AIP)
Operating profit targets set in January 2020 were only achieved by
the Watson-Marlow business and not at Group level nor by the Steam
Specialties or Electric Thermal Solutions businesses. Therefore, for
Executives and most senior managers there is no pay-out for this
element (accounting for between 60% and 70% of the opportunity).
119
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Committee Report continued
The Group’s cash generation target (20% of the opportunity) was
met with a 100% pay-out. In the early months of 2020, as COVID-19
began to impact our business in China and Asia, the Committee
decided to widen the cash measure to include capex in addition
to working capital. All strategic capex was ring-fenced and so we
were challenging our businesses to reassess how essential it was
to invest in less important projects. The change in definition was
designed to not make the targets easier to achieve. The Committee
specifically reserved the ability and subsequently gave careful
consideration to ensuring that savings were not at the expense
of strategic capex or paying our suppliers. We were satisfied that
not only were our strategic projects fully protected, but the list was
expanded by including new investments such as the Watson-Marlow
manufacturing site in the USA and the purchase of Northcroft House
in Cheltenham. This wider definition of the cash measure will apply for
2021 and beyond and enable the tighter control of marginal capex
projects to take place.
Finally, despite the pandemic and due to excellent leadership, strong
progress has been made versus personal strategic objectives, with all
objectives fully realised.
Performance Share Plan (PSP)
January 2018 – December 2020
Like many businesses, the performance measures for the PSP were
negatively impacted by the detrimental effects of COVID-19. However,
during the three-year performance period ending 31st December
2020, earnings per share grew by 28.2%. The Group also delivered
a total shareholder return (TSR) of 108.1% over this period (as
determined under our PSP), placing us first in the ranking of our TSR
comparator group and thus qualifying participants for full vesting of
this element of the 2018 PSP.
The Group’s resilient performance has delivered results in line
with external expectations and many of our challenging internal
goals. The Committee is especially pleased that strong and ambitious
progress has been made on the Group’s key strategic projects for
future growth. The Committee also noted that none of the targets for
our PSP awards have been altered.
Resulting performance outcomes
Our Remuneration Policy is designed to ensure that a percentage of
Executive Director pay is based on the achievement of demanding
performance targets and is therefore at risk. Maximum pay-out
under the AIP and PSP is only possible as a result of significant
strong out-performance of demanding goals. The Committee has
made a robust and full assessment of both financial and non-
financial measures and carefully considered the impact of COVID-19.
Arising from this, payments under the AIP to Executive Directors
range from 30.0% to 45.0% of salary and I am pleased to confirm
73.9% vesting of the 2018 PSP award.
The Committee is satisfied that the total remuneration received by
Executive Directors for 2020 appropriately reflects the Company’s
performance over the year, is in line with the Policy and is consistent
with the approach taken for other colleagues.
It is also satisfied that the approach to setting remuneration underpins
the effective and proper management of risk by rewarding fairly for
sustainable profit growth and long-term return for shareholders.
The Committee considers that the remuneration paid to Executive
Directors in 2020 (given as a single figure for each Director on page
123) reflects progress made during an extraordinary year, as well as
over the past three years.
Plans and targets for 2021
The Committee agreed that the current arrangements for both the
AIP and LTIP remain appropriate for 2021. Measures, weightings
and ranges are unchanged. AIP measures will continue to be
operating profit (70%), cash generation (20%) and personal strategic
objectives (10%). The AIP targets and achievement will be published
retrospectively. Details of the 2021 LTIP measures and targets, which
are unchanged, are provided on page 129.
Chief Financial Officer appointment
Nimesh Patel joined the Company on 27th July 2020 on a base
salary of £480,000, a pension contribution of 10% of salary (in line
with Policy and at the same level as all new UK colleagues) and
incentives and benefits consistent with the Remuneration Policy
(maximum annual bonus opportunity of 125% of base salary, 2020
PSP award of 175% of salary). Nimesh received both share and PSP
awards designed to compensate him for remuneration forfeited with
his previous employer. These include a share award on joining, which
will lapse should he be a bad leaver within two years of appointment,
together with PSP awards vesting in the period 2021 to 2023 with
approved performance conditions. His salary is higher than his
predecessor’s salary reflecting the external market place from which
we recruited. However, in comparison with the incentive amounts
forfeited at his previous employer, these replacement awards are not
higher in value, vest no earlier and have a higher proportion subject to
performance testing. Further details are found on page 131.
Executive Director retirements in 2020
Kevin Boyd retired on 30th September 2020. Remuneration details of
his replacement, Nimesh Patel, are set out above.
Neil Daws, Managing Director, Steam Specialties, retired on
31st December 2020. Neil’s replacement, Maurizio Preziosa, will not
serve as an Executive Director.
Both Kevin and Neil will be entitled (under the AIP rules) to receive
any bonus payments due (prorated to service where appropriate)
for 2020. They will be entitled to receive in flight shares that vest
under the 2018, 2019 and 2020 PSP awards, prorated for service in
accordance with PSP rules. In addition, the two-year post-termination
shareholding requirements of the 2020 Remuneration Policy will apply.
2021 salary review
The Committee considered salary review arrangements planned
across the Group for implementation with effect from 1st January
2021. The proposed country norm for the UK is 2%, which was
the level of increase applied to the base salaries of the Group Chief
Executive and Chief Financial Officer. The Committee considered a
review was appropriate in the light of 2020 business performance.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Executive pensions
A plan to achieve pension equity across the Group was accelerated in
2020. This included the closure of the UK final salary scheme during
the year. The Committee is reviewing the impact of this decision on
the blended workforce average in the UK and remains committed that
serving Executive Directors will achieve this rate by the close of 2022,
and the maximum rate for Executive Directors will now be the new
joiners rate of 10% by the end of 2023 at the latest.
Looking forward
2020 has been challenging for the business. The Executive Directors,
our Group Executive Committee, along with all of our colleagues
across the world have worked tirelessly to ensure that the business
remains strong and that we and our customers have been able to
stay safe throughout. The Committee is committed to ensuring the
remuneration arrangements continue to support the efforts of the
workforce and the objectives of the strategy, whilst aligning pay with
strong performance.
Environmental, Social and Governance (ESG)
In 2020, the Group made a strong commitment to its ESG agenda by
focusing on sustainability as a key strategic theme (see pages 27 and
35) and appointing a Group Head of Sustainability, who reports to the
Group Chief Executive.
We are on a journey and, as our plans and measures evolve, the
Committee will decide on how best to reflect this important strategic
theme in remuneration arrangements.
Committee focus for 2021
• How to reflect Sustainability/ESG initiatives in
remuneration arrangements.
• How to develop further employee engagement on
remuneration issues.
• Executive Remuneration Philosophy.
Jane Kingston
Chair of Remuneration Committee
9th March 2021
Wider workforce environment and workforce
engagement
In relation to actively engaging with our workforce and compliance
with Code provisions 40 and 41, each year prior to making decisions
on Executive pay, the Committee considers the wider pay and
benefits landscape across our markets including pay reviews,
benefits and bonus arrangements. During this most challenging
year, we continually monitored remuneration decisions taken across
the Group. As trading performance remained strong in Q3 and Q4,
the senior leadership team were very aware of the impact of salary
sacrifice measures implemented at lower levels in some businesses
within the Group. Colleagues were able to raise issues at the regular
all employee virtual town hall meetings that were held throughout
the year. As a Board we were pleased to endorse the proposal in
December to reverse salary reductions volunteered in March at all
levels and in all markets across the Group. This also applied to the
Executive Directors and the Group Executive Committee.
We welcome feedback from employees in one-to-one performance
reviews, Works Council meetings in countries where they operate
as a collective voice, engagement surveys, through line manager
dialogue and up through the HR function to the Group Executive
Committee and Remuneration Committee in our open culture.
Whether our colleagues are shareholders or not, they have access
to this Annual Report (with its clear explanations of the alignment
of Executive Director remuneration to business strategy and wider
workforce pay policy) and our corporate website, and their views are
welcomed. As an international business we operate across countries
with very different cultures, some more comfortable with dialogue
on remuneration and some with greater expectations. Our Executive
remuneration arrangements were largely unchanged for 2020 and so
a lower level of dialogue is to be expected. In the run up to the next
Directors’ Remuneration Policy review we expect the level of two-way
engagement to increase.
We are proactively continuing the development of our Group-wide
engagement and inclusivity framework including via the Employee
Engagement Committee. We hope through these channels to hear
more from colleagues around the world on all aspects of our business
including Executive, and broader aspects of, remuneration, and will
report on progress as this develops.
Shareholder consultation
On behalf of the Committee, I had the opportunity to speak with a
number of our key shareholders whose advice has been reflected in
the 2020 Policy. We consulted extensively with shareholders during
the formulation of the 2020 Remuneration Policy and their input
guided the Committee’s decisions on phased pension payment
reductions for serving Executive Directors. We also confirmed the
implementation of commitments made in 2018 and 2019 when we
carried out a wide-ranging review of Executive Director remuneration
(in-post and post-termination shareholding requirements, bonus
deferral, and addressed both new and incumbent Directors’ pension
arrangements recovery provisions and PSP vesting).
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration at a glance 2020
How we performed
Remuneration key performance indicator
Group operating profit (£m)
Group cash generation (£m)
2018-2020 EPS (%)
2018-2020 relative TSR (percentile TSR)
2020
actual
274.9
275.8
28.2
1st
2020
threshold
278.8
231.1
18.4
50th
2020
target
293.5
243.2
N/A
N/A
2020
maximum
308.1
255.4
41.8
25th
Remuneration measure
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 for shareholders and this is reflected in the results 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
N.B. Patel1
Chief Financial Officer
from 11th September 2020
K.J. Boyd2
Chief Financial Officer
from 10th September 2020
2020
2019
779
271
1,167
£2,220
2020
757
725
1,304
£2,788
2019
300
300
545
830
2020
317
75
975
2019
N/A
£1,367
2020
200
N/A
2019
N/A
2020
354
88
1,149
£1,594
2020
200 317
2019
492
322
708
£1,438
2019
200
204
N.H. Daws3
Managing Director, Steam Specialties
2020
495
114
574
£1,186
2020
200
1,265
2019
481
348
642
£1,473
2019
200
926
Fixed
Annual Bonus
LTIP
Shareholding policy
Actual shareholding
1 N.B. Patel joined the Company on 27th July 2020.
2 K.J. Boyd retired on 30th September 2020.
3 N.H. Daws retired on 31st December 2020.
Overview of the Executive Directors’ Remuneration Policy
Base salary
To enable the Group
to attract, retain and
motivate high-performing
Executive Directors
of the calibre required
to meet the Group’s
strategic objectives.
Benefits
To provide market
competitive benefits, and
to enable the Executive
Directors to undertake their
roles through ensuring their
wellbeing and security.
Pension
To offer appropriate levels
of pension, and to attract
and retain individuals with
the personal attributes,
skills and experience
required to deliver
Group strategy.
Performance Share Plan
(PSP)
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.
Annual bonus award
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.
Changes at a glance 2020
Executive Directors
2020 Base salary
Change from 2019
Non-Executive Directors
2020 Fee
Change from 2019*
Nicholas Anderson
Nimesh Patel1
Kevin Boyd2
Neil Daws
1 From appointment on 27th July 2020.
2 To retirement on 30th September 2020.
£602,000
£480,000
£391,600
£380,400
122
2.9%
N/A
2.9%
2.9%
Jamie Pike
Trudy Schoolenberg
Jane Kingston
Kevin Thompson
Caroline Johnstone
Peter France
Angela Archon1
Olivia Qiu1
£222,360
£63,260
£63,260
£63,260
£63,260
£53,260
£53,260
£53,260
2.9%
2.9%
2.9%
2.9%
2.9%
2.9%
N/A
N/A
* The 2.9% increase applies to base fee. Committee Chair and Senior Independent Director fees
of £10,000 each were unchanged.
1 From appointment on 1st December 2020.
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
Annual Report on Remuneration 2020
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 2020 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 27.
1.0 Annual Report on Remuneration 2020
This section sets out the Directors’ remuneration for the financial year ended 31st December 2020.
Senior leaders’ cost contribution - voluntary salary reduction
Due to the impact of COVID-19, Nicholas Anderson, Kevin Boyd and Neil Daws, together with the Non-Executive Directors and over 100
senior managers and executives across all businesses, volunteered to take a 20% salary reduction for a six-month period with effect from
1st April 2020. Due to a strong business recovery, we were able to shorten this period to four months and, in December 2020, reimburse the
contributions to all those who had participated.
1.1 Single total figure of remuneration (audited)
Executive Directors
Salary
Pension
Benefits4
Total fixed pay
Annual bonus
PSP5
ESOP6
Total variable pay
Single total figure
N.J. Anderson
N.B. Patel1
K.J. Boyd2
N.H. Daws3
2019
£585,000
£146,250
£26,115
£757,365
£724,851
£1,304,135
£1,900
£2,030,886
£2,788,251
2020
£602,000
£150,500
£26,871
£779,371
£270,900
£1,166,935
£2,558
£1,440,393
£2,219,764
2020
2019
N/A
£209,231
N/A
£20,923
N/A
£86,707
N/A
£316,861
N/A
£75,000
N/A
£975,159
N/A
N/A
N/A £1,050,159
N/A £1,367,020
2019
£380,500
£95,125
£16,644
£492,269
£321,918
£708,066
£1,900
£1,031,884
£1,524,153
2020
£267,593
£73,425
£12,844
£353,862
£88,110
£1,149,321
£2,558
£1,239,989
£1,593,851
2019
£369,600
£92,400
£19,128
£481,128
£348,126
£642,201
£1,900
£992,227
£1,473,355
2020
£380,400
£95,100
£19,609
£495,109
£114,120
£573,819
£2,558
£690,497
£1,185,606
Chair and Non-Executive Directors
J. Pike
G.E. Schoolenberg7
J.S. Kingston
K.J. Thompson8
Fees
2019
2020
£216,090
£222,360
Single total figure
£216,090
£222,360
2019
£58,042
£58,042
2020
£63,260
£63,260
2019
£61,760
£61,760
2020
£63,260
£63,260
2019
£39,115
£39,115
2020
£63,260
£63,260
C.A. Johnstone9
P. France
A. Archon10
O. Qui10
Fees
Single total figure
2019
£46,769
£46,769
2020
£63,260
£63,260
2019
£51,760
£51,760
2020
£53,260
£53,260
2019
N/A
N/A
2020
£4,438
£4,438
2019
N/A
N/A
2020
£4,438
£4,438
1
2
3
4
5
N.B. Patel joined the Company on 27th July 2020 and was appointed to the Board on 11th September 2020.
K.J. Boyd retired on 30th September 2020. His 2020 salary excludes the 20% voluntary salary reduction of £26,107 referred to in the paragraph above. (See also Payments to past Directors on page 132.)
N.H. Daws retired on 31st December 2020.
The 2020 Benefits are set out in the table on page 124.
The 2020 column relates to the vesting of the 2018 PSP award on 5th March 2021 (N.J. Anderson, N.B. Patel and N.H. Daws). The 2020 column also relates to the vesting of K.J. Boyd’s 2018 and
2019 PSP awards on his retirement date (30th September 2020). (See page 130 for further details on the vesting of these PSP awards, page 131 for N.B. Patel’s exceptional awards* and page 133
for further details on the interests of Executive Directors in the PSP.) The 2019 column relates to vesting of the 2017 PSP award valued at 8655.0p.
Executive Directors
N.J. Anderson
N.B. Patel
K.J. Boyd
K.J. Boyd
N.H. Daws
Date of grant
of PSP award
04.04.18
27.07.20
04.04.18
15.05.19
04.04.18
Grant share price
5560.0p
7842.0p
5560.0p
8161.3p
5560.0p
No. of vested shares
10,825
9,046
6,682
3,705
5,323
Vesting share price
10780.0p
10780.0p
11065.0p
11065.0p
10780.0p
Amount attributable to
growth in share price
£565,065
£265,771
£367,844
£107,582
£277,861
6 Matching shares awarded during the year based on the mid-market price of the shares on the date of award; 11120.0p for 2020 and 7600.0p for 2019. (See page 133 for further details on the 2020 award.)
7 G.E. Schoolenberg was appointed Senior Independent Director on 15th May 2019.
8 K.J. Thompson was appointed to the Board and as Audit Committee Chair on 15th May 2019.
9 C.A. Johnstone was appointed to the Board on 5th March 2019 and as Chair of the newly established Employee Engagement Committee on 1st June 2019.
10 A. Archon and O. Qiu were appointed on 1st December 2020.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
5. Remuneration continued
Annual Report on Remuneration 2020 continued
Salary/fees
The following table sets out the 2020 base salary with effect from 1st January 2020 for each of the Executive Directors, compared to 2019.
Executive Directors
N.J. Anderson
N.B. Patel1
K.J. Boyd2
N.H. Daws
1 N.B. Patel joined the Company on 27th July 2020.
2 K.J. Boyd retired from the Company on 30th September 2020.
2019
2020
Increase
£585,000
£602,000
N/A
£480,000
£380,500
£391,600
£369,600
£380,400
2.9%
N/A
2.9%
2.9%
The 2020, base salaries increased by 2.9% in line with the relevant workforce average, with above average increases available for top
performers in accordance with internal guidelines. The increases for Executive Directors, like those of the broader UK employee population, took
account of both individual performance and market data.
Nimesh Patel’s salary is higher than his predecessor’s (Kevin Boyd) reflecting the external market place from which we recruited.
The following table sets out the Policy fees for the Chair and Non-Executive Directors for 2020. Actual fees received, based on role and date
of appointment, are set out in the Single Total Figure of Remuneration table on page 123. 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
J. Pike
G.E. Schoolenberg1
J.S. Kingston2
K.J. Thompson2
C.A. Johnstone2
P. France
A. Archon3
O. Qiu3
Basic fees
Additional fees
2020 Total fees
£222,360
N/A
£222,360
£53,260
£53,260
£53,260
£53,260
£53,260
£53,260
£53,260
£10,000
£10,000
£10,000
£10,000
N/A
N/A
N/A
£63,260
£63,260
£63,260
£63,260
£53,260
£53,260
£53,260
1 G.E. Schoolenberg received £10,000 in respect of her duties as Senior Independent Director.
2 C.A. Johnstone, J.S. Kingston and K.J. Thompson each received £10,000 in respect of their role as Employee Engagement Committee Chair, Remuneration Committee Chair and Audit Committee
Chair respectively.
3 A. Archon and O. Qiu were appointed on 1st December 2020.
The Chair and Non-Executive Director fees were reviewed at the end of 2019 and were increased by 2.9%, consistent with the average rate of
increase in the UK. The fee for the Senior Independent Director and Committee Chairs remained at £10,000, the benchmarked median.
Benefits (excluding pension)
Benefits
Company car and associated running costs or cash
alternative allowance
Private health insurance
Mobility-related benefit – relocation allowance
N.J. Anderson
N.B. Patel1
K.J. Boyd2
N.H. Daws
£26,467
£404
–
£7,289
£173
£79,245
£12,541
£19,205
£303
–
£404
–
1
2
N.B. Patel joined the Company on 27th July 2020 and was appointed to the Board on 11th September 2020.
K.J. Boyd retired on 30th September 2020.
Pension
Full details of the pension benefits are set out at section 1.2 on page 131.
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.
124
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 For the Group Chief Executive, achievement of target performance results in a bonus of 90% of salary, increasing to 150% of salary for
maximum performance. For the new Chief Financial Officer, Nimesh Patel, achievement of target performance results in a bonus of 75% of
salary, increasing to 125% of salary for maximum performance. For the previous Chief Financial Officer, Kevin Boyd (retired 30th September
2020), and the Managing Director, Steam Specialties, Neil Daws (retired 31st December 2020), achievement of target performance resulted in a
bonus of 60% of salary, increasing to 100% of salary for maximum performance.
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,
gross misconduct, corporate failure or reputational damage.
In accordance with Policy, Executive Directors must use any bonus earned over 80% of maximum opportunity net of tax, if they have met
their shareholding requirement, or any bonus earned over 60% of maximum opportunity, net of tax, if they have not met their shareholding
requirement, to purchase shares in the Company until their shareholding guideline has been met. The shares must be held for two years. This is,
in effect, a bonus deferral mechanism. To demonstrate our commitment to this principle, prior to the introduction of our 2020 Remuneration
Policy, in 2019 our Group Chief Executive volunteered that any bonus earned above 125% (his maximum bonus opportunity at that time) would
be subject to this mechanism for a two-year holding period.
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.
2020 Measures (% of bonus)
Group operating profit (70%)
Group cash generation (20%)
Personal strategic objectives (10%)
Steam Specialties operating profit (50%)
Group operating profit (20%)
Group cash generation (20%)
Personal strategic objectives (10%)
1
2
N.B. Patel joined the Company on 27th July 2020.
K.J. Boyd retired from the Company on 30th September 2020.
Achieved (% of bonus)
N.J. Anderson
0%
20%
10%
–
–
–
–
N.B. Patel1
0%
20%
10%
–
–
–
–
K.J. Boyd2
0%
20%
10%
–
–
–
–
N.H. Daws
–
–
–
0%
0%
20%
10%
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.
2020 was a good year for the Group producing robust and reliable results in the face of a pandemic headwind and increased dividend to
shareholders. The annual bonus payments to Executive Directors ranged between 30% and 45% of salary.
The table below summarises the achieved performance in 2020 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
Steam Specialties operating profit
Actual
performance1
Achieved
(% of target)
£274.9m
£275.8m
£156.9m
93.7%
113.4%
90.6%
Threshold
£278.8m
£231.1m
£164.4m
Target
£293.5m
£243.2m
£173.1m
Maximum
£308.1m
£255.4m
£181.7m
1
To comply with the annual bonus plan rules these metrics use, as a base, the actual adjusted operating profit of £270.4 million for segmental operating profit performance, and exclude centrally
allocated overheads from both the target measure and actual performance.
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
2021 meeting, the Committee reviewed the recommendations and approved a final decision.
The personal strategic objectives for 2020 are detailed on pages 126 to 128.
125
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Annual Report on Remuneration 2020 continued
Personal strategic
objective 2020
Description
Achievement
Nicholas Anderson
Health, Safety and
Sustainability (HS&S)
Improve the Group’s HS&S performance: ensure
improved H&S performance across the Group’s
Finance function, strengthening HS&S awareness and
culture. Support the implementation of the Group’s
Sustainability programme.
The Group’s HS&S performance improved in 2020 with both lagging
and leading indicators making progress on 2019. There was a 15%
reduction in lost time incidents. The number of minor (first aid) accidents
fell by 30% in 2020 to 340 (482 in 2019). The 2020 Group accident
rates (per 100,000 work hours) for lost time injuries improved by 12%
while the “all accidents” rate fell by 13%.
Strategy
implementation
Review and refresh the business strategies
for the Watson-Marlow and Electric Thermal
Solutions businesses.
Thermocoax
integration
Complete the integration of Thermocoax into the
Electric Thermal Solutions business.
COVID-19
Successfully navigate Group through
COVID-19 pandemic.
Nimesh Patel
Health, Safety and
Sustainability (HS&S)
Support the Group’s HS&S drive to improve
performance, strengthening HS&S awareness and
culture. Support the implementation of the Group’s
Sustainability programme.
Investor relations
Maintain excellent shareholder relations, keeping
shareholders and the market appropriately informed
to ensure analyst consensus remains in line with
management’s expected business performance.
Both business strategy reviews commenced in mid-January with full
participation of the respective senior leadership teams. Final versions
were presented at the Board strategy meeting in June and,
during Q3, both businesses launched strategies to all employees.
The implementation and governance plans were finalised during
Q4 2020.
Thermocoax Isopad GmbH integrated with Chromalox Germany GmbH
in October 2019 and during 2020 performed in line with expectations.
Full year trading profit remained positive, despite sales volume being
below Plan due to the COVID-19 pandemic. The integration of the small
Alpharetta (USA) manufacturing facility into the Tennessee and Laredo
plants was postponed until performance of the receiving plants has
stabilised. Combined engineering, business development and back-
office activities were created in France and the USA, while the integration
of customer-facing activities were defined during the Electric Thermal
Solutions business strategy review and will be implemented from
2021 onwards.
Multiple initiatives were undertaken to minimise infection rates
amongst our global workforce and protect their health, safety and
wellbeing. Only 10 of 30 manufacturing facilities suffered brief business
interruptions, none lasting more than 15 days. Sadly, cases of COVID-19
occurred amongst our employee base (3.7%) in 2020, with 197 cases
(68%) occurring in Q4 as the second and third pandemic waves ravaged
the northern hemisphere. However, in over 85% of the confirmed cases,
we were able to verify that the infections did not occur while in the
Group’s facilities, validating the strong protocols implemented across
the Group. We secured extra liquidity lines preventively during Q2 and
exceeded the £39 million full-year overhead savings target against Plan,
underpinning the 22.7% trading profit margin achieved in 2020.
Engagement through the Group Executive Committee to help drive
our continued commitment to improving safety and progressing our
initiatives; supported the wellbeing of the Finance team during lockdown
through regular 1:1 engagements and online social activities; worked
with the Head of Sustainability to appoint consultants, understand
investor needs and assess reporting frameworks; and introduced a
specific Safety, Inclusion and Sustainability conversation within the
Finance community to help emphasise that every person has a role in
fulfilling our purpose.
Increased investor engagement through virtual meetings during
COVID-19 to ensure investor base was kept informed on our response
to the pandemic; built relationships with the analysts and ensured we
were available to help them understand the business, its performance
and prospects; and continued the development of the Investor Relations
Officer, including through the defining our more structured approach to
investor relations.
126
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Personal strategic
objective 2020
Description
Achievement
Nimesh Patel continued
Information Technology
and Systems
Advance the Group’s global cybersecurity
infrastructure, processes and responsiveness.
Support the Steam Specialties’ development of
a global Enterprise Resource Planning (ERP),
Customer Relationship Management (CRM) and
Business Intelligence (BI) proposal (Project OPAL) and
digital strategy.
Progressed our cybersecurity defences through achieving Cyber
Essentials certification for Spirax Sarco and Watson-Marlow, continuing
the education of internal colleagues around the threat and partnering
with Verizon for cyber monitoring and response; supported the
development of Project OPAL, successfully rolled-out in the Nordics;
and contributed to the digital strategy through Information Systems’
participation and based on prior experience.
COVID-19
Support the Group’s initiatives in response to the
COVID-19 pandemic: deploy all necessary actions to
minimise infection rates and maintain safe operations
across the Group during the COVID-19 pandemic,
while maintaining the Group’s reported trading margin
above 20.0% in 2020.
Worked to model the impact of the pandemic on the financial position
of the Group and develop response plans; engaged with financing
providers to maintain support and confidence in our ability to withstand
the challenges; and worked to ensure no disruption to critical Group
processes as a result of pandemic related restrictions (e.g. internal and
external audit).
Kevin Boyd
Health, Safety and
Sustainability (HS&S)
Investor Relations
Information Technology
and Systems
Treasury
COVID-19
Improve the Group’s HS&S performance: ensure
improved H&S performance across the Group’s
Finance function, strengthening HS&S awareness and
culture. Support the implementation of the Group’s
Sustainability programme.
Maintain excellent shareholder relations, keeping
shareholders and the market appropriately informed
to ensure analyst consensus remains in line with
management’s expected business performance.
Advance the Group’s global cybersecurity
infrastructure, processes and responsiveness.
Support the Steam Specialties’ development of
a global Enterprise Resource Planning (ERP),
Customer Relationship Management (CRM) and
Business Intelligence (BI) proposal (Project OPAL)
and digital strategy.
Develop and implement a new Group foreign
exchange hedging policy. Strengthen Group cash
flow management and reporting practices across
the Group’s operating companies. Appoint a
third bank and implement cash pooling in Europe
and the USA. Support mergers and acquisitions
funding requirements.
Support the Group’s initiatives in response to the
COVID-19 pandemic: deploy all necessary actions to
minimise infection rates and maintain safe operations
across the Group during the COVID-19 pandemic,
while maintaining the Group’s reported trading margin
above 20.0% in 2020.
The Group’s HS&S performance improved in 2020 with both lagging
and leading indicators making progress on 2019. There was a 15%
reduction in lost time incidents. The number of minor (first aid) accidents
fell by 30% in 2020 to 340 (482 in 2019). The 2020 Group accident
rates (per 100,000 work hours) for lost time injuries improved by 12%
while the “all accidents” rate fell by 13%.
Increased investor relations activity during the crucial time of lockdown
to ensure the investor base was kept informed on how we were dealing
with the pandemic; attended a number of virtual conferences and
roadshows; and trained the Investor Relations Officer.
Cybersecurity remained a priority and continued to advance.
The Information Systems department supported colleagues in other
areas of the business on Project OPAL and digital strategy.
New foreign exchange hedging policy implemented; cash reporting
strengthened during pandemic; enlarged Revolving Credit Facility
secured in middle of first lockdown ahead of schedule; achieved
third party Investment Grade credit rating and government COVID
Corporate Financing Facility secured (but not drawn down). US Private
Placement secured and drawn down to support balance sheet during
first lockdown; third bank appointed and cash pooling in Europe and
USA implemented.
The work done on securing the Group’s liquidity during the initial
lockdown (see Treasury above) gave us the security to pay dividends
and not take government aid. Reassured and communicated with
investors to ensure ongoing share price stability and growth.
Neil Daws
Health, Safety and
Sustainability (HS&S)
Ensure improved Health & Safety performance in
the Steam Specialties business, strengthening the
EH&S awareness and culture. Implement Behavioural
Based Safety (BBS) in all Supply companies
and continue the implementation of the Group’s
Sustainability programme.
Year-on-year 25% reduction in “all accidents” and 39% reduction in
“lost time injuries” in Steam Specialties. Achieved zero “lost time injuries”
in the final two months of 2020. BBS training rolled out in all Sales
and Supply companies. BBS observations at 2,500 in 2020 with 90%
closure within one month. Steam Specialties carbon intensity reduced
by 10% in 2020 and tonnes of carbon emitted reduced by 15%.
Head of Sustainability appointed 1st December 2020.
127
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Annual Report on Remuneration 2020 continued
Personal strategic
objective 2020
Description
Achievement
Neil Daws continued
Strategy
implementation
Thermal
Energy Synergies
Project OPAL
COVID-19
Drive continuous strategy implementation, increasing
product vitality through the launch of seven new
products, effective price index pricing to match or
exceed weighted average cost of inflation (WACI)
and advance Gestra Market Intelligence Committee
(MIC). Pilot Computer-aided Design (CAD)/Product
Development Management (PDM) approach to
prove concept by mid-2020. Start implementation
of digital strategy through smart maintenance pilot.
Accelerate Employee Engagement programmes.
Co-sponsor a synergy project with the Electric
Thermal Solutions business, with special priority
on de-carbonisation of steam generation through
medium voltage heating solutions.
Ensure successful roll-out across the Nordics region
by April 2020 and Argentina and Latin America by
October 2020.
(ERP (Enterprise Resource Planning), CRM
(Customer Relationship Management), CPQ
(Configure, Price, Quote) and BI (Business
Intelligence) modules.)
Successfully navigate Steam Specialties through
COVID-19 pandemic: deploy all necessary actions to
minimise infection rates and maintain safe operations
across Steam Specialties, while maintaining the
Group’s reported trading margin above 20.0%
in 2020.
Continued strong momentum in Customer First, all target sectors
other than Oil & Gas have growth above the market, service levels
are at record highs, product vitality has risen and pricing activity to
achieve plan. CAD/PDM pilot has proven (exceeded) business benefit
leading to higher levels of new product introduction. Digital maturity
and offers continue to progress. New orders won for digital installation
and maintenance contracts. E-commerce active in 10 target operating
companies enabling customers’ self-product selection, application
advice, pricing and order placement.
Required delayed start whilst Electric Thermal Solutions developed their
business strategy during H1. Strong progress through H2 with very
committed team and strong signs of business synergy and customer
pull once solutions are proven. Combined market pilot running in the
USA to validate sectorisation and cross-selling.
COVID work from home limitations delayed Nordics roll-out to
September. However, instead of ERP only roll-out in April, we rolled
out the complete system in September. Roll-out very successful, no
loss of business, with transactions restarted within first 24 hours.
Argentina model (includes Supply) making good progress, targeted for
March 2021 roll-out as now the basis of Group-wide Supply model.
Plans in place to roll out to 15 operating companies during 2021.
29 operating companies already live on new CRM.
Major effort went into keeping our workplaces and employees safe.
We did suffer constant inevitable infections but less than 12% (16 in
total) happened in the workplace. Longest factory closure was India,
for two weeks, due to Government instruction, customer impact barely
registered globally and we believe we won market share due to our
product availability. 3,500 nozzles manufactured for ventilators and over
6,000 pieces of personal protective equipment (PPE) donated to the
local community in Cheltenham during the first wave.
The personal strategic objective achievement levels are set out below.
N.J. Anderson
N.B. Patel1
K.J. Boyd2
N.H. Daws
Fully achieved
Partly achieved
Not achieved
% of bonus
Performance targets
4
4
5
5
0
0
0
0
0
0
0
0
10%
10%
10%
10%
1
2
N.B. Patel joined the Company on 27th July 2020 and was appointed to the Board on 11th September 2020.
K.J. Boyd retired on 30th September 2020.
As a result of this performance in 2020, the following bonuses were achieved:
Executive Directors
N.J. Anderson
N.B. Patel1
K.J. Boyd2
N.H. Daws
1
2
N.B. Patel joined the Company on 27th July 2020 and was appointed to the Board on 11th September 2020.
K.J. Boyd retired on 30th September 2020.
Bonus achieved
£270,900
£75,000
£88,110
£114,120
Bonus
(% of salary)
45.0%
37.5%
30.0%
30.0%
128
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 The following graph provides a six-year summary of bonus outcomes for the Group Chief Executive against the performance of adjusted Group
operating profit. This illustrates the strong historical alignment between pay and performance.
2020*
2019
2018
2017
2016
2015
274.9
277.3
Adjusted Group operating profit* (£m)
Actual bonus as a %
of CEO maximum opportunity
264.9
*
Includes the acquisition of Thermocoax.
235.5
180.6
152.4
50
75
100
Actual bonus as a percentage of maximum opportunity
0
25
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 remuneration) and clawback (reimbursement
of remuneration 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, gross misconduct, corporate failure or reputational damage.
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
Maximum requirement
Global IP +2% pa1
Median TSR
Global IP +8% pa
Upper quartile TSR
1 The Global Industrial Production (IP) data source is the CHR Metals Global IP Index, providing data that incorporates over 90% of global industrial output.
For awards made in 2019 onwards, the Committee has reduced the value that can be earned for threshold performance from 25% of the award
to 18%. 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 2017, which was intended to be long-term in nature, the Committee reviewed the historical and projected data (2008 to 2021),
including the Group’s performance, market benchmarks and analysts’ consensus. The Committee remains confident that this range remains
sufficiently challenging across various market environments. Since 2018, EPS targets are also augmented to reflect the EPS obtained through
major acquisitions. EPS disposed through the divestment of operating companies reduces EPS targets.
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 Supersector 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 55 companies.
PSP awards vesting over 2018-2020
In 2018 the Executive Directors received share awards under the PSP, with vesting subject to EPS growth and relative TSR performance.
The diagrams on page 130 set out details of the performance measures and targets that applied, along with the actual performance during the
period 1st January 2018 to 31st December 2020.
129
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Annual Report on Remuneration 2020 continued
Relative TSR performance (40% of PSP award)
Over the three-year period to 31st December 2020, the Company delivered a TSR of 108.1%. This ranked in the top decile TSR of the
comparator group significantly above the level required for full vesting. The comparator group, comprising 54 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.
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
100%
75%
50%
25%
0%
Bottom
Lower
quartile
Median
Upper
quartile
Top
TSR performance ranking*
Threshold
Maximum
Actual
Target
TSR
Vesting
Median TSR
-8.0% 25.0%
Upper quartile TSR or above
20.7% 100.0%
108.1% 100.0%
* 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 2020, the Company delivered adjusted EPS growth of 28.2%. This equated to growth of
approximately 8.6% 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. EPS is based on growth in excess of Global IP
growth rates and augmented following the acquisitions of Gestra and Chromalox (see page 129).
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%
Point-to-point EPS growth
Threshold
Maximum
Actual
Performance (over 3 years)
18.4%
41.8%
28.2%
Vesting
25.0%
100.0%
56.4%
Actual EPS growth*
28.2%
Maximum target:
21.7%
20.1%
Threshold target:
2.3%
16.1%
Growth on 2017 EPS base
Target adjustments for acquisitions
* Excludes the contribution of HygroMatik, which was sold in 2018, from the 2017 base.
As a result of the strong Company performance, as measured by relative TSR and EPS growth, 73.9% of the shares awarded under the 2018
PSP vested for Nicholas Anderson, Nimesh Patel and Neil Daws. The Committee considers that this result reflects holistic performance and a
very positive return for shareholders.
91.8% of the shares awarded to Kevin Boyd under the 2018 PSP and 77.9% of the shares awarded under the 2019 PSP vested on
30th September 2020, his date of retirement.
Executive Directors
N.J. Anderson
N.B. Patel1
K.J. Boyd2
K.J. Boyd2
N.H. Daws
Award1
14,649
12,241
7,942
8,158
7,203
Vested1,2
10,825
9,046
6,682
3,705
5,323
Lapsed
Value on vesting3
3,824
3,195
1,260
4,453
1,880
£1,166,935
£975,159
£739,363
£409,958
£573,819
1 As set out on page 131, N.B. Patel received an exceptional PSP award at onboarding to replace existing arrangements with his former employer. Usual performance conditions applied. 63.85% of
the award vested in the form of shares (5,776 shares) and 36.15% of the award vested in the form of a Nil Cost Option (3,270 shares) exercisable from March 2023.
2 K.J. Boyd retired on 30th September 2020. Both his 2018 (7,942 shares) and 2019 (8,158 shares) PSP awards vested on retirement. The above awards have been prorated for service.
3 Based on share price at dates of vesting; 5th March 2021 (10780.0p) for N.J. Anderson, N.B. Patel and N.H. Daws and 30th September 2020 (11065.0p) for K.J. Boyd.
130
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
1.2 Pension (audited)
In line with the 2020 Policy which states incumbent Executive Directors’ maximum pension is to be, by 31st December 2022, the
current blended average in the market in which the Executive Director is based, reducing to the new Executive Director level by 2025,
Nicholas Anderson received 25% of his basic salary in cash which, in the year ended 31st December 2020, amounted to £150,500.
Further to the above, a plan to achieve pension equity across the Group was accelerated in 2020. This included the closure of the UK final
salary scheme during the year. The Committee is reviewing the impact of this decision on the blended workforce average in the UK and remains
committed that serving Executive Directors will achieve this rate by the close of 2022, and the maximum rate for the Executive Directors will now
be the new joiners rate of 10% by the end of 2023 at the latest.
Under the 2020 Policy, the maximum pension contribution for new Executive Directors is the same as the majority of newly appointed
employees receive in the market in which the Executive Director is based. Therefore, Nimesh Patel receives 10% of his basic salary in cash
which, in the year ended 31st December 2020, amounted to £20,923.
In lieu of pension benefits, Kevin Boyd received 25% of his basic salary in cash which, in the year ended 31st December 2020, amounted to
£73,425. Kevin Boyd retired on 30th September 2020.
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 2020 were £6,516,860. In lieu of pension benefits, he received 25% of his
basic salary in cash which, in the year ended 31st December 2020, amounted to £95,100. Neil Daws retired on 31st December 2020.
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 (200% for the
Group Chief Executive and 175% for the Executive Directors) of base salary, using the share price at date of award (7775.0p). Awards were
made on 13th March 2020. Nimesh Patel’s award was made on 27th July 2020, his date of appointment, using the share price on 1st April
2020 (7842.0p), the date of his service agreement.
For awards made in 2020, 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 129.
Executive Director
N.J. Anderson
K.J. Boyd1
N.B. Patel
N.H. Daws2
PSP award1, 2
15,485 shares
8,814 shares
10,711 shares
8,562 shares
Face value3
£1,203,959
£685,288
£839,957
£665,695
Last day of the
performance
period
Vesting at
threshold
performance
31.12.22
31.12.22
31.12.22
31.12.22
18%
18%
18%
18%
1 K.J. Boyd retired on 30th September 2020. The above award has been prorated for service to 2,203 shares.
2 N.H. Daws retired on 31st December 2020. The above award has been prorated for service to 2,854 shares.
3 Based on share price at date of award; 7775.0p for N.J. Anderson, K.J. Boyd and N.H. Daws and 7842.0p for N.B. Patel, as explained in the paragraph above.
Exceptional awards - Nimesh Patel
Awards were granted to Nimesh Patel to compensate him for remuneration forfeited with his previous employer. These include a share award
on joining, which will lapse should he be a bad leaver within two years of appointment, together with PSP awards vesting in 2021 and 2022
with the same performance conditions as PSP awards granted under the Spirax Sarco Performance Share Plan that have performance periods
ending on the same date. These performance conditions are explained further on page 129. The share price on 1st April 2020 (7842.0p), the
date of Nimesh’s service agreement, was used and the awards were made on 27th July 2020, his date of appointment. These awards are not
subject to a holding period.
Executive Director
N.B. Patel1
N.B. Patel2
N.B. Patel
Type of award
Award
Nil cost option
3,835 shares
PSP
PSP
12,241 shares
12,241 shares
Face value
£300,741
£959,939
£959,939
Last day of the
performance
period
Vesting at
threshold
performance
N/A
31.12.20
31.12.21
N/A
25%
18%
1 Award will lapse if N.B. Patel is a bad leaver within two years of date of appointment.
2 See page 130 for vesting of this award.
Spirax-Sarco Engineering plc Employee Share Ownership Plan (ESOP)
Executive Directors are eligible to participate in an HMRC approved Share Incentive Plan known as the ESOP. Nicholas Anderson is a participant
and Kevin Boyd and Neil Daws were participants until retirement. Nimesh Patel was not eligible to participate in the 2019 ESOP. However, he is
a participant in the 2020 ESOP which has a share purchase date of October 2021.
131
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Annual Report on Remuneration 2020 continued
During the year ended 31st December 2020, Nicholas Anderson, Kevin Boyd and Neil Daws each purchased 23 partnership shares, were
each awarded 23 matching shares and received eight, one and 12 dividend shares respectively. Further information is set out in the table on
page 133.
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 2020, 75.06% of eligible UK employees purchased partnership shares and were awarded
matching shares under the ESOP.
1.4 Payments to past Directors (audited)
Following his retirement from the Company on 30th September 2020, Kevin Boyd received a payment related to his bonus entitlement as set
out on page 128. In addition, the senior leaders’ cost contribution voluntary salary reduction of 20% (£26,107) was reimbursed (see page 123).
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 2020.
1.6 Statement of Directors’ shareholding and share interests (audited)
Progress towards share ownership guideline
In January 2019, the Executive Directors’ share ownership guidelines were increased from 200% to 300% of base salary for the Group Chief
Executive and from 125% to 200% of base salary for the other Executive Directors. These increased guidelines are included in our 2020 Policy.
The share ownership guidelines have been met by all Executive Directors, as illustrated in the chart below, with the exception of Nimesh Patel
who joined the Company on 27th July 2020. The value of the shareholding is taken at 31st December 2020 as a percentage of 2020 base
salary. The share price on 31st December 2020 was 11295.0p.
EDs' May 2025/
CFO (N.B. Patel) July 2025 target
200%
CEO May
2025 target
300%
316.8%
829.5%
N.J. Anderson
K.J. Boyd
N.B. Patel
N.H. Daws
926.5%
1264.7%
0
75
150
225
300
375
450
525
600
675
750
825
900
975
1050
1125
1200
1275
Share ownership (% of salary)
Outstanding share interests
The following table summarises the total interests of the Directors in shares of the Company as at 31st December 2020 or, as in Kevin Boyd’s
case, date of retirement if earlier. These cover beneficial and conditional interests. No Director had any dealing in the shares of the Company
between 31st December 2020 and 9th March 2021.
Beneficial1
PSP awards2, 5
9,946
43,476
0
10,867
41,456
2,754
3,900
3,800
443
980
0
0
N/A
44,469
35,193
24,914
23,690
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Nil-cost
options3
N/A
0
3,835
0
3,995
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Total 31.12.20
(or date of
retirement
if earlier5)
9,946
88,682
39,028
35,897
70,279
2,754
3,900
3,800
443
980
0
0
ESOP
shares4, 5
N/A
737
0
116
1,138
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Total
09.03.216
9,946
84,858
35,833
–
–
2,754
3,900
3,800
443
980
0
0
J. Pike
N.J. Anderson
N.B. Patel
K.J. Boyd5
N.H. Daws
G.E. Schoolenberg
J.S. Kingston
K.J. Thompson
C.A. Johnstone
P. France
A. Archon7
O. Qiu7
132
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 1 Shares include any owned by connected persons.
2 Subject to the performance measures as set out on pages 129 to 130.
3 Explained in the table on page 131 (N.B. Patel) and in footnote 6 under the PSP table below (N.H. Daws).
4 Not subject to performance measures.
5
In addition, 23 partnership shares were purchased, at a price of 7835.0p, and 23 matching shares were awarded on 7th October 2020 in relation to K.J. Boyd’s participation in the 2019 ESOP for the
12-month period from 1st October 2019 to 30th September 2020.
6 The decrease in shareholding at 9th March 2021 for N.J. Anderson and N.B. Patel is a result of 73.9% of the 2018 PSP award vesting and the balance of the award therefore lapsing. Full details are
set out on page 130.
7 A. Archon and O. Qiu joined the Board on 1st December 2020.
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
04.04.18/
27.07.202
14,649
12,241
7,942
7,203
26.05.171
15,068
–
8,181
7,420
15.05.19/
27.07.203
14,335
12,241
8,158
7,925
Balance
01.01.20/
27.07.20
44,052
24,482
24,281
22,548
Vested
05.03.201
15,068
–
8,181
7,420
Lapsed
05.03.201
0
–
0
0
Awarded
13.03.20/
27.07.204
15,485
10,711
8,814
8,562
Balance
31.12.20
44,469
35,193
24,914
23,690
N.J. Anderson
N.B. Patel
K.J. Boyd5
N.H. Daws5, 6
1 The average mid-market price of the shares from 19th May to 25th May 2017 inclusive was 5256.0p. This was applied in determining the number of shares subject to the PSP awards granted on
26th May 2017. During the performance period 1st January 2017 to 31st December 2019, the TSR and the EPS performance of the Company resulted in 100% vesting. The shares vested on
5th March 2020 and the mid-market price of the shares on this date was 8655.0p. The 2017 awards vested in the form of whole shares.
2
The mid-market prices of the shares on 4th April 2018 and 1st April 2020 were 5560.0p and 7842.0p respectively. These were applied in determining the number of shares subject to the PSP
awards granted on 4th April 2018 (to N.J. Anderson, K.J. Boyd and N.H. Daws) and 27th July 2020 (to N.B. Patel) respectively. The period over which performance measures are calculated is
1st January 2018 to 31st December 2020. Details of the performance measures attached to these PSP awards are set out on pages 129 to 130 and details of the vesting of this award are set out on
page 130. Further detail on N.B. Patel’s exceptional PSP award is set out on page 131.
3 The average mid-market price of the shares from 9th May to 14th May 2019 was 8161.3p (N.J. Anderson, K.J. Boyd and N.H. Daws’ awards). The share price on 1st April 2020 was 7842.0p
(N.B. Patel’s award). The period over which performance measures are calculated is 1st January 2019 to 31st December 2021. 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 18% 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 18% of this portion of the PSP award to vest, increasing to full vesting for growth of Global IP +8% per annum. A two-year
post-vesting holding period applies to these awards, with the exception of N.B. Patel’s exceptional PSP award. Further detail on this exceptional PSP award is set out on page 131.
4
The mid-market prices of the shares on 12th March 2020 and 1st April 2020 were 7775.0p and 7842.0p respectively. These were applied in determining the number of shares subject to the PSP
awards granted on 13th March 2020 (to N.J. Anderson, K.J. Boyd and N.H. Daws) and 27th July 2020 (to N.B. Patel) respectively. The period over which performance measures are calculated is 1st
January 2020 to 31st December 2022. Details of the performance measures attached to these PSP awards are set out on page 129. A two-year post-vesting holding period applies to these awards.
5 K.J. Boyd retired on 30th September 2020. His 2018 and 2019 PSP awards vested on this date. Details of the vesting of the 2018 PSP award are set out on page 130. The 2019 PSP award
was prorated accordingly resulting in the vesting of 3,705 shares. The 2020 PSP award has been prorated for service to 2,203 shares (see page 131). N.H. Daws retired on 31st December 2020.
Details of the vesting of the 2018 PSP award are set out on page 130. The 2019 PSP award has been prorated for service to 5,283 shares. The 2020 PSP award has been prorated for service to
2,854 shares (see page 131).
6 As noted in previous years, the 2011 PSP award that vested in 2014 took the form of a nil cost option. At 31st December 2020, N.H. Daws had a nil cost option balance of 3,995 shares.
Spirax-Sarco Engineering plc Employee Share Ownership Plan (ESOP)
The interests of eligible Executive Directors are set out below.
Balance
01.01.20
Partnership shares
purchased1
Matching shares
awarded1
Dividend
shares2
Balance
31.12.20
(or date of
retirement if earlier1)
Period of qualifying
conditions3
N.J. Anderson
K.J. Boyd1
N.H. Daws
683
115
1,080
23
–
23
23
–
23
8
1
12
737
116
1,138
3 years
3 years
3 years
1
2
3
Partnership shares were purchased, at a price of 7835.0p, and matching shares were awarded on 7th October 2020. The mid-market price of the shares on that date was 11120.0p. In addition,
23 partnership shares were purchased and 23 matching shares were awarded, on this same basis, to K.J. Boyd in relation to his participation in the 2019 ESOP for the 12-month period from
1st October 2019 to 30th September 2020. K.J. Boyd retired on 30th September 2020.
16 dividend shares were received on 22nd May 2020, on which date the mid-market price of the shares was 9732.0p. Five dividend shares were received on 6th November 2020, on which date the
mid-market price of the shares was 11815.0p.
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 2020.
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.
133
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Annual Report on Remuneration 2020 continued
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.
Executive Directors
N.J. Anderson
N.B. Patel
K.J. Boyd
N.H. Daws
Chair and Non-Executive Directors
J. Pike
A. Archon
P. France
C.A. Johnstone
J.S. Kingston
O. Qiu
G.E. Schoolenberg
K.J. Thompson
Original
appointment date
Current agreement/
appointment/
re-appointment letter1
15.03.12
27.07.20
15.03.12
01.06.03
01.05.14
01.12.20
06.03.18
05.03.19
01.09.16
01.12.20
01.08.12
15.05.19
13.12.13
01.04.20
17.04.12
25.09.12
15.05.18
30.10.20
04.03.21
27.02.19
05.08.19
27.10.20
12.07.18
15.05.19
Expiry
date
N/A
N/A
30.09.20
31.12.20
14.05.21
30.11.23
05.03.24
04.03.22
31.08.22
30.11.23
31.07.21
14.05.22
Notice
period
12 months
12 months
12 months
12 months
1 month
1 month
1 month
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
Nicholas Anderson served as a Non-Executive Director at BAE Systems plc from 1st November 2020, for which he received and retained total
fees of £14,167.
Kevin Boyd served as a Non-Executive Director and Audit Committee Chair at EMIS Group plc and as a Non-Executive Director of Bodycote plc
(with effect from 1st September 2020) and Polypipe Group plc (with effect from 22nd September 2020), for which he received and retained total
fees of £39,750, £4,946 and £1,411 respectively up to 30th September 2020.
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 2010 to December 2020. 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. The graph also includes a
comparison to the FTSE 100 and shows a similar level of out-performance.
)
£
(
l
e
u
a
V
800
700
600
500
400
300
200
100
0
£708.6
£246.5
£160.2
Spirax-Sarco
Engineering plc
FTSE 350
Industrial Goods
and Services
Supersector
FTSE 100
Source: DataStream
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
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.
2020
2019
2018
2017
2016
2015
2014 (N.J. Anderson appointed Group Chief Executive in January 2014)
2013
2012
2011
134
Single figure of
annual remuneration
Annual variable pay
as % of maximum
Vested PSP awards
value as % of maximum
£2,219,764
£2,788,251
£2,323,478
£2,172,620
£1,610,891
£1,191,137
£1,000,115
£1,593,150
£1,402,668
£1,516,798
30.00%
82.60%
92.48%
100.00%
99.20%
61.39%
55.76%
95.24%
31.69%
80.08%
73.90%
100.00%
100.00%
100.00%
40.00%
80.33%
33.06%
29.93%
74.60%
100.00%
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020
Group Chief Executive pay ratio
The table below details the ratio of the Group Chief Executive’s single figure of total remuneration to the median, 25th and 75th percentile total
remuneration of the Group’s full-time equivalent UK employees. Option B has been chosen for these calculations as the data used is consistent
with that collected to inform the Group’s UK gender pay gap report.
Financial year
2020
Single figure total
remuneration
Salary
Benefits
Bonus
PSP
Pension
ESOP
Total pay
Method
Option B
CEO
£602,000
£26,871
£270,900
£1,166,935
£150,500
£2,558
£2,219,764
25th percentile
pay ratio
76:1
25th
(lower quartile)
£25,841
–
£1,000
–
£1,333
£1,112
£29,286
50th median
pay ratio
66:1
50th
(median)
£30,567
–
£1,000
–
£917
£1,223
£33,707
75th percentile
pay ratio
45:1
75th
(upper quartile)
£43,417
–
£1,000
–
£2,768
£1,779
£48,964
Year-on-year commentary
The median of our employee pay and benefits total pay is less than it was in 2019. The drivers for the change in the Group Chief Executive’s
pay ratio year-on-year is the reduction in the Group Chief Executive’s performance-related pay elements and a lower total pay figure for the
employee at the 50th median percentile. Performance-related pay elements were lower across the Group at all levels due to the unprecedented
trading environment in 2020.
Pay Policy
The reward policies and practices for our workforce as a whole follow those set for the Executive Directors, including the Group Chief Executive,
as detailed on page 123. The Committee has responsibility for setting and making any changes in remuneration for the senior management.
This includes the reviewing of policies and practices for our workforce and consideration of shareholders and other stakeholder views as part of
designing the Remuneration Policy and its operation for the Executive Directors. On this basis, the Committee is satisfied that the median pay
ratio is consistent with the pay, reward and progression policies across all of the Company’s employees.
The Committee will review any changes in the ratio over the forthcoming year and will provide an analysis of any changes in the Annual
Report 2021.
1.10 Percentage change in remuneration of the Directors
The following table provides a summary of the 2020 and 2019 increases in base salary, benefits and bonus for the Directors compared to
the average increase for the general UK employee population across the Group in the same period. The general UK employee population
comparator group has been used because the parent company, Spirax-Sarco Engineering plc, only employs a very small number of people.
General UK employee population
N.J. Anderson
N.B. Patel1
K.J. Boyd2
N.H. Daws
J. Pike
G.E. Schoolenberg
J.S. Kingston
K.J. Thompson3
C.A. Johnstone4
P. France
A. Archon5
O. Qiu5
Base Salary
2.9%
2.9%
N/A
2.9%
2.9%
2.9%
2.9%
2.9%
2.9%
2.9%
2.9%
N/A
N/A
2020 change
2019 change
Benefits
2.9%
2.9%
N/A
2.9%
2.5%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Bonus
-32.1%
-62.6%
N/A
-72.6%
-67.2%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Base Salary
2.9%
7.7%
N/A
7.7%
5.0%
2.9%
2.9%
2.9%
N/A
N/A
2.9%
N/A
N/A
Benefits
2.9%
5.2%
N/A
2.8%
-6.1%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1
N.B. Patel joined the Company on 27th July 2020.
2 K.J. Boyd’s 2020 change in bonus percentage reflects that his bonus has been prorated to 30th September 2020, his date of retirement.
3 K.J. Thompson was appointed on 15th May 2019.
4 C.A. Johnstone was appointed on 5th March 2019.
5 A. Archon and O. Qiu were appointed on 1st December 2020.
Bonus
22.2%
15.5%
N/A
-4.0%
32.9%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
135
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Annual Report on Remuneration 2020 continued
UK gender pay gap
A detailed narrative relating to the UK gender pay gap can be found on our website, www.spiraxsarcoengineering.com.
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
Adjusted profit before tax
Dividends payable
2020
£433.7m
7,891
£261.5m
£87.0m
2019
£438.7m
7,833
£274.5m
£81.1m
Change
-1.1%
0.7%
-4.7%
7.3%
1.12 Changes for 2021
The table below summarises how we will implement each element of remuneration under the Policy in 2021.
Element of remuneration
Salary
How we will implement the Policy in 2021
The Executive Directors will receive salary increases of 2.0% in line with the wider UK workforce
increase. The salaries effective 1st January 2021 are therefore:
Pension
Annual bonus
• Group Chief Executive: £614,000
• Chief Financial Officer: £489,600
Pension contributions for the Executive Directors will be:
• Group Chief Executive: 24.5% of salary (frozen at 2020 contribution of £150,500)
• Chief Financial Officer: 10% of salary
The pension rate for the Group Chief Executive will be aligned to the pension contribution rate available
to the UK workforce by the end of 2022 and to 10% by the end of 2023 at the latest.
The annual bonus opportunities for the Executive Directors will be:
• Group Chief Executive: 150% of salary
• Chief Financial Officer: 125% of salary
The performance measures will be unchanged from 2020:
Performance measure
Group operating profit
Cash generation
Personal strategic objectives
Weighting (% of bonus)
70%
20%
10%
The targets for the performance measures are considered to be commercially sensitive and therefore
will be disclosed in next year’s Directors’ Remuneration Report.
The Committee has discretion to adjust the formulaic outcome if it is not representative of the
performance delivered.
Executive Directors will be required to use the net of tax amount of any bonus earned above 80%, if
they have met their shareholding requirement, or above 60% if they have not, to purchase shares in the
Company which must be held for two years.
The 2021 PSP award levels are expected to be:
• Group Chief Executive: 200% of salary
• Chief Financial Officer: 175% of salary
The performance conditions will be unchanged from the 2020 PSP awards:
Performance measure
EPS growth
Relative TSR
Weight
60%
40%
Threshold requirement
(18% vests)
Global IP +2% pa
Median TSR
Maximum requirement
(100% vests)
Global IP +8% pa
Upper quartile TSR
The Committee has discretion to adjust the formulaic outcome if it is not representative of the business
performance delivered.
A two-year post vesting holding period will apply to the awards.
Effective from 1st January 2021, the Non-Executive Director basic fee was increased by 2.0%, which
is in line with the average UK employee salary increase of 2.0%. The Committee Chair and Senior
Independent Director’s fees were unchanged.
Performance Share Plan awards
Non-Executive Director fees
136
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 1.13 Consideration by the Directors of matters relating to Directors’ remuneration
Operation of the Remuneration Committee in 2020
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 2020, the Committee was chaired by Jane Kingston and the members comprised: Trudy Schoolenberg, Kevin Thompson,
Caroline Johnstone, Peter France and, with effect from their appointment to the Board on 1st December 2020, Angela Archon and Olivia Qiu.
In 2020, the Committee met (in person and virtually) five times. All members attended each meeting relative to their Committee membership.
Angela Archon and Olivia Qiu each attended one meeting. On his appointment to Chair of the Board in May 2018, 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 2020, the Committee sought advice and information from Jamie Pike, the Chair; 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 Korn Ferry, who were appointed by the Committee in 2019 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. In 2020, on a time and materials basis, Korn Ferry’s fees in respect of these
services totalled £87,923. In addition, Korn Ferry work with management on other matters relating to remuneration with the approval of the
Committee. The Committee is of the opinion that the advice received is objective and independent, given that Korn Ferry 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 2020, Baker & McKenzie LLP and Lewis Silkin 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 2020, shareholders approved the Remuneration Policy 2020 (mandatory) and the Annual Report on Remuneration 2019
(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 2020
Annual Report on Remuneration 2019
Votes for
60,088,522
58,799,273
%
95.71
93.65
Votes against
2,690,784
3,984,629
%
4.29
6.35
Votes withheld
378,510
373,913
This Annual Report on Remuneration 2020 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
9th March 2021
137
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Policy 2020
Remuneration Policy Report 2020
Please note that the Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved
by shareholders at the 2020 AGM. Therefore, as the content remains the same, the page numbers, examples and illustrations are
necessarily historical.
2.0 Remuneration Policy
The table below summarises the Remuneration Policy which will take effect, if approved, from the AGM to be held on 13th May 2020.
Element
Purpose and link
to strategy
Operation
Performance
measures
Maximum potential value
Fixed elements of Executive Director remuneration
Base salary
To enable the Group to
attract, retain and motivate
high performing Executive
Directors of the calibre
required to meet the
Group’s strategic objectives.
Reviewed annually by the
Committee, taking into account:
• scale, scope and complexity of
the role;
• skills and experience of
the individual;
• wider workforce comparisons;
and
• market benchmarking, within
defined external comparator
groups. 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.
Reviews take into
account Company
and individual
performance.
N/A
Ordinarily, salary increases
will not exceed the average
increase awarded to other
Group employees from the same
country/region.
A salary increase may be higher
than the average increase
awarded to employees 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; (ii) where
there is a significant increase
in the size and responsibilities
of the Executive Director’s role;
or (iii) where the salary level
has fallen below the lower
quartile level against market
benchmarks.
The maximum pension
contribution for new Executive
Directors will be the same
basis as the majority of newly
appointed employees receive
in the market in which the
Executive Director is based.
Incumbent Executive Directors’
maximum pension to be, by 31st
December 2022, the current
blended average in the market in
which the Executive Director is
based (17% of salary in the UK),
reducing to the new Executive
Director level by 2025.
No element other than base
salary is pensionable.
Pension
To offer appropriate levels
of pension and benefit.
To attract and retain
individuals with the
personal attributes, skills
and experience required
to deliver Group strategy.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
138
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Performance
measures
N/A
N/A
Maximum potential value
The aggregate maximum cash
cost of providing all common
benefits will not exceed 20% of
base salary.
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.
Element
Purpose and link
to strategy
Operation
Fixed elements of Executive Director remuneration
Common
benefits
To provide market
competitive benefits.
The Company provides common
benefits including:
To enable the Executive
Directors to undertake
their roles through
ensuring their wellbeing
and security.
Mobility-related
benefits
To ensure that Executive
Directors who have
relocated nationally
or internationally are
compensated for costs
incurred.
• Company car and associated
running costs or cash
alternative allowance;
• private health insurance;
telecommunications and
computer equipment;
• life assurance; and
• long-term disability insurance.
The Company will pay all
reasonable expenses and
applicable tax due for the Executive
Director and his/her family to
relocate on appointment and
for repatriation 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. 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 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
139
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Policy 2020 continued
Element
Purpose and link
to strategy
Operation
Performance measures Maximum potential value
Variable elements of Executive Director remuneration
Annual bonus
150% of salary.
No more than 60% of the bonus
opportunity can be earned for
target performance in any year.
Any measure can
be incorporated at
the Committee’s
discretion provided
it is clearly aligned to
the Group’s strategic
objectives. At least
70% of the bonus
opportunity will be
governed by financial
performance
measures.
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.
However, Executive Directors must
use the net of tax amount of any
bonus they earn above 80% of the
maximum opportunity to increase
the level of shareholding they have
and to hold for a further two years.
Where a Director has not met their
shareholding requirement, the
bonus deferred increases to any
bonus they earn above 60% of the
maximum opportunity.
Bonus is subject to clawback and/
or malus for up to three years
following payment. Circumstances
include financial misstatement,
erroneous calculations determining
bonus payments, gross
misconduct, corporate failure and
reputational damage.
The Committee can adjust some
performance targets to reflect
certain non-operating items and
retains the ability to adjust the
amount of a bonus if the formulaic
outcome is not reflective of the
business performance.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
140
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Element
Purpose and link
to strategy
Operation
Performance measures Maximum potential value
Variable elements of Executive Director remuneration
Performance Share
Plan (PSP)
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.
The Committee makes
conditional awards 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, normally 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,
exceptionally, cash.
Share awards made from 2012
are subject to clawback and/
or malus for up to three years
following award. Circumstances
include financial misstatement,
erroneous calculations determining
bonus payments, gross
misconduct, corporate failure and
reputational damage. PSP awards
accrue dividends between grant
and vesting.
The Committee retains the ability
to adjust awards if the formulaic
outcome is not reflective of the
business performance.
The Committee will be able to
add dividend equivalents accrued
during a vesting period to any
award granted under this Policy.
Vesting is currently
based on two
performance
measures, which have
been chosen as they
are clearly aligned
with our strategic
objectives:
250% of the annual rate of salary
at the time of award.
Currently the maximum award
level is 200% of salary (for the
CEO). Any increase beyond this
level will only take place following
consultation with leading
shareholders.
• 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 for
future grants from
time-to-time including
the consideration
of financial and
non-financial
measures.
The Committee
reserves the right to
adjust targets, for
example for the effects
of divestments or
major acquisitions,
to ensure that those
results are in line with
the principles that
supported the targets
when they were
originally set.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
141
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Policy 2020 continued
Element
Purpose and link
to strategy
Operation
Performance measures Maximum potential value
Variable elements of Executive Director remuneration
Employee Share
Ownership Plan
(ESOP)
To offer all eligible UK-
based employees the
opportunity to build a
shareholding in a tax-
efficient way.
Eligible UK Executive Directors are
entitled to participate in an HMRC
approved Share Incentive Plan
known as the ESOP.
To align Executive Director
interests to those of
shareholders.
Other
Share ownership
guidelines
To provide alignment with
shareholder interests.
N/A
Executive Directors will be
subject to the same limitations as
all other participants.
N/A
N/A
Whilst not currently operated, if in
the future employee share plans
are offered outside the UK, or if
alternative or additional plans are
operated within 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.
Executive Directors are required
to accumulate through retaining
at least half of the shares acquired
(after sales to meet tax due) from
PSP awards and the investment
of bonus, a shareholding in the
Company worth a minimum of
200% (300% for the CEO) of their
annual salary. Subject to the level
of PSP awards that vest and of
bonus invested, it is anticipated
that this will be achieved within five
years of appointment. In addition,
on departure as an Executive
Director, the required shareholding
(or level of holding achieved by
the date of departure), normally
has to be retained for two years.
If an Executive Director purchases
shares from his/her own resources
then he/she can deem those
shares as not counting towards
the share ownership guidelines
and therefore also the two year
post-cessation requirement.
This retention policy applies to
all Executive Directors not under
notice at the time the Policy is
approved by shareholders.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
142
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Element
Purpose and link
to strategy
Operation
Performance
measures
Maximum potential value
The aggregate value of fees paid
to the Chair and Non-Executive
Directors will not exceed the
amount set out in the Articles
of Association.
Chair and Non-Executive Directors
Fees
To attract and retain high
calibre individuals, with
appropriate experience or
industry related skills, by
offering market competitive
fee levels.
The Chair is paid a single fee for all
responsibilities.
N/A
The Non-Executive Directors are
paid a basic fee. The Chairs of
the main Board Committees, the
Senior Independent Director and
any individual with other separate
responsibilities are paid an
additional fee to reflect their extra
responsibilities.
Fees for the Chair 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 Chair 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 (including
any tax due thereon) that the Chair
and the Non-Executive Directors
incur in carrying out their duties
as Directors.
2.1 Notes to the Policy table
Changes to the Remuneration Policy
The main proposed changes to the Remuneration Policy are as follows:
• AIP award: introduce deferral of bonus;
• PSP award: increase potential maximum award from 200% of salary to 250% of salary (subject to shareholder consultation) and dividend
equivalents to apply;
• pensions: set the level of pension benefit for newly appointed Executive Directors to no higher than the level available to the workforce and
incumbent Directors to move, by 31st December 2022, to the current blended average for all employees in the market in which the Executive
Director is based (17% in the UK), reducing to the new Executive Director level by 2025;
• enhancement of the clawback/malus arrangements;
• share ownership requirements: increase guideline levels to 300% for the CEO and 200% for other Executive Directors and introduce post-
cessation shareholding requirements for the two-year period following an Executive Director’s departure; and
• permit minor changes to be made to the Policy without shareholder approval in a General Meeting.
Additional details and an explanation of the changes can be found in the Statement by Committee Chair on pages 104 to 105.
Outstanding incentive awards
Details of outstanding incentive awards granted to Executive Directors prior to the Policy coming into force, including awards granted in 2019,
and details of the performance targets are set out on pages 108 to 114.
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.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Policy 2020 continued
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 150
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, in addition to personal strategic objectives. 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.
The Committee may make minor amendments to the Policy set out in this Policy Report (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.
2.2 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.
2.3 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;
• pension benefits will not exceed the rate applicable to the relevant country’s workforce, as determined by the Committee;
• mobility related benefits may include the payment of some or all of an individual’s tax on relocation expenses incurred within 12 months
of joining;
• on-going annual incentive pay opportunity will not exceed 400% 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 250% of salary under the PSP). In the year of appointment an off-cycle award under the PSP
and different annual bonus conditions 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 incentives 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; and
• 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.
Details of the remuneration for any new Chair or Executive Director appointed to the Board will be disclosed on the Group’s website,
www.spiraxsarcoengineering.com.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
144
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 2.4 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 122 to 127. 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 Chair 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
Clawback or
malus
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 (mitigation clause).
No automatic entitlement to payments under the annual bonus or PSP. See pages 130 to 131.
Payment of reasonable legal fees and any legally enforceable entitlements.
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 until the third anniversary of bonus payment and PSP
vesting respectively. Circumstances include financial misstatement, erroneous calculations determining bonus payment, gross
misconduct, reputational damage and corporate failure.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Policy 2020 continued
Executive Directors’ legacy agreements (appointments before 2013)
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
Clawback or
malus
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 pages 130 to 131.
Garden leave clause.
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, reputational damage 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 such 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 after the 2020 AGM, the award will vest on the normal vesting date.
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.
Where 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.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 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 following 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 prorated basis. The Committee may, at its discretion, increase
the level of vesting if it believes that exceptional circumstances warrant such treatment.
2.5 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 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 2020, 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 2020;
• benefits value based on 2019 disclosure;
• pension value (DB 2019: cash allowance: rate applied to 2020 salary); and
• ESOP participation of up to £1,800 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
90% CEO
60% ED
36.0% CEO
31.5% ED
Maximum
150% CEO
100% ED
200% CEO
175% ED
1
A level of 18% 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)
Maximum
Target
Threshold
27%
31%
42%
51%
35%
100%
0%
£0.78m
14%
£1.54m
0%
£2.89m
Total, including
share price growth:
£3.49m
32%
25%
43%
£1.58m
59%
27%
Maximum
Target
Threshold
100%
0%
£0.51m
14%
£0.87m
0%
Total, including
share price growth:
£1.97m
£0.0m
£1.0m
£2.0m
£3.0m
£4.0m
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
Neil Daws (Managing Director, Steam Specialties)
Maximum
Target
Threshold
32%
25%
43%
£1.54m
59%
27%
14%
100%
0%
£0.50m
£0.84m
0%
Total, including
share price growth:
£1.87m
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
Fixed
Annual bonus
PSP
PSP value with 50% share price growth
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
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Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 5. Remuneration continued
Remuneration Policy 2020 continued
2.6 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.
2.7 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 Chair 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 AGMs in 2019 and 2018, the advisory votes on the 2018 and 2017 Annual Reports on
Remuneration received 94.66% and 98.96% in favour respectively. At the AGM in 2017 the Remuneration Policy received 95.06% in favour.
The Remuneration Policy Report 2020 is reproduced exactly as published in the Annual Report 2019 and as approved by shareholders at the 2020 AGM.
Therefore, as the content remains the same, the page numbers, examples and illustrations are necessarily historical.
148
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Regulatory disclosures
Compliance with good
governance assisted us
with managing COVID-19.”
Andy Robson
Group 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, electric
thermal solutions, peristaltic pumping and fluid path technologies.
An overview of our principal activities, by business, is given on pages
6 and 20 to 23 of the Strategic Report.
Future development
An indication of likely future developments in the Group is given in the
Strategic Report.
Strategic Report
This is set out on the inside front cover to page 86 of the
Annual Report.
Risk management and principal risks
A description of risk management and the principal risks facing the
business are on pages 60 to 65 and 114 to 117.
Constructive use of AGM
The Notice of Meeting convening the AGM, to be held on
Wednesday, 12th May 2021, 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.
COVID-19
In light of the UK Government’s COVID-19 laws and advice that is
likely to apply at the time of our AGM on 12th May 2021 (presence
reasonably necessary for work purposes only) and in order to act
responsibly, we will hold our AGM virtually with a minimum number
of essential attendees in person and make the meeting available to
our shareholders on our website. In addition, we will limit the meeting
to formal business and questions from shareholders relating directly
and only to the resolutions and the business of the meeting, with no
business presentation. This position is based on the Government’s
guidelines in the period up to 21st June 2021. If the guidelines
change and we are able to hold a face to face meeting, we will inform
shareholders via our website, www.spiraxsarcoengineering.com (see
AGM notices under investors/shareholder information.)
While we are always delighted to meet with our shareholders at our
AGMs, given the advice and laws, please can all shareholders vote
by submitting a Form of Proxy, in line with the instructions set out in
the Circular. In 2020, 84.54% of the proxy votes received were lodged
electronically through the CREST system.
The results of the votes will be announced on the
London Stock Exchange and on the Group’s website,
www.spiraxsarcoengineering.com, shortly after the conclusion of
the meeting.
We appreciate your understanding and hope that we have achieved
the right balance between accountability and responsibility and
we look forward to May 2022 when hopefully we can meet our
shareholders face-to-face.
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 163.
Dividend
The Directors are proposing the payment of a final dividend of 84.5p
(2019: 78.0p) which, together with the interim dividend of 33.5p
(2019: 32.0p), makes a total distribution for the year of 118.0p
(2019: 110.0p). If approved at the AGM, the final dividend will be
paid on 21st May 2021 to shareholders on the register at the close of
business on 23rd April 2021.
Directors’ interests
The interests of the Directors in the share capital of Spirax-Sarco
Engineering plc as at 31st December 2020 are set out on pages 132
to 133.
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 Neil Daws, who retired from the Board
on 31st December 2020.
149
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Regulatory disclosures continued
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 90 to 91.
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.
Share capital
As at 28th February 2021 there were no treasury shares held by
the Company. Details of shares issued during the year are set out in
Note 21 on page 193.
As at 31st December 2020 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.
Substantial shareholdings
The voting rights in the table below 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 19th February 2021 and 31st December 2020. There are no
Controlling Founder Shareholders.
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.
Substantial shareholdings
BlackRock, Inc.
The Capital Group Companies, Inc.
Fiera Capital Corporation
Sun Life Financial, Inc.
APG Groep N.V.
The Vanguard Group, Inc.
150
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 2020 was 73,765,547.
PSP and Employee Benefit Trust (EBT)
The number of shares held in the EBT at 31st December 2020
was 60,038 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.
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. They are
also available on the Company’s website. 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.
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.
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.
As at 31.12.20
As at 19.02.21
Number of
Ordinary shares
% of issued
share capital
Number of
Ordinary shares
% of issued
share capital
5,785,574
5,588,987
4,551,991
4,252,127
4,074,269
2,716,202
7.8%
7.6%
6.2%
5.8%
5.5%
3.7%
5,936,797
5,446,376
4,521,599
4,238,629
4,072,344
2,744,173
8.0%
7.4%
6.1%
5.7%
5.5%
3.7%
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 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 (Watson-Marlow), Huddersfield (Aflex Hose), Bremen
(Gestra), Normandy (Thermocoax) 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 170. The amount of R&D expenditure capitalised,
and the amount amortised, in the year, are given in Note 15 on
page 187.
Relationships with suppliers and customers
Our relationship with our customers is explained throughout the
Report, including pages 81 and 95 (Our customers). Our relationship
with our suppliers is specifically addressed on pages 75 to 76 (Our
supply chain) and 95 (Our suppliers).
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. The Group’s treasury policy was reviewed
in 2020 and credit facilities were enhanced to ensure material levels
of headroom.
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 (2019: nil).
Greenhouse gas emissions
Details of our greenhouse gas emissions can be found on page 78.
Going concern
Our Going Concern Statement is set out on pages 56 to 57.
Scope of the reporting in this Annual Report
The Board has prepared a Strategic Report (including the Chair’s
Statement, the Strategic Review and the Review of Operations)
which provides an overview of the development and performance
of the Group’s business in the year ended 31st December 2020
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 9th March 2021. Pages 149 to 151 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
(1)
Topic
Interest capitalised
Publication of unaudited financial information
Details of long-term incentive schemes
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre-emptive issues of equity for cash
Item (7) in relation to major subsidiary undertakings
Parent participation in a placing by a listed subsidiary
Location
Not applicable
Not applicable
Remuneration Report, pages 129 to 130
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Contracts of significance
Regulatory Disclosures, page 150
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 150
Not applicable
Not applicable
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Andy Robson
Group General Counsel and Company Secretary
9th March 2021
Spirax-Sarco Engineering plc
Registered no. 596337
151
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Statement of Directors’ responsibilities
Financial stability, going concern
and viability remain paramount for
investors. Our Group has proven
its resilience and has a strong
financial position.”
Nimesh Patel
Chief Financial Officer
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 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 2020 taken as a whole, is fair, balanced
and understandable and provides the information necessary
for shareholders to assess the Company’s financial position,
performance, business model and strategy.
This responsibility statement was approved by the Board of Directors
on 9th March 2021 and is signed on its behalf by:
Nimesh Patel
Chief Financial Officer
9th March 2021
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
Financial Statements for each financial year in accordance with IFRS
as adopted by the EU. Parent Company Financial Statements are
prepared under FRS 101.
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
which is relevant, reliable, comparable and understandable;
• 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.
152
Governance ReportSpirax-Sarco Engineering plc Annual Report 2020 Financial Statements
Financial Statements
In this section
Independent Auditor’s Report
154
162
Consolidated Statement of Financial Position
Consolidated Income Statement
163
Consolidated Statement of Comprehensive Income 164
Consolidated Statement of Changes in Equity
164
Consolidated Statement of Cash Flows
166
Notes to the Consolidated Financial Statements
167
Company Statement of Financial Position
211
Company Statement of Changes in Equity
212
Notes to the Company Financial Statements
213
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Spirax-Sarco Engineering plc Annual Report 2020 153
Independent Auditor’s Report
To the Members of Spirax-Sarco Engineering plc
Report on the audit of the Financial Statements
1. 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 2020 and of the Group’s profit for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial Reporting Standards (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.
We have audited the Financial Statements which comprise:
• the Consolidated and Parent Company Statements of Financial Position;
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated and Parent Company Statements of Changes in Equity;
• the Consolidated Statement of Cash Flows; and
• the related Notes 1 to 27 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, international
accounting standards in conformity with the requirements of the Companies Act 2006 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).
2. 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.
3. 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
• Defined benefit pension liability valuation focusing on the judgements and assumptions made by management in
determining the discount rate, mortality assumption and inflation rate; and
• Goodwill impairment review for the Electric Thermal Solutions (ETS) cash generating unit (CGU)
Within this report, key audit matters are identified as follows:
Newly identified
Similar level of risk
The materiality that we used for the Group Financial Statements was £11.4m which was determined on the basis of
5% of statutory profit before tax adjusted for a one-off gain of £10.5m from the closure of the pension schemes in the
UK and Canada to future accruals.
We focused our Group audit scope primarily on the audit work at 25 components (statutory companies). These
components represent the principal business units and account for 73% of the Group’s net assets, 74% of the
Group’s revenue and 73% of the Group’s profit before tax.
We have refined our key audit matters relative to the prior year through:
• the removal of the German pension scheme from our defined benefit pension liability valuation key audit matter
given its relative materiality.
• the removal of significant contracts spanning year-end from the revenue recognition key audit matter as these are
not prevalent enough to result in a significant risk of material misstatement.
In the current year we have identified a key audit matter on the valuation of goodwill for the ETS CGU focused on
sales and EBIT margin growth in 2021 to 2025 and the discount rate assumptions. This has replaced the prior
year key audit matter in relation to the valuation of goodwill for the Chromalox CGU, following a change in the CGU
structure in the year ended 31st December 2019.
As there were no acquisitions in the period, the key audit matter in relation to the valuation of acquired intangible
assets is no longer applicable.
Materiality
Scoping
Significant changes
in our approach
154
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020
4. Conclusions relating to going concern
In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the Financial Statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and Parent Company’s ability to continue to adopt the going concern basis of
accounting included:
• evaluated the financing facilities available to the Group including nature of facilities, repayment terms and covenants;
• considered the business model and principal risks and uncertainties;
• challenged the assumptions used in the forecasts through assessing the accuracy of historical budgeting and by reference to market data;
• recalculated and assessed the amount of headroom in the forecasts (cash and covenants); and
• performed a sensitivity analysis to consider specific scenarios including a reverse stress test.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and Parent Company’s ability to continue as a going concern for a period of at least
twelve months from when the Financial Statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
5. 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.
5.1. Revenue recognition
Key audit
matter
description
How the
scope of
our audit
responded
to the key
audit matter
Key
observations
The Group policy is to recognise revenue when performance obligations have been fulfilled which, in the majority of cases,
is at time of dispatch (‘ex works’) or at time of delivery (‘FOB’). We have identified a key audit matter relating to a risk of
material misstatement, whether due to fraud or error, in relation to cut-off for revenue recognition. In particular the potential
overstatement of revenue within certain components where a significantly higher proportion of annual revenue is recognised
in December 2020 compared to the rest of the year. The risk for these components focuses on the recognition of revenue by
reference to the contracted shipping terms and meeting the performance obligations for product despatches and deliveries
spanning year-end.
Refer to Note 1 for the Group’s revenue recognition policy and the significant issues section of the Audit Committee Report
on pages 110 to 111.
In response to the key audit matter described above, we performed a risk assessment across the Group to identify
specific areas of risk, focusing our testing accordingly. Our audit response consisted of several procedures including those
summarised below.
We performed walkthroughs to obtain an understanding of the relevant controls relating to the revenue cycle.
We reviewed the product despatch cycle and revenue recognition profile across the year-end period and tested a sample of
items by assessing whether 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 and
value of trade in December 2020.
From the work performed above we are satisfied that there are no material cut-off errors.
155
Financial StatementsGovernance ReportSpirax-Sarco Engineering plc Annual Report 2020 Independent Auditor’s Report continued
5.2. Defined benefit pension liability valuation
Key audit
matter
description
How the
scope of
our audit
responded
to the key
audit matter
At 31st December 2020 the gross retirement benefit liability recognised in the Consolidated Statement of Financial Position
was £630.3m (2019: £559.1m). 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 over the four main schemes (three in the UK and one in the USA). 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 and post-retirement benefit key sources of estimation
uncertainty, Note 23 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 pages 110 to 111.
Working with our internal actuarial specialists we assessed the key assumptions applied in determining the pension
obligations for the four main pension schemes, and determined whether the key assumptions are reasonable.
Testing covered 94.3% (2019: 97.4%) of defined benefit pension liabilities.
For each of the four 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.
5.3. Goodwill impairment review for the Electric Thermal Solutions CGU
Key audit
matter
description
How the
scope of
our audit
responded
to the key
audit matter
There is a high level of judgement surrounding the valuation of goodwill and the risk of impairment. Key judgements include
assumptions in estimating future net cash flows to determine whether assets are impaired, alongside setting appropriate
discount rates (including country specific risk premiums) for each of the CGUs.
Out of the three CGUs, revenue and margins for Electric Thermal Solutions (ETS) have been most affected by the Covid-19
pandemic. Revenue and profit margin has been below management forecast. The value of goodwill for the ETS CGU as at
the balance sheet date was £243.7m (2019: £244.7m).
Considering the above factors, we identified a key audit matter relating to the impairment of goodwill and intangibles for the
ETS CGU. We have focused this risk on sales and EBIT margin growth in 2021 to 2025 and the discount rate assumptions.
The Audit Committee Report on page 111 refers to impairment of goodwill and other intangibles as an area considered by
the Audit Committee. Note 1 to the Consolidated Financial Statements sets out the Group’s accounting policy for testing
of goodwill and intangibles for impairment. The basis for the impairment reviews is outlined in Note 15 to the Consolidated
Financial Statements, including details of the discount rates and growth rates used. Note 15 to the Consolidated Financial
Statements also includes details of the extent to which the CGUs to which the goodwill and other intangible assets are
allocated are sensitive to changes in the key inputs.
In response to the key audit matter identified, we performed the following procedures to challenge management’s
assumptions and assessment:
• obtained an understanding of the relevant controls relating to the impairment review process;
• assessed the integrity of management’s impairment model through testing of the mechanical accuracy and verifying the
application of the input assumptions;
• evaluated the process management undertook to prepare the cash flow forecasts in its impairment model including
agreement with the latest Board approved plans and management approved forecasts;
• challenged the cash flow projections through assessing the accuracy of historical budgeting by comparing them with
actual performance and independent evidence to assess any significant expected future changes to the business,
including consideration of the potential impact of Brexit and COVID-19 on the cash flow projections;
• considered a range of available market data and performed a benchmarking exercise to assess and challenge the growth
rates forecasted by management in revenue and trading profit margins;
• considered reasonable possible changes in assumptions to challenge the appropriateness of management’s assessment
of reasonable possible change scenarios; and
• challenged the discount rate used with input from our internal valuations specialists, utilising their knowledge and expertise.
Key
observations
From the work performed above we are satisfied that the value in use supports the carrying value. This was on the basis that
the assumptions applied, when taken in aggregate, are within our acceptable range.
156
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 6. Our application of materiality
6.1. 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:
Materiality
£11.4m (2019: £11.5m)
£5.1m (2019: £5.7m)
Group Financial Statements
Parent Company Financial Statements
Basis for determining materiality
Rationale for the benchmark
applied
5% of statutory profit before tax adjusted to
remove a one-off gain of £10.5m in relation to the
closure of the UK and Canada defined benefit
pension schemes to future accruals. (2019: 5% of
statutory profit before tax).
We have used statutory profit before tax adjusted
for a one-off gain for determining materiality. This
is considered to be a key benchmark as this
metric is important to the users of the Financial
Statements (investors and analysts being the key
users for a listed entity) because it portrays the
performance of the business and hence its ability
to pay a return on investment to the investors.
Parent Company materiality is set at 3% of net
assets, which is capped at £5.1m (2019: £5.7m).
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 £5.1m.
Statutory PBT
adjusted for pension
gain £229.6m
Statutory PBT adjusted for pension gain
Group materiality
Group materiality
£11.4m
Component
materiality range
£2.8m to £3.6m
Audit Committee
reporting threshold
£0.57m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the Financial Statements as a whole.
Group Financial Statements
Parent Company Financial Statements
Performance materiality
70% (2019: 70%) of Group materiality
70% (2019: 70%) of Parent Company materiality
Basis and rationale for determining
performance materiality
In determining performance materiality we considered our risk assessment, including our assessment
of the Group’s overall control environment and the level of misstatements identified in previous audits.
We have also considered changes in key management personnel of the Group and the impact of
COVID-19 on the Group.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £570,000 (2019: £575,000), 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.
157
Financial StatementsGovernance ReportSpirax-Sarco Engineering plc Annual Report 2020 Independent Auditor’s Report continued
7. An overview of the scope of our audit
7.1. Identification and scoping of components
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 25 (2019: 27) components. 17 (2019: 20) of these were subject to a full audit, whilst the remaining eight components (2019: seven
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 73% (2019: 82%) of the Group’s net assets, 74% (2019: 76%) of the Group’s revenue and 73% (2019: 77%) 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 £2.8m to £3.6m (2019: £2.8m to £4.0m) except for the Parent Company where we have
determined a materiality of £5.1m (2019: £5.7m). We have tailored our scoping to ensure sufficient coverage not only at a consolidated Group
level, but also across the three CGU’s (Steam, Watson-Marlow and Electric Thermal Solutions), as well as across all geographies (EMEA, APAC
and Americas).
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.
26%
7%
Revenue
67%
Full audit scope
Specified audit
procedures
Review at
Group level
27%
Profit before
tax
59%
14%
Full audit scope
Specified audit
procedures
Review at
Group level
27%
4%
Net
assets
69%
Full audit scope
Specified audit
procedures
Review at
Group level
7.2. Our consideration of the control environment
Given the disaggregated nature of the Group, we largely continue to adopt a substantive audit approach. Where control improvements are
identified these are reported to management and the Audit Committee as appropriate. Management determines their response to these
observations and continues to monitor their resolution with reporting to and oversight from the Audit Committee.
7.3. Working with other auditors
The Group audit was conducted exclusively by a global network of Deloitte member firms under the direction and supervision of the UK Group
audit team. Dedicated members of the Group audit team were assigned to each component to facilitate an effective and consistent approach to
component oversight.
In response to the COVID-19 pandemic, which limited our ability to make component visits, more frequent calls were held between the Group
and component teams and remote access to relevant documents was provided. Given the pandemic, the majority of our year-end audit was
performed under a remote working environment. Throughout this time, we increased the frequency of our meetings with the audit teams and
with management to ensure progress. Other than instances where we needed to perform virtual stock counts, we were able to perform our
procedures without needing to make substantial changes to our planned approach.
158
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 8. Other information
The other information comprises the information included in the Annual Report, other than the Financial Statements and our auditor’s report
thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the Financial Statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
Financial Statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the Financial Statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement, 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.
10. 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.
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.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
11.1. 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, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the audit committee about their own identification and assessment of the risks
of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their 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;
o the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists,
including tax, valuations, pensions and IT regarding how and where fraud might occur in the Financial Statements and any potential indicators
of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the following area: cut-off for components where a significantly higher proportion of annual revenue is recognised
in December 2020. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws
and regulations that had a direct effect on the determination of material amounts and disclosures in the Financial Statements. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the Financial Statements but compliance
with which may be fundamental to the Group’s ability to operate or to avoid a material penalty.
159
Financial StatementsGovernance ReportSpirax-Sarco Engineering plc Annual Report 2020 Independent Auditor’s Report continued
11.2. Audit response to risks identified
As a result of performing the above, we identified cut-off for components where a significantly higher proportion of annual revenue is recognised
in December 2020 as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in
more detail and also describes the specific procedures we performed in response to that key audit matter.
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 provisions of relevant laws
and regulations described as having a direct effect on the Financial Statements;
• 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, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
12. 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 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.
13. Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and the part of the Corporate
Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the Financial Statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting set out on page 151;
• the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on pages 56 and 57;
• the Directors’ statement on fair, balanced and understandable set out on page 89;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 115;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on page
116; and
• the section describing the work of the audit committee set out on page 107.
160
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 14. Matters on which we are required to report by exception
14.1. 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.
We have nothing to report in respect of these matters.
14.2. 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.
15. Other matters which we are required to address
15.1. 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 seven years, covering the years ending 31st December
2014 to 31st December 2020.
15.2. 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).
16. 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.
Andrew Bond, FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
9th March 2021
161
Financial StatementsGovernance ReportSpirax-Sarco Engineering plc Annual Report 2020 Consolidated Statement of Financial Position
at 31st December 2020
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
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
Short-term lease liabilities
Current tax payable
Net current assets
Non-current liabilities
Long-term borrowings
Long-term lease liabilities
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
2020
£m
2019*
£m
1 January 2019*
£m
13
14
15
15
12
16
17
27
18
24
19
20
24
24
24
24
24
24
16
23
20
2, 3
21
21
261.3
36.3
422.4
280.3
1.4
−
50.9
1,052.6
180.1
226.3
31.8
8.1
246.2
692.5
1,745.1
160.2
6.1
22.2
−
0.6
10.3
28.6
228.0
464.5
452.2
23.8
79.4
98.6
2.0
5.1
661.1
889.1
856.0
19.8
84.8
(36.1)
786.5
855.0
1.0
856.0
1,745.1
251.2
40.8
417.7
303.9
0.9
0.2
40.8
1,055.5
185.9
240.7
35.3
8.4
330.6
800.9
1,856.4
174.8
3.5
162.3
–
34.3
11.1
26.7
412.7
388.2
429.2
27.8
83.9
71.3
1.3
3.9
617.4
1,030.1
826.3
19.8
81.0
(10.6)
735.1
825.3
1.0
826.3
1,856.4
230.8
–
368.0
277.2
6.2
–
41.3
923.5
160.6
245.1
32.9
4.6
324.6
767.8
1,691.3
167.0
5.0
137.9
15.7
41.5
–
23.7
390.8
377.0
365.3
–
76.8
85.1
3.7
2.7
533.6
924.4
766.9
19.8
77.8
22.2
646.0
765.8
1.1
766.9
1,691.3
* The prior period comparatives for Cash and cash equivalents and Bank overdrafts have been adjusted to reflect a reclassification to meet the presentational requirements of IAS 32, with further detail
given within Note 1. This had no impact on the net assets of the Group.
These Financial Statements of Spirax-Sarco Engineering plc, company number 00596337, were approved by the Board of Directors and
authorised for issue on 9th March 2021 and signed on its behalf by:
N.J. Anderson
N.B.Patel
Directors
162
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Consolidated Income Statement
for the year ended 31st December 2020
Revenue
Operating costs
Operating profit
Financial expenses
Financial income
Net financing expense
Share of (loss)/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
2020
£m
–
(21.4)
(21.4)
–
–
–
–
(21.4)
5.8
(15.6)
(15.6)
–
(15.6)
Adjusted
2020
£m
1,193.4
(923.0)
270.4
(10.1)
1.4
(8.7)
(0.2)
261.5
(72.0)
189.5
189.2
0.3
189.5
256.6p
255.8p
Notes
3
4
2, 3
3, 6
12
7
9
2, 10
11
Adjustments
2019
£m
–
(37.7)
(37.7)
–
–
–
–
(37.7)
8.5
(29.2)
(29.2)
–
(29.2)
Adjusted
2019
£m
1,242.4
(959.7)
282.7
(9.9)
1.5
(8.4)
0.2
274.5
(78.3)
196.2
195.8
0.4
196.2
265.7p
264.9p
Total
2020
£m
1,193.4
(944.4)
249.0
(10.1)
1.4
(8.7)
(0.2)
240.1
(66.2)
173.9
173.6
0.3
173.9
235.5p
234.8p
118.0p
111.5p
Total
2019
£m
1,242.4
(997.4)
245.0
(9.9)
1.5
(8.4)
0.2
236.8
(69.8)
167.0
166.6
0.4
167.0
226.2p
225.5p
110.0p
103.0p
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 167 to 209 form an integral part of the Financial Statements.
163
Financial StatementsGovernance ReportSpirax-Sarco Engineering plc Annual Report 2020 Consolidated Statement of Comprehensive Income
for the year ended 31st December 2020
2019
£m
167.0
9.0
(1.4)
7.6
(33.5)
(0.1)
3.3
(30.3)
144.3
144.0
0.3
144.3
Total
equity
£m
826.3
173.9
(24.5)
(40.2)
8.2
(0.7)
(57.2)
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) on post-retirement benefits
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences and net investment hedges
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
23
23
21
21, 27
2020
£m
173.9
(40.2)
8.2
(32.0)
(24.5)
–
(0.7)
(25.2)
116.7
116.4
0.3
116.7
Consolidated Statement of Changes in Equity
for the year ended 31st December 2020
Balance at 1st January 2020
Profit for the year
Other comprehensive
(expense)/income:
Foreign exchange translation differences
and net investment hedges
Remeasurement loss on
post–retirement benefits
Deferred tax on remeasurement loss
on post–retirement benefits
Cash flow hedges
Total other comprehensive expense
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
Transfer between reserves
Balance at 31st December 2020
Notes
21
23
16, 23
21, 27
11
21
21
21
Share
capital
£m
19.8
–
Share
premium
account
£m
81.0
–
Other
reserves
£m
(10.6)
–
Retained
earnings
£m
735.1
173.6
Equity
shareholders’
funds
£m
825.3
173.6
Non–
controlling
interest
£m
1.0
0.3
–
–
–
–
–
–
–
–
–
–
–
19.8
–
–
–
–
–
–
–
–
3.8
–
–
84.8
(24.5)
–
(24.5)
–
(40.2)
(40.2)
–
(0.7)
8.2
–
8.2
(0.7)
(25.2)
(32.0)
(57.2)
–
–
–
–
–
(25.2)
141.6
116.4
0.3
116.7
–
–
–
(0.3)
–
(36.1)
(82.2)
(8.0)
–
–
–
786.5
(82.2)
(8.0)
3.8
(0.3)
–
855.0
(0.3)
–
–
–
–
1.0
(82.5)
(8.0)
3.8
(0.3)
–
856.0
Other reserves represent the Group’s translation, net investment hedge, 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.
164
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Consolidated Statement of Changes in Equity
for the year ended 31st December 2019
Balance at 1st January 2019
Adoption of IFRS 16
Balance at 1st January 2019 (restated)
Profit for the year
Other comprehensive
(expense)/income:
Foreign exchange translation differences
and net investment hedges
Remeasurement gain on
post-retirement benefits
Deferred tax on remeasurement gain
on post-retirement benefits
Cash flow hedges
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
Transfer between reserves
Balance at 31st December 2019
Notes
21
23
16, 23
21, 27
11
21
21
21
Share
capital
£m
19.8
–
19.8
–
Share
premium
account
£m
77.8
–
77.8
–
Other
reserves
£m
22.2
–
22.2
–
Retained
earnings
£m
646.0
(2.4)
643.6
166.6
Equity
shareholders’
funds
£m
765.8
(2.4)
763.4
166.6
Non-
controlling
interest
£m
1.1
–
1.1
0.4
Total
equity
£m
766.9
(2.4)
764.5
167.0
–
–
–
–
–
–
–
–
–
–
–
19.8
–
–
–
–
–
–
–
–
3.2
–
–
81.0
(33.5)
–
–
3.3
(30.2)
–
9.0
(1.4)
–
7.6
(33.5)
(0.1)
(33.6)
9.0
(1.4)
3.3
–
–
–
9.0
(1.4)
3.3
(22.6)
(0.1)
(22.7)
(30.2)
174.2
144.0
0.3
144.3
–
–
–
(4.0)
1.4
(10.6)
(75.9)
(5.4)
–
–
(1.4)
735.1
(75.9)
(5.4)
3.2
(4.0)
–
825.3
(0.4)
–
–
–
–
1.0
(76.3)
(5.4)
3.2
(4.0)
–
826.3
165
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Consolidated Statement of Cash Flows
for the year ended 31st December 2020
Notes
3, 4
7
26
2
23
23
6
26
21
24
24
24
24
24
24
24
24
24
24
2020
£m
240.1
75.4
(0.3)
0.4
1.0
(14.7)
7.0
8.7
317.6
15.1
3.8
3.3
(8.7)
331.1
(71.9)
259.2
(42.0)
2.2
(4.9)
(2.7)
(0.3)
(4.8)
1.4
(51.1)
2.0
(14.5)
(175.0)
138.3
(8.6)
(12.2)
(82.5)
(152.5)
55.6
168.3
0.1
224.0
(452.8)
(228.8)
(34.1)
(262.9)
2019
£m
236.8
76.6
0.4
−
4.1
(5.2)
6.2
8.4
327.3
2.4
(23.8)
(2.4)
2.3
305.8
(78.4)
227.4
(50.9)
3.4
(8.3)
(3.2)
−
(117.9)
1.5
(175.4)
2.1
(14.7)
(80.2)
129.8
(7.0)
(11.2)
(76.3)
(57.5)
(5.5)
186.7
(12.9)
168.3
(463.5)
(295.2)
(38.9)
(334.1)
Cash flows from operating activities
Profit before taxation
Depreciation, amortisation and impairment
(Profit)/loss on disposal of fixed assets
Disposal of subsidiary
Reversal of acquisition-related fair value adjustments to inventory
Cash payments to the pension schemes greater than the charge to operating profit
Equity settled share plans
Net financing 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
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 used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Employee Benefit Trust share purchase
Repaid borrowings
New borrowings
Interest paid including interest on lease liabilities
Repayment of lease liabilities
Dividends paid (including minorities)
Net cash used in 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
Net debt at end of period
Lease liabilities
Net debt and lease liabilities at end of period
166
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
1 Accounting policies
Basis of preparation
The Consolidated Financial Statements have been prepared on a historical cost basis except for items that are required by International Financial
Reporting Standards (IFRS) to be measured at fair value, principally certain financial instruments. The Consolidated Financial Statements have
been prepared in accordance with IFRS which includes the standards and interpretations 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 23.
The impact the COVID-19 outbreak has had on our business in 2020 and the actions we are taking to mitigate its impact are discussed in the
Chair’s Statement starting on page 10. Our view is that we do not believe there is a significant risk of COVID-19 causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year, and therefore we have concluded the impacts from COVID-19 do not
create any further key sources of estimation uncertainty.
Climate change is a global challenge and an emerging risk to businesses, people and the environment across the world. We have a role to
play in limiting warming by improving our energy management, reducing our carbon emissions and by helping our customers do the same.
Growing awareness of climate change and customer sustainability targets will provide impetus for business growth as we provide products,
services and solutions that increase efficiency and reduce customers’ energy use and carbon emissions. As a result, in our view climate change
does not create any further key sources of estimation uncertainty. For further detail see the Risk Management and Sustainability sections of the
Strategic Report.
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 86. In addition, Note 27 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.
Reclassification of prior period balances
During the period, it was determined that the Group’s cash and overdrafts with notional cash pooling arrangements did not meet the criteria for
offsetting as set out in paragraph 42 of IAS 32 (Financial Instruments: Presentation) and therefore cannot be presented net in the Statement of
Financial Position. As a result, for presentation purposes, amounts have been reclassified in the comparative periods with the impact being an
increase to both Cash and cash equivalents and Bank overdrafts of £162.1m as at 31st December 2019 and £137.5m as at 1st January 2019.
This change had no impact on the net assets of the Group.
167
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
1 Accounting policies continued
New standards and interpretations applied in the current year
During the current year, the Group has applied a number of amendments to IFRS Standards and Interpretations issued by the International
Accounting Standards Board (IASB) that are effective for annual periods that begin on or after 1st January 2020. Their adoption has not had a
material impact on the disclosures or on the amounts reported in these Financial Statements:
• Amendments to References to the Conceptual Framework in IFRS Standards;
• Definition of a Business (Amendments to IFRS 3);
• Definition of Material (Amendments to IAS 1 and IAS 8); and
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7).
The Economy in Argentina remains subject to high inflation. At 31st December 2020 we have concluded that applying IAS 29 (Financial
Reporting in Hyperinflationary Economies) is not required as the impact of adopting is not material. We will continue to assess the position
going forward.
New standards and interpretations not yet applied
At the date of authorisation of these Financial Statements, the Group has not applied the following new and revised IFRS Standards that have
been issued but are not yet effective:
• IFRS 17 (Insurance Contracts);
• IFRS 10 and IAS 28 (amendments): Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;
• Amendments to IAS 1: Classification of liabilities as current or non-current
• Amendments to IAS 16: Proceeds before intended use;
• Amendments to IAS 37: Cost of fulfilling a contract; and
• Annual Improvements to IFRS Standards 2018-2020 cycle.
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.
The transition away from London Inter-Bank Offered Rate (LIBOR), and other Inter-Bank Offered Rates (IBORs) (together “IBOR Reform”) will
remove IBOR as an interest rate benchmark for financial instruments including the floating rate debt held by the Group. There is uncertainty as to
the timing and the methods of transition for replacing existing IBOR benchmark rates with alternative rates. The Group has considered whether
hedge accounting relationships continue to qualify for hedge accounting as at 31st December 2020. IBOR continues to be used as a reference
rate in financial markets and is used in the valuation of instruments with maturities that exceed the expected transition deadline. Therefore, the
Group believes the current market structure supports the continuation of hedge accounting as at 31st December 2020. The changes proposed
are not considered to have an immediate impact on the Group and we will continue to monitor developments of IBOR Reform throughout 2021.
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.
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.
168
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 1 Accounting policies continued
(ii) Foreign currency transactions
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.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at the fair value of consideration received, less directly attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost with any difference between cost and redemption
value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective-interest basis.
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.
The Group has not participated in any supplier financing arrangements during the current or prior year.
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.
The principal rates are as follows:
Freehold buildings
Leasehold buildings (short and long-term)
1.5-4.0%
Over life of lease
Plant and machinery
Office furniture and fittings
Office equipment
Motor vehicles
Tooling and patterns
The depreciation rates are reassessed annually.
10-12.5%
10%
12.5-33.3%
20%
10%
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.
169
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
1 Accounting policies continued
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 15 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).
(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 15.
(iv) Amortisation
Amortisation is charged to the Income Statement on a straight-line basis over the estimated useful lives of intangible assets, other than
those with indefinite useful lives, from the date they are available for use. The principal amortisation rates are as follows:
Capitalised development costs
ERP systems and software
Brand names and trademarks
Manufacturing designs and core technology
Non-compete undertakings
Customer relationships
20%
12-33%
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.
Trade receivables and other receivables
Trade and other receivables are carried at original invoice amount (which is considered a reasonable proxy for fair value) and are subsequently
held at amortised cost less provision for impairment. The provision for impairment of receivables is based on lifetime expected credit losses.
Lifetime expected credit losses are calculated by assessing historic credit loss experience, adjusted for factors specific to the receivable and
operating company. The movement in the provision is recognised in the Consolidated Income Statement. In continuing to assess the impact
of the adoption of IFRS 9, specifically expected credit losses, is immaterial, we have considered that there is no material concentration or
dependency on large customers, specific industries or geographies.
Trade and other payables
Trade and other payables are recognised at the amounts expected to be paid to counterparties and subsequently held at amortised cost.
Provisions and contingent liabilities
A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as a
result of a past event and it is probable that an outflow of resources, that can be reliably measured, will be required to settle the obligation. If the
obligation is expected to be settled within 12 months of the reporting date the provision is included within current liabilities and if expected to be
settled after 12 months included in non-current liabilities.
In respect of product warranties, a provision is recognised when the underlying products or services are sold. Obligations arising from
restructuring plans are recognised when detailed formal plans have been established and there is a valid expectation that such a plan will be
carried out.
Provisions are recognised at an amount equal to the best estimate of the expenditure required to settle the Group’s liability.
If the likelihood of having to settle the obligation is less than probable but more than remote, or the amount of the obligation cannot be
measured reliably then a contingent liability is disclosed.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity usually of three months or less, and are held at
amortised cost. 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.
170
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 1 Accounting policies continued
Going concern
The statement on the going concern assumption set out on pages 56 to 57.
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.
Revenue
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:
• 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; and
• services provided where the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the
Group performs.
171
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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 2020 where we have a right to
payment of costs plus a reasonable profit this is not considered a critical 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 are 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:
• the Group has a right to payment;
• legal title is transferred to the customer;
• physical possession of the asset has been transferred to the customer;
• the customer has the significant risks and rewards of ownership; and
• 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 2020 were £2.8m (0.2% 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 promise 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 2020 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
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases
with a lease term of 12 months or less) and leases of low value assets (assets with a value of less than £5,000). For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is
more representative of the time pattern in which economic benefits from the leased assets are consumed.
For new leases entered into, the lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted by using the incremental borrowing rate for the related geographical location unless the rate implicit in the
lease is readily determinable. The incremental borrowing rate is calculated at the rate of interest at which the company would have been able to
borrow for a similar term and with a similar security the funds necessary to obtain a similar asset in a similar market.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in substance fixed payments), less any lease incentives receivable;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• the amount expected to be payable by the company under residual value guarantees;
• the exercise price of purchase options, if the company is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying
amount to reflect the lease payments made.
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Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 1 Accounting policies continued
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise
of a purchase option; and
• the lease payments change due to changes in an index or rate or a change in expected payment under a residual guarantee value.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before
the commencement date and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and
impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfer’s ownership
of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-
use asset is depreciated over the useful life of the underlying asset.
Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use
asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.
Judgement is required when determining whether to include or exclude optional extension periods within the lease term, and estimation
is required when calculating the incremental borrowing rate used to discount the future lease cash flows. These are not considered critical
judgements or a key source of estimation uncertainty.
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.
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’ variable
remuneration. Please see the Annual Report on Remuneration 2020 on pages 118 to 148 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 including those defined as follows:
• amortisation and impairment of acquisition-related intangible assets;
• impairment of goodwill;
• costs associated with acquisitions and disposal;
• reversal of acquisition-related fair value adjustments to inventory;
• changes in deferred consideration payable on acquisitions;
• profit or loss on disposal of subsidiary;
• significant 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.
173
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
2 Alternative performance measures continued
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
Restructuring costs
Post-retirement benefit plans in the UK and Canada being closed 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)
Adjusted profit for the period attributable to equity holders (£m)
Weighted average shares (million)
Basic adjusted earnings per share
Diluted weighted average shares (million)
Diluted adjusted earnings per share
2020
£m
249.0
26.6
−
−
1.0
4.3
(10.5)
270.4
2020
173.6
21.4
(5.8)
189.2
73.7
256.6p
73.9
255.8p
2019
£m
245.0
26.8
4.2
2.6
4.1
–
–
282.7
2019
166.6
37.7
(8.5)
195.8
73.7
265.7p
73.9
264.9p
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. 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.
Basic and diluted EPS calculated on an IFRS profit basis are included in Note 10.
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. Adjusted cash from operations is used by the Board to monitor the performance of the Group, with a focus on elements of cash flow,
such as Net capital expenditure, which are subject to day to day control by the business.
Net cash from operating activities as reported under IFRS
Acquisition and disposal costs
Restructuring costs
Net capital expenditure excluding acquired intangibles from acquisitions
Tax paid
Repayments of principal under lease liabilities
Adjusted cash from operations
2020
£m
259.2
−
4.3
(47.4)
71.9
(12.2)
275.8
2019
£m
227.4
2.5
−
(59.0)
78.4
(11.2)
238.1
Adjusted cash conversion in 2020 is 102% (2019: 84%). Cash conversion is calculated as adjusted cash from operations divided by adjusted
operating profit.
The adjusted cash flow is included in the Financial Review on page 55.
174
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 2 Alternative performance measures continued
Cash generation
Cash generation is one of the Group’s key performance indicators used by the Board to monitor the performance of the Group and measure
the successful implementation of our strategy. It is one of two financial measures on which Executive Directors’ variable remuneration is based.
Cash generation is calculated as adjusted operating profit after adding back depreciation and amortisation, less cash payments to pension
schemes in excess of the charge to operating profit, equity settled share plans, net capital expenditure excluding acquired intangibles,
working capital changes and repayment of principal under lease liabilities. Cash generation is equivalent to adjusted cash from operations,
a reconciliation between this and net cash from operating activities as reported under IFRS is shown on page 174.
Return on invested capital (ROIC)
ROIC measures the after tax return on the total capital invested in the business. It is calculated as adjusted operating profit after tax divided by
average invested capital. Average invested capital is defined as the average of the closing balance at the current and prior year end.
An analysis of the components is as follows:
Total equity
Net debt
Total invested capital
Average invested capital
Average invested capital (excluding IFRS 16)
Operating profit as reported under IFRS
Adjustments (see adjusted operating profit)
Adjusted operating profit
Taxation
Adjusted operating profit after tax
Adjusted operating profit after tax (excluding IFRS 16)
Return in invested capital
Return in invested capital (excluding IFRS 16)
2020
£m
856.0
262.9
1,118.9
1,139.7
1,101.2
249.0
21.4
270.4
(74.4)
196.0
195.2
17.2%
17.7%
2019
£m
826.3
334.1
1,160.4
1,081.6
1,061.2
245.0
37.7
282.7
(80.6)
202.1
201.2
18.7%
19.0%
175
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
2 Alternative performance measures continued
Return on capital employed (ROCE)
ROCE measures effective management of fixed assets and working capital relative to the profitability of the business. It is calculated as adjusted
operating profit divided by average capital employed. Average capital employed is defined as the average of the closing balance at the current
and prior year end. More information on ROCE can be found in the Capital Employed and ROCE sections of the Financial Review on page 59.
An analysis of the components is as follows:
Property, plant and equipment
Right-of-use assets (IFRS 16)
Software & development costs
Prepayments
Inventories
Trade receivables
Other current assets
Tax recoverable
Trade, other payables and current provisions
Current tax payable
Capital employed
Average capital employed
Average capital employed (excluding IFRS 16)
Operating profit
Adjustments (see adjusted operating profit on page 173 to 174)
Adjusted operating profit
Adjusted operating profit (excluding IFRS 16)
Return on capital employed
Return on capital employed (excluding IFRS 16)
2020
£m
261.3
36.3
37.1
1.4
180.1
226.3
31.8
8.1
(166.3)
(28.6)
587.5
591.0
552.5
249.0
21.4
270.4
269.3
45.8%
48.7%
2019
£m
251.2
40.8
36.2
0.9
185.9
240.7
35.3
8.4
(178.3)
(26.7)
594.4
556.0
535.6
245.0
37.7
282.7
281.4
50.8%
52.5%
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 acquired intangibles
Investment in Associate
Post-retirement benefits
Net deferred tax
Non-current provisions and long-term payables
Lease liabilities
Net debt
Net assets as reported under IFRS
2020
£m
587.5
665.6
−
(98.6)
(28.5)
(7.1)
(34.1)
(228.8)
856.0
2019
£m
594.4
685.4
0.2
(71.3)
(43.1)
(5.2)
(38.9)
(295.2)
826.3
Net debt including IFRS 16 lease liabilities
A reconciliation between net debt and net debt including IFRS 16 lease liabilities is given below. A breakdown of the balances that are included
within net debt is given within Note 24. Net debt excludes IFRS 16 lease liabilities to enable comparability with prior years.
Net debt
IFRS 16 lease liabilities
Net debt and IFRS 16 lease liabilities
176
2020
£m
228.8
34.1
262.9
2019
£m
295.2
38.9
334.1
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 2 Alternative performance measures continued
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 EBITDA.
EBITDA is calculated by adding back depreciation and amortisation of owned property, plant and equipment, software and development to
adjusted operating profit. Net debt is calculated as Cash and cash equivalents less Bank overdrafts and external borrowings (excluding IFRS 16
lease liabilities). 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 24.
2020
£m
270.4
36.7
307.1
228.8
0.7
2019
£m
282.7
34.3
317.0
295.2
0.9
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 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.
The incremental impact of any acquisitions and disposals that occurred in either the current period or prior period are excluded from the results
of the current period at current period exchange rates.
The organic percentage movement is calculated as the organic movement divided by the sum of the prior period and exchange.
The organic bps change in adjusted operating margin is the difference between the current period margin excluding acquisitions and disposals
and the prior period margin 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
2019
£1,242.4m
£282.7m
22.8%
Exchange
(£27.2m)
(£12.0m)
Organic
(£37.0m)
(£3.4m)
Acquisitions
and disposals
£15.2m
£3.1m
2020
1,193.4
270.4
22.7%
Organic
-3%
-1%
Reported
-4%
-4%
+40 bps
-10 bps
The reconciliation for each segment is included in the Strategic Report.
177
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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.
Following recent material acquisitions into the Group, the composition of the Group’s Reportable Segments changed in the financial year ended
31st December 2019 to align with both how the business is managed and how information is presented to the Board. This change resulted
in Steam Specialties being reported as one single consolidated operating segment. In previous years Steam Specialties was an aggregation
of three separate operating segments, EMEA, Americas and Asia Pacific, however changes to the management structure in the prior year
resulted in the creation of a separate Steam Specialties management team reporting to the Chief Executive and Chief Financial Officer on the
consolidated Steam Specialties results.
Following the acquisition of Thermocoax in May 2019, the Chromalox operating segment was renamed to Electric Thermal Solutions which
now includes the combination of both businesses from 2019. No changes to the structure of operating segments have been made during the
current period.
Analysis by operating segment
2020
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Total
Net finance expense
Share of profit of Associate
Profit before tax
2019
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Total
Net finance expense
Share of profit of Associate
Profit before tax
The following table details the split of revenue by geography for the combined Group:
Europe, Middle East and Africa
Asia Pacific
Americas
Total revenue
Revenue
£m
694.1
178.0
321.3
1,193.4
Revenue
£m
755.4
186.1
300.9
1,242.4
Total
operating
profit
£m
157.8
4.8
102.2
(15.8)
249.0
(8.7)
(0.2)
240.1
Adjusted
operating
profit
£m
154.3
24.6
107.3
(15.8)
270.4
(8.7)
(0.2)
261.5
Total
operating
profit
£m
Adjusted
operating
profit
£m
172.6
7.9
82.7
(18.2)
245.0
(8.4)
0.2
236.8
177.9
24.7
95.8
(15.7)
282.7
(8.4)
0.2
274.5
2020
£m
507.8
288.5
397.1
Adjusted
operating
margin
%
22.2%
13.8%
33.4%
22.7%
Adjusted
operating
margin
%
23.6%
13.3%
31.8%
22.8%
2019
£m
518.7
296.0
427.7
1,193.4
1,242.4
Revenue generated by Group companies based in the USA is £303.0m (2019: £319.4m), in China is £134.6m (2019: £134.6m), in the UK is
£90.2m (2019: £103.5m), in Germany is £109.8m (2019: £105.3m) and the rest of the world is £555.8m (2019: £579.6m).
178
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 3 Segmental reporting continued
The total operating profit for the period includes certain items, as analysed below:
2020
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Total
2019
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Total
Net financing income and expense
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Corporate expenses
Total net financing expense
Net assets
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Liabilities
Net deferred tax
Net current tax payable
Net debt including lease liabilities
Net assets
Amortisation of
acquisition-related
intangible assets
£m
Restructuring
costs
£m
UK and Canada
pension plans closed to
future accrual
£m
Reversal of acquisition-
related fair value
adjustments to inventory
£m
(5.0)
(14.5)
(7.1)
−
(26.6)
−
(4.3)
−
−
(4.3)
8.5
−
2.0
−
10.5
−
(1.0)
−
−
(1.0)
Amortisation of
acquisition-related
intangible assets
£m
Acquisition-
related items
£m
Impairment of goodwill
£m
Reversal of acquisition-
related fair value
adjustments to inventory
£m
(5.3)
(12.7)
(8.8)
–
(26.8)
–
–
(0.1)
(2.5)
(2.6)
2020
Income
£m
2020
Expense
£m
1.3
−
−
0.1
1.4
(2.4)
(0.3)
(0.4)
(7.0)
(10.1)
–
–
(4.2)
–
(4.2)
–
(4.1)
–
–
(4.1)
2019
Income
£m
2019
Expense
£m
1.1
0.1
0.1
0.2
1.5
2020
Liabilities
£m
(198.0)
(27.5)
(46.5)
(272.0)
(3.3)
(0.3)
(0.5)
(5.8)
(9.9)
20109
Assets
£m
669.4
552.0
255.2
1,476.6
(254.8)
(43.1)
(18.3)
(334.1)
826.3
2020
Net
£m
(1.1)
(0.3)
(0.4)
(6.9)
(8.7)
2020
Assets
£m
640.8
530.0
269.1
1,439.9
(272.0)
(28.5)
(20.5)
(262.9)
856.0
Total
£m
3.5
(19.8)
(5.1)
−
(21.4)
Total
£m
(5.3)
(16.8)
(13.1)
(2.5)
(37.7)
2019
Net
£m
(2.2)
(0.2)
(0.4)
(5.6)
(8.4)
2019
Liabilities
£m
(176.3)
(36.3)
(42.2)
(254.8)
Non-current assets in the UK were £203.4m (2019: £187.1m), in the USA were £350.8m (2019: £375.8m), in Germany were £168.9m
(2019: £165.0m) and in France were £148.9m (2019: £146.5m).
179
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
3 Segmental reporting continued
Capital additions, depreciation, amortisation and impairment
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Group total
2020
Capital
additions
£m
2020
Depreciation,
amortisation
and impairment
£m
2019
Capital
additions
£m
2019
Depreciation
and
amortisation
£m
34.5
3.8
19.6
57.9
36.4
20.8
18.2
75.4
57.7
81.6
40.6
179.9
35.8
18.4
22.4
76.6
Capital additions include property, plant and equipment of £42.0m (2019: £59.0m), of which £nil (2019: £8.1m) was from acquisitions in the
period, and other intangible assets of £7.6m (2019: £72.0m) of which £nil (2019: £60.2m) relates to acquired intangibles from acquisitions in the
period. Right-of-use asset additions of £8.3m occurred during the 12 month period to 31st December 2020, all of which relates to new leases
entered into during 2020. Capital additions split between the UK and rest of the world are UK £28.2m (2019: £36.8m) and rest of the world
£29.7m (2019: £143.1m).
4 Operating costs
Cost of inventories recognised as an expense
Staff costs (Note 5)
Depreciation, amortisation and impairment
Other operating charges
Total operating costs
2020
Adjusted
£m
2020
Adjustments
£m
288.7
430.8
48.8
154.7
923.0
1.0
−
26.6
(6.2)
21.4
2020
Total
£m
289.7
430.8
75.4
148.5
944.4
2019
Adjusted
£m
2019
Adjustments
£m
297.5
438.7
45.6
177.9
959.7
4.1
–
31.0
2.6
37.7
2019
Total
£m
301.6
438.7
76.6
180.5
997.4
Total depreciation, amortisation and impairment includes amortisation of acquisition-related intangible assets of £26.6m (2019: £26.8m) and
impairment of goodwill of £nil (2019: £4.2m). Total other operating charges include restructuring costs of £4.3m (2019: £nil), UK and Canada
pension plans closure to future accrual credit of £10.5m and acquisition-related items of £nil (2019: £2.6m). Total cost of inventories recognised
as an expense includes the reversal of acquisition-related fair value adjustments to inventory £1.0m (2019: £4.1m). Operating costs include
exchange difference benefits of £1.0m (2019: £2.7m).
Total staff costs includes a credit of £2.9m relating to amounts capitalised during the year. Excluding this credit, total staff costs were £433.7m.
5 Staff costs and numbers
The aggregate payroll costs of persons employed by the Group were as follows:
2020
£m
343.5
68.9
21.3
433.7
2020
2,009
5,882
7,891
2019
£m
345.6
71.6
21.5
438.7
2019
2,014
5,819
7,833
Wages and salaries
Social security costs
Pension costs
Total payroll costs
The average number of persons employed by the Group (including Directors) during the year was as follows:
United Kingdom
Overseas
Group average
180
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020
6 Net financing income and expense
Financial expenses:
Bank and other borrowing interest payable
Interest expense on lease liabilities
Net interest on pension scheme liabilities
Financial income:
Bank interest receivable
Net financing expense
Net pension scheme financial expense
Interest expense on lease liabilities
Net bank interest
Net financing expense
7 Profit before taxation
Profit before taxation is shown after charging:
Depreciation of owned tangible fixed assets
Depreciation of right-of-use assets
Amortisation of acquired intangibles
Impairment of goodwill
Leases exempt from IFRS 16 (short-term, low value or variable lease payments)
Exchange difference benefits
Profit/(loss) on disposal of property, plant and equipment
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
Total non-audit fees
Total auditor's remuneration
2020
£m
(7.4)
(1.2)
(1.5)
(10.1)
1.4
(8.7)
(1.5)
(1.2)
(6.0)
(8.7)
2020
£m
(28.9)
(12.1)
(26.6)
−
(2.4)
1.0
0.3
(10.0)
2020
£m
0.3
1.6
1.9
0.1
0.1
2.0
2019
£m
(6.4)
(1.3)
(2.2)
(9.9)
1.5
(8.4)
(2.2)
(1.3)
(4.9)
(8.4)
2019
£m
(27.0)
(11.3)
(26.8)
(4.2)
(2.5)
2.7
(0.4)
(10.2)
2019
£m
0.2
1.7
1.9
0.1
0.1
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 2020 on pages 118 to 148. 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 23).
Salaries and short-term benefits
Post-retirement benefits
Share-based payments
Total Directors' remuneration
2020
£m
2.7
0.3
2.1
5.1
2019
£m
4.1
0.5
1.7
6.3
181
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020
Notes to the Consolidated Financial Statements
continued
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
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
2020
Adjusted
£m
2020
Adjustments
£m
2020
Total
£m
2019
Adjusted
£m
2019
Adjustments
£m
13.8
(3.1)
10.7
60.4
0.6
61.0
71.7
2.7
(2.4)
72.0
−
−
−
−
−
−
−
−
(5.8)
(5.8)
2020
Adjusted
£m
2020
Adjustments
£m
261.7
65.7
4.6
−
1.7
(2.6)
2.6
72.0
(21.4)
(5.9)
−
−
−
−
0.1
(5.8)
13.8
(3.1)
10.7
60.4
0.6
61.0
71.7
2.7
(8.2)
66.2
2020
Total
£m
240.3
59.8
4.6
−
1.7
(2.6)
2.7
66.2
27.5%
27.1%
27.5%
14.1
(1.1)
13.0
56.9
(0.1)
56.8
69.8
(0.1)
8.6
78.3
–
–
–
–
–
–
–
–
(8.5)
(8.5)
2019
Adjusted
£m
2019
Adjustments
£m
274.3
69.2
4.0
(1.2)
2.7
0.1
3.5
78.3
28.5%
(37.7)
(9.6)
–
–
–
–
1.1
(8.5)
22.6%
2019
Total
£m
14.1
(1.1)
13.0
56.9
(0.1)
56.8
69.8
(0.1)
0.1
69.8
2019
Total
£m
236.6
59.6
4.0
(1.2)
2.7
0.1
4.6
69.8
29.5%
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 for the year ended 31st December 2020 includes a credit of £5.8m in relation to certain items excluded from adjusting
operating profit (as disclosed in Note 2). The tax impacts of these items are:
• Amortisation of acquisition-related intangible assets (£6.3m credit);
• Reversal of acquisition-related fair value adjustments to inventory (£0.3m credit);
• Costs related to the restructuring of Chromalox (£1.1m credit); and
• Closure of defined benefit UK and Canadian pension schemes to future accrual (£1.9m debit).
Excluding these adjustments the tax on profit and the effective tax rate are £72.0m and 27.5% respectively.
182
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 9 Taxation continued
In October 2017, the European Commission (EC) opened a State Aid investigation into the UK’s Controlled Foreign Company (CFC) regime.
In April 2019, the EC published its final decision that the UK CFC Finance Company Exemption (FCE) constituted State Aid in certain
circumstances, following which the UK Government appealed the decision. Similar to other UK companies, in October 2019, the Group
submitted its own appeal. The Group’s benefit from the FCE in the period from 1st January 2013 to 31st December 2020 is approximately
£8.6m including compound interest. On 1st March 2021, the Group received a Charging Notice issued by the UK tax authority to recover a
benefit of £4.6 million, assessed for the period from 1st January 2017 to 31st December 2018. The Group will make a payment in 2021 with the
expectation that this is refundable in the event of a successful appeal. The Group has not received a Charging Notice for the balance of £4.0m,
being £2.8m for the period from 1st January 2013 to 31st December 2016 and £1.2m for the period from 1st January 2019 to the balance
sheet date. No provision has been recognised at the year-end balance sheet date for either the Charging Notice amount or for the estimates for
the other periods.
No UK tax (after double tax relief for underlying tax) is expected to be payable on the future remittance of retained earnings of
overseas subsidiaries.
On 3 March 2021 the UK Government announced an intention to increase the UK corporation tax rate to 25% with effect from 1 April 2023.
If enacted this will impact the value of our UK deferred tax balances, and the tax charged on UK profits generated in 2023 and subsequently.
We have yet to determine the full impact of these proposed changes.
The effective tax rate is calculated as a percentage of profit before tax and share of profits of Associates.
10 Earnings per share
Profit attributable to equity shareholders (£m)
Weighted average shares (million)
Dilution (million)
Diluted weighted average shares (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 2019 of 78.0p (2019: 71.0p) per share
Interim dividend for the year ended 31st December 2020 of 33.5p (2019: 32.0p) per share
Total dividends paid
Amounts arising in respect of the year:
Interim dividend for the year ended 31st December 2020 of 33.5p (2019: 32.0p) per share
Proposed final dividend for the year ended 31st December 2020 of 84.5p (2019: 78.0p) per share
Total dividends arising
2020
173.6
73.7
0.2
73.9
235.5p
234.8p
2019
166.6
73.7
0.2
73.9
226.2p
225.5p
2020
£m
57.5
24.7
82.2
24.7
62.3
87.0
2019
£m
52.3
23.6
75.9
23.6
57.5
81.1
The proposed dividend is subject to approval in 2021. 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 2020.
183
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
12 Investment in Associate
Cost of investment
Share of equity
Total investment in Associate
Summarised financial information (100% of the results of the Associate):
Revenue
(Loss)/profit for the period
Current assets
Non-current assets
Current and non-current liabilities
Associate
2020
£m
Associate
2019
£m
1.4
(1.4)
–
2.3
(1.4)
0.7
0.6
1.9
1.4
(1.2)
0.2
4.2
0.6
1.9
0.2
1.3
Details of the Group’s Associate at 31st December 2020 and 31st December 2019 is as follows:
Name of Associate
Econotherm (UK) Ltd
Country of incorporation
and operation
Proportion of ownership interest and
voting power held
Principal
activity
UK
26.3%
Manufacturing and selling
The Group’s share of (Loss)/Profit of Associate is £(0.4)m (2019: £0.2m). The Group’s share of losses in 2020 exceeded our total investment
value by £0.2m. As a result, in line with IAS 28 paragraph 38, the Group only recognised a loss of £0.2m in the Consolidated Income Statement.
No further future losses will be recognised in the Consolidated Income Statement going forward, and any share of profit will only be recognised
once it has exceeded the cumulative unrecognised loss of £0.2m.
13 Property, plant and equipment
2020
Freehold
land and
buildings
£m
Leasehold
land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings,
tools and
equipment
£m
Assets under
construction
£m
148.1
0.9
149.0
1.9
7.7
(0.3)
158.3
31.4
0.3
31.7
3.5
(0.1)
−
35.1
38.4
0.3
38.7
0.1
−
(0.1)
38.7
8.1
0.1
8.2
1.4
−
(0.1)
9.5
186.7
(0.3)
186.4
13.5
2.9
(6.8)
196.0
109.8
0.1
109.9
15.9
2.9
(5.4)
123.3
83.5
(0.4)
83.1
7.4
(2.4)
(4.9)
83.2
56.2
0.1
56.3
8.1
(2.8)
(4.8)
56.8
−
−
−
19.1
(9.4)
0.1
9.8
−
−
−
−
−
−
−
Total
£m
456.7
0.5
457.2
42.0
(1.2)
(12.0)
486.0
205.5
0.6
206.1
28.9
−
(10.3)
224.7
123.2
29.2
72.7
26.4
9.8
261.3
Cost:
At 1st January 2020
Exchange adjustments
Additions
Transfers
Disposals
At 31st December 2020
Depreciation:
At 1st January 2020
Exchange adjustments
Charged in year
Transfers
Disposals
At 31st December 2020
Net book value:
At 31st December 2020
184
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 13 Property, plant and equipment continued
The total amount of transfers relates to property, plant and equipment transferred to other intangible assets (see Note 15).
2019
Cost:
At 1st January 2019
Exchange adjustments
Additions
Acquisitions
Transfers
Disposals
At 31st December 2019
Depreciation:
At 1st January 2019
Exchange adjustments
Charged in year
Transfers
Disposals
At 31st December 2019
Net book value:
At 31st December 2019
Included in the above are assets under construction of £24.2m.
14 Leases
Right-of-use assets
2020
Cost:
At 1st January 2020
Exchange adjustments
Additions
Disposals
At 31st December 2020
Depreciation:
At 1st January 2020
Exchange adjustments
Charged in the year
Transfers
Disposals
At 31st December 2020
Net book value:
At 31st December 2020
Freehold
land and
buildings
£m
Leasehold
land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings,
tools and
equipment
£m
134.1
(4.4)
129.7
18.3
3.8
–
(3.7)
148.1
29.9
(1.2)
28.7
3.2
–
(0.5)
31.4
39.0
(2.0)
37.0
0.9
–
0.7
(0.2)
38.4
6.9
(0.4)
6.5
1.4
0.3
(0.1 )
8.1
178.5
(6.7)
171.8
22.3
4.0
(1.7)
(9.7)
186.7
110.0
(3.9)
106.1
14.7
(1.1)
(9.9)
109.8
78.8
(3.3)
75.5
9.4
0.3
1.2
(2.9)
83.5
52.8
(2.1)
50.7
7.7
0.4
(2.6)
56.2
Total
£m
430.4
(16.4)
414.0
50.9
8.1
0.2
(16.5)
456.7
199.6
(7.6)
192.0
27.0
(0.4)
(13.1)
205.5
116.7
30.3
76.9
27.3
251.2
Leased land
and buildings
£m
Leased plant
and machinery
£m
Leased
fixtures,
fittings, tools
and equipment
£m
Total right-of-
use assets
£m
38.6
(0.4)
38.2
4.6
(1.2)
41.6
6.7
(0.2)
6.5
7.4
−
(0.6)
13.3
28.3
11.0
0.3
11.3
3.3
(0.6)
14.0
3.6
0.1
3.7
4.0
(0.2)
(0.5)
7.0
7.0
2.1
0.1
2.2
0.4
(0.3)
2.3
0.6
−
0.6
0.7
0.2
(0.2)
1.3
1.0
51.7
−
51.7
8.3
(2.1)
57.9
10.9
(0.1)
10.8
12.1
−
(1.3)
21.6
36.3
185
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
14 Leases continued
The vast majority of the right-of-use asset value relates to leased property where the Group leases a number of office and warehouse sites in a
number of geographical locations. The remaining leases are 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. The average lease term is 4.3 years (2019: 4.3 years).
2019
Cost:
Transition adjustment at 1st January 2019
Reclassification from long-term prepayments
Additions
Acquisitions
Disposals
Exchange adjustments
At 31st December 2019
Depreciation:
Charged in the year
Disposals
Exchange adjustments
At 31st December 2019
Net book value:
At 31st December 2019
Leased land
and buildings
£m
Leased plant
and machinery
£m
Leased
fixtures,
fittings, tools
and equipment
£m
Total right-of-
use assets
£m
27.2
5.1
7.2
0.8
(0.2)
(1.5)
38.6
7.0
(0.1)
(0.2)
6.7
31.9
7.0
–
4.2
0.3
(0.1)
(0.4)
11.0
3.7
–
(0.1)
3.6
7.4
1.9
–
0.3
–
–
(0.1)
2.1
0.6
–
–
0.6
1.5
36.1
5.1
11.7
1.1
(0.3)
(2.0)
51.7
11.3
(0.1)
(0.3)
10.9
40.8
The maturity analysis of lease liabilities is presented in Note 27.
Amounts recognised in Consolidated Income Statement
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases
Expense relating to leases of low value assets
Expense relating to variable lease payments not included in the measurement of the lease liability
Income from subleases right-of-use assets
Gain on sale and leaseback transactions
Total impact on profit before tax
31st
December
2020
£m
31st
December
2019
£m
12.1
1.2
1.7
0.5
0.2
(0.1)
−
15.6
11.3
1.3
2.0
0.2
0.3
(0.2)
(0.4)
14.5
The total cash outflow for leases during 2020 was £15.6m (2019: £15.0m).
The following cash outflows (undiscounted) are those that the Group is potentially exposed to in future periods but are currently not reflected in
the measurement of lease liabilities:
• £0.3m relating to variable lease payments not based on an index or rate (2019: £0.3m);
• £0.7m relating to optional extension periods that are not reasonably certain to be exercised as at 31st December 2020 (2019: £1.3m); and
• £8.1m relating to leases that the Group are committed, but have not commenced as at 31st December 2020 (2019: £0.7m).
186
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 15 Goodwill and other intangible assets
2020
Cost:
At 1st January 2020
Exchange and other adjustments
Additions
Transfers from property, plant and equipment
Disposals
At 31st December 2020
Amortisation:
At 1st January 2020
Exchange adjustments
Amortisation
Disposals
At 31st December 2020
Net book value:
At 31st December 2020
2019
Cost:
At 1st January 2019
Exchange and other adjustments
Additions
Acquisitions
Transfers from property, plant and equipment
Disposals
At 31st December 2019
Amortisation and impairment:
At 1st January 2019
Exchange adjustments
Amortisation and impairment
Transfers from property, plant and equipment
Disposals
At 31st December 2019
Net book value:
At 31st December 2019
Acquired
intangibles
£m
Development
costs
£m
Computer
software
£m
Total other
intangibles
£m
Goodwill
£m
366.9
1.7
368.6
−
−
−
368.6
99.2
(0.4)
98.8
26.6
−
125.4
243.2
23.6
0.1
23.7
2.7
0.7
−
27.1
15.7
0.1
15.8
1.8
−
17.6
9.5
71.5
0.4
71.9
4.9
0.5
(2.4)
74.9
43.2
0.3
43.5
6.0
(2.2)
47.3
462.0
2.2
464.2
7.6
1.2
(2.4)
425.6
3.6
429.2
0.6
−
−
470.6
429.8
158.1
–
158.1
34.4
(2.2)
190.3
7.9
(0.5)
7.4
−
−
7.4
27.6
280.3
422.4
Acquired
intangibles
£m
Development
costs
£m
Computer
software
£m
Total other
intangibles
£m
Goodwill
£m
320.6
(13.9)
306.7
–
60.2
–
–
366.9
76.2
(3.8)
72.4
26.8
–
–
99.2
21.2
(0.2)
21.0
3.2
–
0.1
(0.7)
23.6
14.8
(0.2)
14.6
1.6
0.1
(0.6)
15.7
66.6
(1.5)
65.1
8.3
0.3
(0.3)
(1.9)
71.5
40.2
(1.2)
39.0
5.7
0.3
(1.8)
43.2
408.4
(15.6)
392.8
11.5
60.5
(0.2)
(2.6)
371.9
(16.3)
355.6
–
70.0
–
–
462.0
425.6
131.2
(5.2)
126.0
34.1
0.4
(2.4)
158.1
3.9
(0.2)
3.7
4.2
–
–
7.9
267.7
7.9
28.3
303.9
417.7
187
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
15 Goodwill and other intangible assets continued
Acquired intangibles
The disclosure by class of acquired intangible assets is shown in the tables below.
2020
Cost:
At 1st January 2020
Exchange and other adjustments
Acquisitions
At 31st December 2020
Amortisation and impairment:
At 1st January 2020
Exchange adjustments
Amortisation and impairment
At 31st December 2020
Net book value:
At 31st December 2020
Customer
relationships
£m
Brand names
and
trademarks
£m
Manufacturing
designs and
core
technology
£m
Non-compete
undertakings
and other
£m
Total
acquired
intangibles
£m
89.0
2.4
91.4
−
91.4
30.9
0.3
31.2
6.7
37.9
53.5
193.8
(1.5)
192.3
−
192.3
30.6
(0.7)
29.9
10.5
40.4
151.9
61.0
0.8
61.8
−
61.8
19.2
0.1
19.3
5.5
24.8
37.0
23.1
−
23.1
−
23.1
18.5
(0.1)
18.4
3.9
22.3
366.9
1.7
368.6
−
368.6
99.2
(0.4)
98.8
26.6
125.4
0.8
243.2
Customer relationships 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 Thermocoax £32.0m (2019: £32.6m). The remaining amortisation period is 13.3 years.
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 £104.2m (2019: £114.1m), Gestra £27.5m (2019: £28.4m) and
Thermocoax £13.6m (2019: £13.6m). The remaining amortisation periods are 16.5 years, 11.3 years and 18.3 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 £11.0m (2019: £12.9m) and Gestra £10.4m (2019: £10.8m).
The remaining amortisation period is 11.5 years for Chromalox and 11.3 years for Gestra.
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.
2019
Cost:
At 1st January 2019
Exchange and other adjustments
Acquisitions
At 31st December 2019
Amortisation and impairment:
At 1st January 2019
Exchange adjustments
Amortisation and impairment
At 31st December 2019
Net book value:
At 31st December 2019
188
Customer
relationships
£m
Brand names
and
trademarks
£m
Manufacturing
designs and
core
technology
£m
Non-compete
undertakings
and other
£m
Total
acquired
intangibles
£m
57.1
(3.0)
54.1
34.9
89.0
25.1
(1.3)
23.8
7.1
30.9
187.3
(7.8)
179.5
14.3
193.8
21.3
(1.1)
20.2
10.4
30.6
58.1
163.2
56.0
(2.2)
53.8
7.2
61.0
14.2
(0.6)
13.6
5.6
19.2
41.8
20.2
(0.9)
19.3
3.8
23.1
15.6
(0.8)
14.8
3.7
18.5
320.6
(13.9)
306.7
60.2
366.9
76.2
(3.8)
72.4
26.8
99.2
4.6
267.7
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 15 Goodwill and other intangible assets continued
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.
During 2019, we performed a review on the basis of identification of our individual CGUs. As a result of this review, we consolidated a number
of our CGUs into groups of CGUs that represent the lowest level to which goodwill is monitored for internal management purposes, being each
operating segment as disclosed in Note 3. As a result, we performed an impairment review at an operating segment CGU level, the breakdown
of the goodwill value at 31st December across these is shown below:
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Total goodwill
2020
Goodwill
£m
117.4
243.7
61.3
422.4
2019
Goodwill
£m
113.0
244.7
60.0
417.7
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 and then extended up to a further 9 years based
on the most recent forecasts prepared by management. Cash flow forecasts extend beyond 5 years only for Electric Thermal Solutions,
incorporating further medium term growth expected during that period which is consistent with the acquisition plan that indicated a period
of greater than 5 years would be required before the newly acquired segment reaches long term expected performance;
• discount rates range from 9.8% to 11.2% (2019: 10.6% to 11.8%);
• short to medium-term growth rates vary between 3.5% and 13.7% depending on detailed forecasts (2019: 3.1% to 7.5%). The short to
medium-term is defined as not more than 10 years; and
• long-term growth rates are set using IMF forecasts and vary between 1.8% and 2.5% (2019: 1.8% to 2.5%).
The key assumptions on which the impairment tests are based are the discount rates, growth rates and the forecast cash flows:
The principal value in use assumptions were as follows:
Cash-generating unit
Steam Specialties
Electric Thermal Solutions
Watson-Marlow
Discount rate
Short to
medium-term
growth rate
11.2%
6.0% – 8.1%
9.8% 3.5% – 13.7%
10.3%
8.8% – 9.0%
Long-term
growth rate
2.5%
1.8%
2.0%
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 change
sensitivities in isolation:
• a 1.0 % increase in the discount rate applied to each operating segment;
• a range of 1.0% – 5.0% reduction in the short to medium term growth rates and a 1.0% reduction in long-term growth rates used in the cash
flow projections;
• a range of 100 to 300 bps reduction in the EBIT margin used in the cash flow projections; and
• a range of 1.0% – 5.0% reduction in the short to medium term revenue growth rates and a 1.0% reduction in long term revenue growth
rates, combined with a range of 0 – 240bps reduction in forecast short to medium term profit margins specifically in relation to Electric
Thermal Solutions.
For each cash-generating unit, the Directors do not consider that there are any reasonably possible change sensitivities for the business that
could arise in the next 12 months that would result in an impairment charge being recognised.
189
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
16 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)
2020
Assets
£m
2019
Assets
£m
2020
Liabilities
£m
2019
Liabilities
£m
0.5
9.0
3.9
5.9
23.9
7.7
50.9
0.5
2.3
2.9
6.4
17.7
11.0
40.8
(9.3)
(0.2)
−
(1.6)
(1.2)
(67.1)
(79.4)
(8.5)
(0.2)
–
(1.6)
(0.9)
(72.7)
(83.9)
2020
Net
£m
(8.8)
8.8
3.9
4.3
22.7
(59.4)
(28.5)
2019
Net
£m
(8.0)
2.1
2.9
4.8
16.8
(61.7)
(43.1)
Movement in deferred tax during the year 2020
Accelerated capital allowances
Provisions
Losses
Inventory
Pensions
Other temporary differences
Group total
1st January
2020
£m
Recognised in
income
£m
Recognised in
OCI
£m
Recognised in
equity
£m
Acquisitions
£m
31st December
2020
£m
(8.0)
2.1
2.9
4.8
16.8
(61.7)
(43.1)
(0.9)
6.9
(1.1)
(0.3)
(2.5)
3.4
5.5
−
0.3
2.1
(0.2)
8.3
(0.1)
10.4
0.1
(0.5)
−
−
0.1
(1.0)
(1.3)
−
−
−
−
−
−
−
(8.8)
8.8
3.9
4.3
22.7
(59.4)
(28.5)
Movement in deferred tax during the year 2019
Accelerated capital allowances
Provisions
Losses
Inventory
Pensions
Other temporary differences
Group total
1st January
2019
£m
Recognised in
income
£m
Recognised in
OCI
£m
Recognised in
equity
£m
Acquisitions
£m
31st December
2019
£m
(6.8)
2.4
3.0
4.4
18.8
(57.3)
(35.5)
(1.5)
0.5
0.1
0.2
(0.5)
8.0
6.8
0.1
0.2
(0.1)
(0.2)
(1.5)
(0.7)
(2.2)
0.2
(1.0)
(0.1)
0.4
–
4.7
4.2
–
–
–
–
–
(16.4)
(16.4)
(8.0)
2.1
2.9
4.8
16.8
(61.7)
(43.1)
At the Balance Sheet date, the Group has deductible temporary differences, unused tax losses and unused tax creditors of £13.7m
(2019: £12.8m) available for offset against future profits. A deferred tax asset has been recognised in respect of £3.9m (2019: £2.9m).
No deferred tax asset has been recognised in respect of the remaining £9.8m (2019: £9.9m) 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 £8.3m recognised in the Consolidated Statement of Comprehensive Income (page 164) associated with the measurement of
defined benefit obligations comprises £8.2m relating to remeasurement gain and £0.1m relating to exchange movements.
Other temporary differences mostly consist of deferred tax liabilities recognised on acquired intangibles from acquisitions.
190
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 17 Inventories
Raw materials, consumables and components
Work in progress
Finished goods and goods for resale
Total inventories
2020
£m
70.7
25.2
84.2
2019
£m
72.2
25.5
88.2
180.1
185.9
The write-down of inventories recognised as an expense during the year in respect of continuing operations was £5.5m (2019: £0.7m).
This comprises a cost of £6.5m (2019: £5.1m) to write-down inventory to net realisable value reduced by £1.0m (2019: £4.4m) 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 £12.3m (2019: £13.4m).
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.
18 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.
19 Trade and other payables
Trade payables
Contract liabilities
Social security
Other payables
Accruals
2020
£m
16.4
2.8
12.6
31.8
2020
£m
45.6
11.8
6.7
32.6
63.5
2019
£m
16.9
5.8
12.6
35.3
2019
£m
57.9
8.7
5.6
37.8
64.8
Total trade and other payables
160.2
174.8
Contract liabilities relate to advance payments received from customers that have not yet been recognised as revenue.
£8.2m of the contract liabilities at 31st December 2019 was recognised as revenue during 2020 (2019: £8.3m).
191
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
20 Provisions
2020
At 1st January 2020
Additional provision in the year
Utilised or released during the year
Exchange adjustments
At 31st December 2020
2019
At 1st January 2019
Additional provision in the year
Utilised or released during the year
Acquisition of subsidiary
Exchange adjustments
At 31st December 2019
Current provisions
Non-current provisions
Total provisions
Product
warranty
£m
Legal,
contractual
and other
£m
1.5
0.8
(0.4)
0.1
2.0
3.3
4.9
(1.9)
(0.2)
6.1
Product
warranty
£m
Legal,
contractual
and other
£m
3.6
0.4
(2.6)
0.2
(0.1)
1.5
5.1
2.0
(3.5)
–
(0.3)
3.3
2020
£m
6.1
2.0
8.1
Total
£m
4.8
5.7
(2.3)
(0.1)
8.1
Total
£m
8.7
2.4
(6.1)
0.2
(0.4)
4.8
2019
£m
3.5
1.3
4.8
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
2020 £4.5m (2019: £2.7m) has been included within current and £1.6m within non-current provisions (2019: £0.6m).
192
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 21 Called up share capital and reserves
Ordinary shares of 26 12/13p (2019: 26 12/13p) each:
Authorised 111,428,571 (2019: 111,428,571)
Allotted, called up and fully paid 73,766,048 (2019: 73,736,888)
2020
£m
30.0
19.8
2019
£m
30.0
19.8
In 2020, 69,823 shares with a nominal value of £18,799 were issued in connection with the Group’s Employee Share Schemes with external
consideration of £3.8m received by the Group.
At 31st December 2020, 60,038 shares were held in an Employee Benefit Trust and available for use in connection with the Group’s Employee
Share Schemes.
104 senior employees of the Group have been granted options on Ordinary shares under the Share Option Scheme and Performance Share
Plan (details in Note 23).
Other reserves in the Consolidated Statement of Changes in Equity on pages 164 to 165 are made up as follows:
Translation reserve
Net investment hedge reserve
Cash flow hedges reserve
Capital redemption reserve
Employee Benefit Trust reserve
Total other reserves
Translation reserve
Net investment hedge reserve
Cash flow hedges reserve
Capital redemption reserve
Employee Benefit Trust reserve
Total other reserves
1st January
2020
£m
(14.7)
5.5
3.3
1.8
(6.5)
(10.6)
Change
in year
£m
31st December
2020
£m
(12.9)
(11.6)
(0.7)
−
(0.3)
(25.5)
(27.6)
(6.1)
2.6
1.8
(6.8)
(36.1)
1st January
2019
£m
Change
in year
£m
31st December
2019
£m
30.3
(7.4)
–
1.8
(2.5)
22.2
(45.0)
12.9
3.3
–
(4.0)
(32.8)
(14.7)
5.5
3.3
1.8
(6.5)
(10.6)
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign
subsidiaries. On disposal accumulated exchange differences are recycled to the Income Statement.
Net investment hedge reserve
The reserve records the cumulative gain or loss on hedging instruments designated in net investment hedges. Together with the translation
reserve, these are the foreign currency translation reserves of the Group.
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.
193
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
22 Capital commitments and contingent liabilities
Capital expenditure contracted for but not provided
2020
£m
7.3
2019
£m
8.5
All capital commitments are related to property, plant and equipment and computer software. The Group has no material contingent liabilities
at 31st December 2020 (no material contingent liabilities existed at 31st December 2019), but does have a non-material contingent liability in
relation to tax estimated at approximately £8.6m (2019: £8.3m). See Note 9 for further details.
23 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 employees’ pay. Contributions made to
defined contribution schemes and charged to the Income Statement totalled £15.2m (2019: £14.1m). 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 49% (2019: 34%) 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 and are closed to new members. With effect from
30th June 2020, the Spirax-Sarco Employees Pension Fund and the Watson-Marlow Pension Fund were closed to future accrual with active
members becoming deferred members at this date. This curtailment was recognised as a past service credit of £7.7m for the Spirax-Sarco
Employees Pension Fund and £2.0m for the Watson-Marlow Pension Fund, both recognised in the Consolidated Income Statement.
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 55.
During 2020 triennial actuarial valuations, as at 31st December 2019, were undertaken for the Spirax-Sarco Employees Pension Fund and
the Spirax-Sarco Executives’ Retirement Benefits scheme. Preliminary results have generated experience gains of £5.2m recognised in Other
Comprehensive Income.
US defined benefit schemes
The Group operates a pension scheme in the USA, which is closed to new entrants and frozen to future accrual. 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.
Canada defined benefit scheme
The Group operates a funded pension scheme in Canada which was closed to future accrual with effect from 30th September 2020, with
active members becoming deferred at this date. This curtailment was recognised as a past service credit of £1.1m in the Consolidated
Income Statement.
194
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 23 Employee benefits continued
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 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 pages 54 to 55.
Sensitivity analysis to changes in discount rate and inflation are included on page 198.
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
Overseas pensions
and medical
2020
%
2.4
2.8
2.9
1.3
n/a
2019
%
2.4
2.8
2.9
2.1
n/a
2020
%
2.6
1.8
1.8
2.0
8.0
2019
%
2.7
1.8
1.8
2.7
5.0
The mortality assumptions for the material defined benefit schemes at 31st December 2020 and 31st December 2019 were:
Spirax-Sarco Employees
Pension Fund
Spirax-Sarco Executives’
Retirement Benefits Scheme
Watson-Marlow Pension Fund
US Pension Scheme
At 31st December 2020: 100% of SAPS 3, with CMI 2019 projections with a long-term 1.25% pa and an
initial addition parameter of 0.25%.
At 31st December 2019: 97% of SAPS S2 base table, with 2018 CMI Core Projection model from 2007,
with a long-term trend of 1.25% p.a.
At 31st December 2020: 84/87% (male/female) of SAPS S3 light, CMI 2019 projections with a long-term
trend 1.25% and an initial addition parameter of 0.25%.
At 31st December 2019: 85% of SAPS S2 light base table for males and 96% of SAPS S2 base table for
females, with 2018 CMI Core Projection model from 2007, with a long-term trend of 1.25% p.a.
At 31st December 2020: 96% of SAPS S2, CMI 2019 projections with a long-term trend of 1.25% pa
and an initial addition parameter of 0.25%.
At 31st December 2019: 96% of SAPS S2 base table, with 2018 CMI Core Projection model from 2007,
subject to a long-term trend of 1.25% p.a.
At 31st December 2020: SOA Pri-2012 Amount-Weighted Blue Collar mortality tables with Mortality
Improvement Scale MP2020.
At 31st December 2019: SOA Pri-2012 Amount Weighted Blue Collar mortality tables projected
generationally with Mortality Improvement Scale MP2019.
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.
195
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
23 Employee benefits continued
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
Fair value of scheme assets
Equities
Bonds
Other
Total market value in aggregate
UK pensions
Overseas pensions
and medical
Total
2020
£m
474.7
(522.8)
(48.1)
–
(48.1)
9.1
(39.0)
UK pensions
2020
£m
118.3
310.3
46.1
474.7
2019
£m
433.7
(458.2)
(24.5)
–
(24.5)
4.3
(20.2)
2019
£m
107.3
297.0
29.4
433.7
2020
£m
57.0
(79.9)
(22.9)
(27.6)
(50.5)
13.6
(36.9)
Overseas pensions
and medical
2020
£m
32.6
16.7
7.7
57.0
2019
£m
54.1
(77.4)
(23.3)
(23.5)
(46.8)
12.5
(34.3)
2019
£m
31.6
16.1
6.4
54.1
2020
£m
531.7
(602.7)
(71.0)
(27.6)
(98.6)
22.7
(75.9)
Total
2020
£m
150.9
327.0
53.8
531.7
At 31st December 2020, £94.3m (2019: £98.2m) of scheme assets have a quoted market price in an active market of which £42.6m
(2019: £47.4m) relates to UK pensions and £51.7m (2019: £50.8m) relates to overseas pensions and medical.
The actual return on plan assets was an increase of £56.4 million (2019: a increase of £61.4 million).
The movements in the defined benefit obligation recognised in the Consolidated Statement of Financial Position during the year were:
Defined benefit obligation at beginning of year
Current service cost
Past service credit – Amendments
Past service credit – Curtailments
Interest cost
Administration costs
Contributions by members
Remeasurement (loss)/gain
Actual benefit payments
Settlement gain
Acquisitions and disposals
Experience gain/(loss)
Currency gain/(loss)
UK pensions
Overseas pensions
and medical
2020
£m
(458.2)
(3.6)
–
9.3
(8.7)
–
(0.1)
(88.3)
15.3
–
–
11.5
–
2019
£m
(428.3)
(6.2)
–
–
(11.2)
–
(0.2)
(27.9)
15.6
–
–
–
–
2020
£m
(100.9)
(0.7)
–
1.2
(2.7)
(0.6)
–
(9.8)
4.8
–
–
(0.1)
1.3
2019
£m
(97.8)
(0.7)
0.5
–
(3.4)
(0.7)
–
(12.1)
9.1
0.3
(0.3)
–
4.2
Total
2020
£m
(559.1)
(4.3)
–
10.5
(11.4)
(0.6)
(0.1)
(98.1)
20.1
–
–
11.4
1.3
2019
£m
487.8
(535.6)
(47.8)
(23.5)
(71.3)
16.8
(54.5)
2019
£m
138.9
313.1
35.8
487.8
2019
£m
(526.1)
(6.9)
0.5
–
(14.6)
(0.7)
(0.2)
(40.0)
24.7
0.3
(0.3)
–
4.2
Defined benefit obligation at end of year
(522.8)
(458.2)
(107.5)
(100.9)
(630.3)
(559.1)
196
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 23 Employee benefits continued
The movements in the fair value of plan assets during the year were:
UK pensions
Overseas pensions
and medical
Total
Value of assets at beginning of year
Expected return on assets
Remeasurement gain
Contributions paid by employer
Contributions paid by members
Actual benefit payments
Administration costs
Currency loss
Value of assets at end of year
2020
£m
433.7
8.2
41.6
7.2
0.1
(15.3)
(0.8)
–
474.7
The estimated employer contributions to be made in 2020 are £6.9m.
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
2019
£m
387.4
10.3
42.3
9.7
0.2
(15.6)
(0.6)
–
433.7
2020
£m
(630.3)
531.7
(98.6)
11.4
1.8%
46.5
8.7%
2020
£m
54.1
1.7
4.9
2.8
–
(4.8)
–
(1.7)
57.0
2019
£m
(559.1)
487.8
(71.3)
–
0.0%
49.0
10.0%
2019
£m
53.6
2.1
6.7
2.9
–
(9.2)
–
(2.0)
54.1
2018
£m
(526.1)
441.0
(85.1)
(0.6)
0.1%
(27.3)
6.2%
2020
£m
487.8
9.9
46.5
10.0
0.1
(20.1)
(0.8)
(1.7)
531.7
2017
£m
(543.0)
457.4
(85.6)
(8.5)
1.6%
29.9
6.5%
The expense recognised in the Group Income Statement was as follows:
UK pensions
Overseas pensions
and medical
Total
Current service cost
Administration costs
Past service credit – Amendments
Past service credit – Curtailment
Settlement gain
Net interest on schemes’ liabilities
Total expense recognised in
Income Statement
2020
£m
(3.6)
(0.8)
–
9.2
–
(0.5)
4.3
2019
£m
(6.2)
(0.6)
–
–
–
(0.9)
(7.7)
2020
£m
(0.7)
(0.6)
–
1.2
–
(1.0)
(1.1)
2019
£m
(0.7)
(0.7)
0.5
–
0.3
(1.3)
(1.9)
The expense is recognised in the following line items in the Consolidated Income Statement:
Operating costs
Adjustments – closure of DB schemes
Net financing expense
Total expense recognised in Income Statement
The gain or loss recognised in the Statement of Comprehensive Income (OCI) was as follows:
2020
£m
(4.3)
(1.4)
–
10.4
–
(1.5)
3.2
2020
£m
(6.1)
10.8
(1.5)
3.2
2019
£m
441.0
12.4
49.0
12.6
0.2
(24.8)
(0.6)
(2.0)
487.8
2016
£m
(520.3)
426.1
(94.2)
1.6
0.3%
66.0
15.5%
2019
£m
(6.9)
(1.3)
0.5
–
0.3
(2.2)
(9.6)
2019
£m
(7.4)
–
(2.2)
(9.6)
197
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
23 Employee benefits continued
UK pensions
Overseas pensions
and medical
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)/gain recognised in OCI
Deferred tax on remeasurement (loss)/gain 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
2020
£m
11.5
(8.6)
(79.7)
41.6
(35.2)
6.7
2019
£m
–
4.1
(32.0)
42.3
14.4
(2.4)
2020
£m
(0.1)
0.5
(10.3)
4.9
(5.0)
2019
£m
–
0.4
(12.5)
6.7
(5.4)
1.5
1.0
8.2
Total
2020
£m
11.4
(8.1)
(90.0)
46.5
(40.2)
2019
£m
–
4.5
(44.5)
49.0
9.0
(1.4)
(39.3)
(51.3)
(26.8)
(22.4)
(66.1)
(73.7)
(67.8)
(39.3)
(30.3)
(26.8)
(98.1)
(66.1)
Sensitivity analysis
The effect on the defined benefit obligation at 31st December 2020 of an increase or decrease in key assumptions is as follows:
(Decrease)/increase in pension deficit:
Discount rate assumption being 0.25% higher
Discount rate assumption being 0.25% lower
Inflation assumption being 0.25% higher
Inflation assumption being 0.25% lower
Mortality assumption life expectancy at age 65 being one year higher
UK pensions
£m
Overseas
pensions and
medical
£m
(23.9)
25.1
18.0
(17.5)
23.8
(3.7)
4.0
0.9
(0.8)
3.8
Total
£m
(27.6)
29.1
18.9
(18.3)
27.6
The average age of active participants in the UK schemes at 31st December 2020 was 53 years (2019: 52 years) and in the overseas schemes
48 years (2019: 48 years).
Cash payments to the pension scheme greater or less than the expense to operating profit
Defined benefit arrangements
Defined contribution arrangements
Total expense recognised in operating costs
Defined benefit arrangements
Defined contribution arrangements
Total contributions paid by employer
Cash payments to the pension scheme greater than the expense to operating profit
2020
£m
4.7
(15.2)
(10.5)
10.0
15.2
25.2
14.7
2019
£m
(7.4)
(14.1)
(21.5)
12.6
14.1
26.7
5.2
198
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 23 Employee benefits continued
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 2020 on pages 118 to 148. 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
2020
£m
5.8
1.2
7.0
2019
£m
5.1
1.1
6.2
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.
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 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)
2010 grant (1,366.0p)
2011 grant (1,873.0p)
Weighted average exercise price
Weighted average contractual life remaining
Outstanding at
start of year
Granted during
year
Exercised during
year
Lapsed during
year
Outstanding at
end of year
7,000
33,901
40,901
£17.86
1.0
−
−
−
7,000
12,401
19,401
£16.90
−
6,500
6,500
£18.73
−
15,000
15,000
£18.73
0.2
Performance conditions in respect of all exercisable shares have been met. The number of shares exercisable at 31st December 2020 is 15,000
(2019: 40,901). The average share price during the period was £100.93 (2019: £75.65).
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. 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. 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 global industrial production (IP) plus 2% as published by CHR Economics, and 100% will vest if the compound growth in EPS is
equal to or exceeds the growth in global IP plus 8%, there is pro-rata vesting for actual growth between these rates.
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
2016
Grant
5th April
3,550.0p
141
152,440
3 years
70.8%
2017
Grant
26th May
5,273.0p
128
137,001
3 years
73.1%
2018
Grant
4th April
5,560.0p
134
145,041
3 years
73.5%
2019
Grant
2020
Grant
15th May
12th March
8,161.0p
7,775.0p
133
112,159
3 years
74.1%
104
140,934
3 years
74.3%
2,513.4p
3,854.5p
4,084.4p
6,048.9p
5,779.2p
199
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
23 Employee benefits continued
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
2016
Grant
2017
Grant
2018
Grant
2019
Grant
2020
Grant
1st October
1st October
1st October
1st October
1st October
4,477.3p
5,496.7p
7,240.0p
7,835.0p
11,102.0p
1,040
22,173
3 years
21%
0.1%
2.5%
1,229
22,411
3 years
21%
0.4%
2.3%
1,294
16,687
3 years
19%
0.8%
2.0%
1,318
16,820
3 years
21%
0.5%
1.8%
1,373
12,480
3 years
25%
0.1%
1.5%
4,696.7p
5,799.0p
7,623.7p
8,305.1p
11,956.9p
The accumulation period for the 2020 ESOP ends in September 2021, therefore some figures are projections.
24 Analysis of changes in net debt, including changes in liabilities arising from financing
activities
2020
Current portion of long-term borrowings
Non-current portion of long-term borrowings
Short-term borrowings
Total borrowings
Comprising:
Borrowings
Changes in liabilities arising from financing
Cash at bank^
Bank overdrafts^
Net cash and cash equivalents
Net debt
Lease liabilities
Net debt and lease liabilities
At 1st
January
2020
£m
(34.3)
(429.2)
–
(463.5)
(463.5)
(463.5)
330.6
(162.3)
168.3
(295.2)
(38.9)
(334.1)
Cash flow
£m
Acquired
debt*
£m
Exchange
movement
£m
At 31st
December
2020
£m
(0.6)
(452.2)
–
(452.8)
(452.8)
(452.8)
246.2
(22.2)
224.0
(228.8)
(34.1)
(262.9)
36.7
36.7
(84.4)
140.0
55.6
92.3
12.2
104.5
–
–
–
–
–
–
(7.1)
(7.1)
(26.0)
(26.0)
–
0.1
0.1
(25.9)
(0.3)
(26.2)
* Debt acquired includes both debt acquired due to acquisition, and debt recognised on the balance sheet due to entry into new leases under IFRS 16.
^ Prior period comparatives for Cash and cash equivalents and Bank overdrafts have been adjusted to reflect a reclassification to meet the presentational requirements of IAS 32, with further detail
given within Note 1. This had no impact on the net assets of the Group.
The cash flow for borrowings net total of £36.7m consists of £138.3m of new borrowings and £175.0m of repaid borrowings. This includes
repayments of £32.0m and €96.2m (£85.1m) against a revolving credit facility, repayments of US$25.8m (£20.0m) on the US$200.0m term
loan, repayments of €41.7m (£36.8m) on the €50.0m term loan, £32.0m of new drawings against a revolving credit facility and €120.0m
(£106.1m) of new drawings on a €120.0m Private Placement.
At 31st December 2020, total lease liabilities consist of £10.3m (2019: £11.1m) short-term and £23.8m (2019: £27.8m) long-term.
See Note 27 for further information on net debt and lease liabilities.
200
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 24 Analysis of changes in net debt, including changes in liabilities arising from
financing activities continued
2019
Current portion of long-term borrowings
Non-current portion of long-term borrowings
Short-term borrowings
Total borrowings
Comprising:
Borrowings
Finance leases
Changes in liabilities arising from financing
Cash at bank^
Bank overdrafts^
Net cash and cash equivalents
Net debt
Lease liabilities (including IFRS 16 transition
adjustment)
Net debt and lease liabilities
At 1st
January
2019
£m
(41.5)
(365.3)
(15.7)
(422.5)
(422.2)
(0.3)
(422.5)
324.6
(137.9)
186.7
(235.8)
(39.0)
(274.8)
Cash flow
£m
Acquired
debt*
£m
Exchange
movement
£m
Reclassification
£m
At 31st
December
2019
£m
(49.6)
–
(49.6)
(5.7)
0.2
(5.5)
(55.1)
11.2
(43.9)
(18.2)
–
(18.2)
–
–
–
(18.2)
(12.6)
(30.8)
26.5
–
26.5
(12.9)
–
(12.9)
13.6
1.8
15.4
–
0.3
0.3
24.6
(24.6)
–
0.3
(0.3)
–
(34.3)
(429.2)
–
(463.5)
(463.5)
–
(463.5)
330.6
(162.3)
168.3
(295.2)
(38.9)
(334.1)
^ Prior period comparatives for Cash and cash equivalents and Bank overdrafts have been adjusted to reflect a reclassification to meet the presentational requirements of IAS 32, with further detail
given within Note 1. This had no impact on the net assets of the Group.
25 Related party transactions
Transactions with Directors are disclosed separately in Note 8 and are shown in the Annual Report on Remuneration 2020 on pages 118 to 148.
There were no other related party transactions in either 2019 or 2020.
26 Purchase and disposal of businesses
2020
During the first quarter of 2020 the deferred consideration payable for the acquisition of Qonqave, a small German pre-revenue company, within
the Watson-Marlow Fluid Technology business in 2018 was paid, for a value of €5.8m (£4.8m).
During the period the fair value of the assets acquired as part of the acquisition of Thermocoax Developpement and its related group companies
was reassessed. The outcome of this reassessment was an increase to goodwill of £0.6m.
On 5th March 2020, we completed the sale of ProTrace Engineering, a small, non-core electrical engineering services business in Canada to the
existing management team, for a nominal value of $1. The total impact of this in the Consolidated Income Statement was a cost of £0.4m which
has been shown as an adjusting item as disclosed in Note 2, included within restructuring costs.
201
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
26 Purchase and disposal of businesses continued
2019
The fair value accounting for the acquisition of Thermocoax Developpement is shown below:
Non-current assets:
Property, plant and equipment
Right-of-use assets
Acquired intangibles
Software and other intangibles
Deferred tax assets
Current assets:
Inventories
Trade receivables
Other current assets
Cash and cash equivalents
Total assets
Current liabilities:
Trade payables
Other payables and accruals
Provisions
Short-term borrowings
Short-term lease liabilities
Current tax payable
Non-current liabilities:
Long-term lease liabilities
Deferred tax liabilities
Long-term payables
Post-retirement benefit plans
Total liabilities
Total net assets
Goodwill
Total
Satisfied by:
Cash paid
Deferred consideration
Total consideration
Reconciliation to acquisition of businesses net of cash acquired in the Consolidated Statement of Cash Flows (page 166)
Cash paid for the Thermocoax business and debt repaid on the acquisition date
Debt repaid on acquisition date
Cash paid for the Thermocoax business
Less cash acquired in the Thermocoax business
Cash paid for acquired intangibles from distributors
Acquisition of businesses net of cash acquired
202
Fair value
£m
8.1
1.1
59.3
0.3
0.5
69.3
15.6
8.5
3.6
4.6
32.3
101.6
4.2
6.5
0.2
18.2
0.3
2.0
31.4
0.8
17.2
0.5
0.3
18.8
50.2
51.4
70.0
121.4
121.4
–
121.4
139.6
(18.2)
121.4
(4.6)
1.1
117.9
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 26 Purchase and disposal of businesses continued
1. On a debt-free, cash-free basis the cash outflow for acquisitions was £135.0m consisting of £121.4m paid to the sellers, £18.2m of debt
repaid on the acquisition date less cash acquired of £4.6m.
2. The acquisition of 100% of the equity in Thermocoax Developpement and all of its group companies (Thermocoax) was completed on the
13th May 2019. The acquisition method of accounting has been used. Consideration of £121.4m was paid on completion.
Separately identified intangibles are recorded as part of the provisional fair value adjustment. The acquired intangibles relate to customer
relationships, brand names, trademarks, manufacturing designs and core technology. 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.
Due to their contractual dates, the fair value of receivables acquired approximate to the gross contractual amounts receivable.
The amount of gross contractual receivables not expected to be recovered is immaterial.
The acquisition has generated £27.9m of revenue and £5.4m of adjusted pre-tax profit since acquisition. Had the acquisition been
made on the 1st January 2019, the Thermocoax revenue and adjusted pre-tax profit would have been approximately £42m and
£8m respectively.
Thermocoax is headquartered near Paris, France and has four manufacturing facilities in Normandy, France, one in Georgia, USA
and a further facility in Heidelberg, Germany. Thermocoax is a leading designer and manufacturer of highly engineered electrical
thermal solutions for critical applications in high added value industries. Thermocoax will enhance and add significantly to the
Spirax-Sarco Engineering plc electrical process heating business in delivering thermal energy solutions to customers.
3. In addition to the acquired intangibles recognised for the acquisition of Thermocoax, £0.9m of acquired intangibles were recognised during
the period for the acquisition of intangibles from distributors. Of this £0.7m was paid in the period with £0.2m deferred. In addition deferred
consideration of £0.4m was paid during 2019 for acquired intangibles recognised prior to 2019.
4. £2.5m of acquisition costs were incurred during the period.
5. During the period the deferred consideration payable for the acquisition of a small German pre-revenue company within the Watson- Marlow
Fluid Technology business was reassessed. The result of this reassessment was that deferred consideration of €5.8m remained appropriate
and that no changes were required. Deferred consideration of €5.8m (£5.2m) was paid in the first quarter of 2020.
27 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.
Prior period comparatives for Cash and cash equivalents and Bank overdrafts, where disclosed within this note, have been adjusted to reflect a
reclassification to meet the presentational requirements of IAS 32, with further detail given within Note 1. This had no impact on the net assets of
the Group. Those elements of Note 27 impacted by the prior period reclassification have been identified by marking them with an asterisk where
applicable within the Note.
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’s policy is to hold a mixture of fixed and floating rate debt, with a preference to floating rate when the Group’s interest cover is
high and leverage is low. When new debt facilities are entered into the Group assesses if this should be fixed or floating depending on the
specific circumstances at the time. In addition the Group aims to achieve a spread of maturity dates in order to avoid the concentration of
funding requirements at any one time. The ratio of fixed to floating rate debt and debt maturity profile is kept under review by the Group CFO
in conjunction with the Board.
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.
In addition the Group employs Net Investment Hedge Accounting where appropriate to mitigate these exposures, with such hedges being
designated in both 2020 and 2019. The loss on net investment hedges during 2020 included in the Consolidated Statement of Comprehensive
income was £11.6m (2019: £12.9m gain). This is included within other reserves in the Consolidated Statement of Changes in Equity (see
Note 21).
203
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020
Notes to the Consolidated Financial Statements
continued
27 Derivatives and other financial instruments continued
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. The Group operates a programme to manage this
risk on a Group-wide net basis, through the entering into of both forward contracts and non-deliverable forward contracts with a range of bank
counter-parties.
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 31st December 2020 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.
• Lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at the incremental borrowing rate for the related geographical
location unless the rate implicit in the lease is readily determinable.
• 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.
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
Lease liabilities
Bank overdrafts
Trade payables
Other payables and contract liabilities
Total financial liabilities
2020
Carrying
value
£m
246.2
245.5
491.7
2020
Carrying
value
£m
2020
Fair
value
£m
246.2
245.5
491.7
2020
Fair
value
£m
452.8
464.1
34.1
22.2
45.6
44.4
34.1
22.2
45.6
44.4
599.1
610.4
2019*
Carrying
value
£m
330.6
263.4
594.0
2019
Carrying
value
£m
463.5
38.9
162.3
57.9
46.5
769.1
2019*
Fair
value
£m
330.6
263.4
594.0
2019
Fair
value
£m
463.5
38.9
162.3
57.9
46.5
769.1
* Full details of the prior period reclassification are outlined in Note 27 on page 203.
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.
204
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 27 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:
2020
Euro
US dollar
Sterling
Renminbi
Other
Group total
2019*
Euro
US dollar
Sterling
Renminbi
Other
Group total
Fixed rate
financial
liabilities
£m
Floating rate
financial
liabilities
£m
Financial
liabilities on
which no
interest is paid
£m
459.7
11.2
1.9
7.0
20.3
500.1
0.9
–
–
–
1.3
2.2
23.8
11.3
22.5
21.7
17.5
96.8
Fixed rate
financial
liabilities
£m
Floating rate
financial
liabilities
£m
Financial
liabilities on
which no
interest is paid
£m
199.6
14.6
2.5
1.5
13.6
231.8
253.0
19.6
162.1
–
–
33.2
16.5
13.7
17.1
22.1
434.7
102.6
Total
£m
484.4
22.5
24.4
28.7
39.1
599.1
Total
£m
485.8
50.7
178.3
18.6
35.7
769.1
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 private placement – €120.0m
Unsecured bank facility – £50m revolving credit facility
Unsecured bank facility – £41.7m
Unsecured bank facility – £110m revolving credit facility
Unsecured bank facility – $25.8m
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Unsecured bank facility
Total outstanding loans
Currency
Nominal
interest rate
Year
of maturity
2020
Carrying value
£m
2019*
Carrying value
£m
€
€
€
€
€
€
$
€
£
SEK
CNY
€
€
PLN
1.1%
0.7%
2.4%
0.5%
0.7%
0.5%
2.6%
0.9%
0.0%
0.0%
3.5%
0.0%
1.4%
0.0%
2023
2022
2026
2021
2022
2021
2020
2020
2022
2022
2021
2022
2021
2023
201.8
143.1
107.7
−
−
−
−
−
9.2
6.2
5.6
0.9
0.3
0.2
191.0
135.7
–
48.3
35.2
33.7
19.6
0.2
162.1
–
–
–
–
–
475.0
625.8
* Full details of the prior period reclassification are outlined in Note 27 on page 203.
The weighted average interest rate paid during the year was 1.2% (2019: 1.4%).
205
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
27 Derivatives and other financial instruments continued
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:
2020
Sterling
Euro
US dollar
Renminbi
Other
Group total
2019*
Sterling
Euro
US dollar
Renminbi
Other
Group total
Fixed rate
financial
assets
£m
Floating rate
financial
assets
£m
Financial assets
on which no
interest is
earned
£m
–
–
–
3.8
6.5
10.3
24.6
8.1
12.7
24.3
20.0
89.7
41.5
104.5
77.5
34.5
133.7
391.7
Fixed rate
financial
assets
£m
–
Floating rate
financial
assets
£m
162.3
Financial assets
on which no
interest is
earned
£m
28.9
1.4
0.1
–
5.3
6.8
16.6
16.7
11.9
10.5
218.0
97.9
81.6
30.1
130.7
369.2
Total
£m
66.1
112.6
90.2
62.6
160.2
491.7
Total
£m
191.2
115.9
98.4
42.0
146.5
594.0
* Full details of the prior period reclassification are outlined in Note 27 on page 203.
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 cash placed on deposit.
Currency exposures
As explained on page 203, 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. In addition the Group
employs Net Investment Hedge Accounting in order to mitigate these impacts where appropriate.
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 2020 the currency exposures in respect
of the euro was a net monetary liability of £297.1m (2019: £184.6m net monetary liability) and in respect of the US dollar a net monetary asset of
£17.5m (2019: net monetary liability £0.2m).
At 31st December 2020, the percentage of debt to net assets, excluding debt was 34% (2019: 30%) for the euro, 1% (2019: 2%) for the US
dollar and 1% (2019: nil) for the Chinese renminbi.
206
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 27 Derivatives and other financial instruments continued
Maturity of financial liabilities
The Group’s financial liabilities at 31st December mature in the following periods:
2020
In six months or less, or on demand
In more than six months but no more than twelve
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
2019*
In six months or less, or on demand
In more than six months but no more than twelve
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
87.3
2.7
−
−
−
−
−
90.0
90.0
Trade and
other
payables
£m
98.3
6.0
0.1
–
–
–
–
104.4
104.4
Overdrafts
£m
22.2
−
−
−
−
−
−
22.2
22.2
Overdrafts
£m
162.3
–
–
–
–
–
–
162.3
162.3
Short-term
borrowings
£m
Lease
liabilities
£m
Long-term
borrowings
£m
−
−
−
−
−
−
−
−
−
6.1
5.5
9.4
6.7
3.7
2.1
4.2
37.7
34.1
3.1
3.1
148.2
206.0
2.5
2.5
108.7
474.1
452.8
Short-term
borrowings
£m
Lease liabilities
£m
Long-term
borrowings
£m
–
–
–
–
–
–
–
–
–
6.5
5.7
9.6
7.0
5.1
2.4
5.7
42.0
38.9
21.4
16.0
234.1
9.0
192.8
–
–
473.3
463.5
Total
£m
118.7
11.3
157.6
212.7
6.2
4.6
112.9
624.0
599.1
Total
£m
288.5
27.7
243.8
16.0
197.9
2.4
5.7
782.0
769.1
* Full details of the prior period reclassification are outlined in Note 27 on page 203.
The Group did not employ any supply chain or similar forms of financing during 2020 or 2019.
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 2020 the Group had contracts outstanding to
economically hedge or to purchase £37.8m (2019: £30.0m), and €24.5m (2019: €11.3m) with US dollars, £78.2m (2019: £53.8m) with euros,
£10.0m (2019: £12.1m), and €7.5m (2019: €8.2m) with Chinese renminbi, £10.2m (2019: £8.4m) and €4.5m (2019: €4.7m) with Korean won
and £7.3m (2019: £4.2m) with Singapore dollar. The fair values at the end of the reporting period were an asset of £2.6m (2019: £3.3m 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.
207
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Consolidated Financial Statements
continued
27 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.
2020
Contracted cash in/(out):
Sterling
Euro
US dollar
Other
Total contractual cash flows
2019
Contracted cash in/(out):
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
39.9
(20.6)
(17.3)
(0.9)
1.1
37.7
(12.5)
(16.9)
(7.3)
1.0
33.2
(10.4)
(15.5)
(6.5)
0.8
Less than
6 months
£m
6 to 12 months
£m
More than
12 months
£m
7.9
(1.2)
(3.1)
–
(2.4)
1.2
6.4
(1.5)
(2.9)
–
–
2.0
0.2
–
–
–
–
0.2
Total
£m
110.8
(43.5)
(49.7)
(14.7)
2.9
Total
£m
14.5
(2.7)
(6.0)
–
(2.4)
3.4
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 £0.7m (2019: £3.3m gain) was recognised in other comprehensive income during the period.
No amount (2019: £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 2020 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
2020
£m
−
−
350.0
−
350.0
2019
£m
–
78.5
–
–
78.5
At 31st December 2020, the Group had available £350.0m (2019: £78.5m) of undrawn committed borrowing facilities in respect of its £350.0m
pound sterling revolving credit facility, of which all conditions precedent had been met. These facilities expire on 7th May 2023.
208
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 27 Derivatives and other financial instruments continued
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 £475.0m (2019: £625.8m). At 31st December 2020, 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 £0.7m (2019: £2.6m).
For the year ended 31st December 2020, it is estimated that a decrease of five percentage points 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 £12.5m (2019: £13.0m). 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
2020
£m
167.7
35.9
19.1
13.1
8.3
244.1
Impairment
2020
£m
(3.3)
(0.2)
(0.8)
(5.2)
(8.3)
Net
2020
£m
164.4
35.7
18.3
7.9
−
(17.8)
226.3
Gross
2019
£m
167.4
40.6
22.2
16.3
9.0
255.5
Impairment
2019
£m
(1.6)
(0.8)
(0.3)
(3.1)
(9.0)
Net
2019
£m
165.8
39.8
21.9
13.2
–
(14.8)
240.7
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 2020.
Payment terms across the Group vary dependent on the geographic location of each operating company. Payment is typically due between 20
and 90 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
2020
£m
14.8
8.7
(3.8)
(0.9)
(0.9)
(0.1)
17.8
2019
£m
9.8
8.6
(1.2)
(0.6)
(1.1)
(0.7)
14.8
209
Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Financial Statements
Company Financial Statements
In this section
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
211
212
213
210
Spirax-Sarco Engineering plc Annual Report 2020
Company Statement of Financial Position
at 31st December 2020
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
11
3, 9
2
6
7
9
4
5
10
10
6
9
8
8
2020
£m
2019
£m
6.2
309.9
737.1
0.0
5.6
1,058.8
1.5
6.4
9.6
17.5
1,076.3
2.1
0.9
6.2
9.2
8.3
308.6
1.1
8.2
317.9
327.1
749.2
19.8
84.8
16.2
628.4
749.2
749.2
6.9
210.1
662.0
0.7
5.6
885.3
1.5
6.5
159.7
167.7
1,053.0
3.6
20.2
–
23.8
143.9
190.4
0.9
9.7
201.0
224.8
828.2
19.8
81.0
11.8
715.6
828.2
828.2
1,076.3
1,053.0
* The prior period comparatives for Cash and cash equivalents, amounts due from subsidiaries and amounts due to subsidiaries have been adjusted to reflect a reclassification to meet the
presentational requirements of FRS101, with further detail given within Note 1. This had no impact on the nets assets of the Company.
The loss before dividends received was £14.8m (2019: £12.7m). Dividends from subsidiary undertakings of £23.6m (2019: £322.0m) 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 9th March 2021 and signed on its behalf by:
N.J. Anderson
N.B.Patel
Directors
211
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Company Statement of Changes in Equity
for the year ended 31st December 2020
Balance at 1st January 2020
Profit for the year
Other comprehensive income:
Transfer between reserves
Cash flow hedges net of tax
Remeasurement loss on post-retirement benefits
Deferred tax on remeasurement loss 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 2020
For the year ended 31st December 2019
Balance at 1st January 2019
Profit for the year
Other comprehensive income:
Remeasurement loss on post-retirement benefits
Deferred tax on remeasurement loss 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
Share
capital
£m
19.8
Share
premium
account
£m
81.0
Other
reserves
£m
11.8
–
Retained
earnings
£m
715.6
8.8
–
–
–
–
–
–
–
–
–
–
–
–
19.8
Share
capital
£m
19.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.8
–
–
84.8
Share
premium
account
£m
77.8
–
–
–
–
–
–
–
3.2
–
–
81.0
3.3
(0.7)
–
–
2.6
2.6
–
–
–
(0.3)
2.1
16.2
Other
reserves
£m
13.6
–
–
–
–
–
–
–
–
(4.0)
2.2
11.8
Total
equity
£m
828.2
8.8
–
(0.7)
–
–
(0.7)
8.1
(82.2)
(10.5)
3.8
(0.3)
2.1
749.2
Total
equity
£m
598.8
309.3
1.9
(0.3)
1.6
(3.3)
–
–
–
(3.3)
5.5
(82.2)
(10.5)
–
–
–
628.4
Retained
earnings
£m
487.6
309.3
1.9
(0.3)
1.6
310.9
310.9
(75.9)
(7.0)
–
–
–
(75.9)
(7.0)
3.2
(4.0)
2.2
715.6
828.2
Balance at 31st December 2019
19.8
Other reserves represent the Company’s share-based payments, capital redemption and Employee Benefit Trust reserves (see Note 8).
The Notes on pages 213 to 219 form an integral part of the Financial Statements.
212
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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.
Reclassification of prior period balances
The Company participates in a Group cash pooling arrangement. Historically the related cash and overdraft balances have been presented
as amounts due from and to subsidiaries in the Statement of Financial Position. During the period, it was determined that the company’s
legal rights and obligations were with the bank and not with the subsidiary companies. Therefore, the correct classification under FRS101 is
to present these balances as either Cash and cash equivalents, or bank overdraft. As a result, for presentational purposes, amounts have
been reclassified in the comparative year with the impact being an increase to Cash & cash equivalents of £158.3m, a decrease in amounts
due from subsidiaries of £153.4m and an increase in amounts due to subsidiaries of £4.9m. This change had no impact on the net assets of
the Company.
2 Investments in subsidiaries
Cost:
At 1st January
Share options issued to subsidiary company employees
Additions
At 31st December
2020
£m
662.0
2.1
73.0
737.1
2019
£m
445.8
2.2
214.0
662.0
Investments are stated at cost less provisions for any impairment in value.
Additions in the year relate to a subscription of £56.0m for additional shares in Spirax-Sarco Limited and a subscription of £17.0m for additional
shares in Watson-Marlow Limited.
Details relating to subsidiary undertakings are given on pages 220 to 224. Except where stated all classes of shares were 100% owned by
the Group at 31st December 2020. 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 220 to 224.
213
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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 2020 were as follows:
Currency
€
Nominal interest
rate
1.10%
€
$
2.36%
2.20%
Year of
maturity
2023
2026
2020
2020
£m
210.1
108.0
3.8
(23.6)
11.6
309.9
2020
£m
202.1
107.8
–
309.9
1.1
308.8
2020
£m
6.4
6.4
2020
£m
2.1
2.1
2019
£m
285.6
1.6
–
(64.5)
(12.6)
210.1
2019
£m
190.6
–
19.5
210.1
19.5
190.6
2019
£m
6.5
6.5
2019
£m
3.6
3.6
Spirax-Sarco Overseas Limited
Spirax-Sarco Overseas Limited
Spirax-Sarco America Investments Limited
Total loans to subsidiaries
Due within one year
Due after more than one year
4 Other current assets
Prepayments and accrued income
Total other current assets
5 Trade and other payables
Accruals
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 2020
Other temporary differences (asset)
Pensions (liability)
Company total
Movement in deferred tax during the year 2019
Other temporary differences (asset)
Pensions (liability)
Company total
214
1st January
2020
£m
0.7
Recognised
in income
£m
(0.7)
Recognised
in OCI
£m
–
Recognised
in equity
£m
–
31st December
2020
£m
–
(0.9)
(0.2)
(0.2)
(0.9)
–
–
–
–
(1.1)
(1.1)
1st January
2019
£m
Recognised
in income
£m
Recognised
in OCI
£m
Recognised
in equity
£m
31st December
2019
£m
–
(0.6)
(0.6)
0.7
–
0.7
–
(0.3)
(0.3)
–
–
–
0.7
(0.9)
(0.2)
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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 (2019: £0.7m).
At 31st December 2020 the post-retirement mortality assumptions in respect of the Company Defined Benefit Scheme follows 84%/87%
(male/female) of SAPS S3 light, CMI 2019 projections with a long term trend of 1.25% p.a. At 31st December 2019 the post-retirement
mortality assumptions in respect of the Company Defined Benefit Scheme follows 85%/96% (male/female) of SAPS S2, CMI 2018 projections
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
2020
%
2.4
2.8
2.9
1.3
2019
%
2.4
2.8
2.9
2.1
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
£1.3m (2019: £1.5m) of scheme assets have a quoted market price in an active market.
The actual return on plan assets was a gain of £3.9m (2019: £5.5m).
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
2020
£m
2.6
48.0
10.2
60.8
2020
£m
60.8
(55.2)
5.6
(1.1)
4.5
2019
£m
9.2
47.9
2.4
59.5
2019
£m
59.5
(53.9)
5.6
(0.9)
4.7
215
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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 (loss)/gain
Actual benefit payments
Experience loss
2020
£m
(53.9)
–
(1.2)
–
(2.6)
2.5
–
2019
£m
(52.7)
–
(1.4)
–
(2.2)
2.4
–
Defined benefit obligation at end of year
(55.2)
(53.9)
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 2021 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
2020
£m
(55.2)
60.8
5.6
(5.0)
9.1%
2.6
4.3%
2019
£m
(53.9)
59.5
5.6
–
0.0%
4.1
6.9%
2018
£m
(52.7)
56.4
3.7
(0.3)
0.1%
(2.4)
4.3%
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
2020
£m
59.5
1.2
2.6
–
–
(2.5)
60.8
2017
£m
(55.7)
60.0
4.3
(1.2)
2.2%
2.2
3.7%
2020
£m
(0.2)
0.1
(0.1)
2019
£m
56.4
1.4
4.1
–
–
(2.4)
59.5
2016
£m
(54.1)
58.8
4.7
0.5
0.9%
7.6
13.0%
2019
£m
–
–
–
216
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 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
2020
£m
5.0
(2.3)
(5.3)
2.6
0.0
–
(10.1)
(10.1)
Sensitivity analysis
The effect on the defined benefit obligation at 31st December 2020 of an increase or decrease in key assumptions is as follows:
Increase/(decrease) in pension defined benefit obligation
Discount rate assumption being 0.25% higher
Discount rate assumption being 0.25% lower
Inflation assumption being 0.25% higher
Inflation assumption being 0.25% lower
Mortality assumption life expectancy at age 65 being one year higher
2019
£m
–
0.5
(2.7)
4.1
1.9
(0.3)
(11.7)
(10.1)
£m
(1.6)
1.6
1.1
(1.1)
3.1
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 2020 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
2016
Grant
5th April
3,550.0p
13
69,890
3 years
70.8%
2017
Grant
26th May
5,256.0p
12
62,356
3 years
73.1%
2018
Grant
4th April
5,560.0p
12
60,899
3 years
73.5%
2019
Grant
2020
Grant
15th May
12th March
8,161.0p
7,775.0p
12
60,626
3 years
74.1%
19
82,607
3 years
74.3%
2,513.4p
3,842.1p
4,084.4p
6,048.9p
5,779.2p
217
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Notes to the Company Financial Statements
continued
8 Called up share capital and reserves
Ordinary shares of 26 12/13p (2019: 26 12/13p ) each
Authorised 111,428,571 (2019: 111,428,571)
Allotted, called up and fully paid 73,766,048 (2019: 73,736,888)
2020
£m
30.0
19.8
2019
£m
30.0
19.8
69,823 shares with a nominal value of £18,799 were issued in connection with the Group’s Employee Share Schemes for a consideration
of £3.8m received by the Company.
In 2020 the Parent Company purchased 138,000 shares representing 0.19% of called up share capital with a nominal value of £37,154 for a
consideration of £14,507,783. 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 2020 60,038 shares were held in an Employee Benefit Trust and available for use in connection with the Group’s Employee
Share Schemes.
19 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 212 are made up as follows:
Share-based payments reserve
Cash flow hedges reserve
Capital redemption reserve
Employee Benefit Trust reserve
Total other reserves
1st January
2020
£m
Change
in year
£m
31st December
2020
£m
16.5
–
1.8
(6.5)
11.8
2.1
2.6
–
(0.3)
4.4
18.6
2.6
1.8
(6.8)
16.2
The change in cash flow hedge reserve includes a £3.3m credit transferred from retained earnings.
Share-based payments reserve
This reserve records the Company’s share based payment charge that is recognised in reserves.
Cash flow hedges reserve
This reserve records the Company’s 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 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 due from subsidiaries at 31st December
Amounts due from subsidiaries at 31st December*
Amounts due to subsidiaries at 31st December*
2020
£m
23.6
309.9
1.5
8.2
2019
£m
322.0
210.1
1.5
9.7
* The prior period comparatives for amounts due from subsidiaries and amounts due to subsidiaries have been adjusted to reflect a reclassification to meet the presentational requirements of FRS101,
with further detail given within Note 1. This had no impact on the nets assets of the Company.
218
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 10 Financial instruments
The terms and conditions of outstanding loans at 31st December 2020 are as follows:
Unsecured private placement – €225.0m
Unsecured private placement – €120.0m
Total outstanding loans
Currency
Nominal
interest rate
€
€
1.1%
2.4%
Year of
maturity
2023
2026
Current portion of long-term borrowings due before 31st December 2021
Long-term borrowings payable after 31st December 2021
Total outstanding loans
11 Other information
Dividends
Dividends paid by the Company are disclosed in Note 11 of the Consolidated Financial Statements.
Carrying
value
£m
201.8
107.7
309.5
0.9
308.6
309.5
Property, plant and equipment
The Company holds freehold property with a cost of £9.4m (2019: £9.3m), accumulated depreciation of £3.2m (2019: £2.4m) and a net book
value of £6.2m (2019: £6.9m).
Employees
The total number of employees of the Company at 31st December 2020 was 85 (2019: 99).
Directors’ remuneration
The remuneration of the Directors of the Company is shown in the Annual Report on Remuneration 2020 on pages 118 to 148.
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 2020 (2019: £nil).
219
Company Financial StatementsSpirax-Sarco Engineering plc Annual Report 2020 Our global operations
Steam Specialties
EMEA
Country/Territory Company Name
Belgium
Spirax Sarco NV
Registered Office address
Industrielaan 5, B-9052 Zwijnaarde, Belgium
Czech Republic
Spirax Sarco spol sro
Prazska 1455, 102 00 Praha, Hostivar, Czech Republic
Egypt
Spirax Sarco Egypt
19 Farid Street, Heliopolis, Cairo, Egypt
Spirax Sarco Energy Solutions LLC (H)
19 Farid Street, Heliopolis, Cairo, Egypt
Finland
France
Spirax Oy
Spirax Sarco SAS
Niittytie 25 A 24, 01300 Vantaa, Helsinki, Finland
Zone Industrielle des Bruyeres 8 Avenue le Verrier, 78190 Trappes, France
Spirax-Sarco France HoldCo SAS (H)
23 Route de Château-Thierry, 02200 Noyant-et-Aconin, Soissons, France
Gestra France SAS
Zone Industrielle des Bruyeres 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
Spirax-Sarco Kft
1103 Budapest Koér utca 2/A, Hungary
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
Hungary
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
Spirax Sarco East Africa Ltd
Clifton Park, Mombasa Road, Nairobi, Kenya
Spirax Sarco Maghreb
Secteur 3, Lot 146, Rue Arfoud, Bureaux 5 et 6, commerce 2-12000 Temara, Morocco
Kenya
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
Romania
Russia
Gestra Portugal, Lda
Spirax-Sarco SRL
Spirax-Sarco Engineering LLC*
Avenida Dr Antunes Guimaraes, Numero 1159, Porto 4100-082, Portugal
2-4 Traian Street, Cluj-Napoca Municipality, Cluj County, Romania
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
United Arab
Emirates
Spirax Sarco Valf Sanayi ve Ticaret A. .
Serifali Mevkii, Edep Sok No 27, 34775 Yukari Dudullu - Ümraniye, Istanbul, Turkey
Spirax-Sarco Engineering Middle East (FZC)
Saif Desk Q1-05-005/A, PO Box 514361, Sharjah, United Arab Emirates
United Kingdom
Spirax-Sarco Ltd*
Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER, United Kingdom
V.C.E. Ltd
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)
Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER, United Kingdom
Gestra UK Ltd
Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER, United Kingdom
220
Spirax-Sarco Engineering plc Annual Report 2020Corporate Information Steam Specialties continued
Asia Pacific
Country/Territory Company Name
Registered Office address
Australia
China
Spirax Sarco Pty Ltd
14 Forge St., Blacktown, NSW 2148, Australia
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
Gestra (Shanghai) Fluid Control Technology Co
Ltd
Room 333 3rd Floor of 4th Area Building 1, No.2001 North Yanggao Road China (Shanghai)
Free Trade Pilot Zone, Shanghai, China
Hong Kong
Spirax Sarco Hong Kong Co Ltd
Unit 1507, 15th Floor, Prosperity Center, 25 Chin Yip Street, Kwun Tong, Kowloon, Hong Kong
India
Spirax-Sarco India Private Ltd
Indonesia
PT Spirax Sarco Indonesia
Plot No. 6, Central Avenue, Mahindra World City, Chengalpattu Taluk, Kancheepuram District
603004, India
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
Singapore
Spirax-Sarco Philippines Inc
2308 Natividad Building, Chino Roces Avenue Extension, Makati City, Philippines
Spirax Sarco Pte Ltd
Gestra Singapore Pte Ltd
21 Changi South Avenue 2, #01-01 Singapore 486630, Singapore
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
Spirax Sarco Co Ltd
6F-3, No. 12, Lane 270, Sec. 3, Pei Shen Road, Shen Keng District, New Taipei City 22205,
Taiwan
Spirax Sarco (Thailand) Ltd
38 Krungthepkreeta Road, Khlong Song Ton Nun, Lat Krabang, Bangkok 10520, Thailand
Spirax Sarco Vietnam Co Ltd
4th Floor, 180 Nguyen Van Troi Street, Ward 8, Phu Nhuan District, Ho Chi Minh City, Vietnam
Thailand
Vietnam
Americas
Country/Territory Company Name
Registered Office address
Argentina
Brazil
Canada
Chile
Colombia
Mexico
Spirax Sarco SA
Av. del Libertador 498, 12th Floor, Buenos Aires C1001ABR, Argentina
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
Spirax Sarco Canada Ltd
Spirax-Sarco Chile Ltda
Av. Jerome Case, No 2600, Hangers B19, B20 and B21, Éden, Sorocaba, São Paulo, 18087
220, Brazil
383 Applewood Crescent, Concord, ON L4K 4J3, Canada
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
Spirax Sarco Colombia SAS
Carretera Panamericana No 3-150, Jamundi, Valle del Cauca, Cali, Colombia
Spirax Sarco Mexicana, SAPI DE CV
Boulevard Alianza 30B, Parque Industrial CPA, Ciénega de Flores Nuevo León, CP 65550,
Mexico
Peru
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
Spirax Sarco Investments, Inc (H)
251 Little Falls Drive, Wilmington, DE 19808-1674, United States
Gestra USA, Inc
1150 Northpoint Blvd., Blythewood, SC 29016, United States
221
Spirax-Sarco Engineering plc Annual Report 2020Corporate Information Our global operations continued
Electric Thermal Solutions
Country/Territory Company Name
Registered Office address
Brazil
Canada
China
Chromalox Engenharia Ltda
Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Canadian Heat Acquisition Corp (H)
7051 68th Ave NW, Edmonton, Alberta, T6B 3E3, Canada
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
Thermocoax (Chengdu) Co Ltd
No.11 Fujiang Road, Shuangliu Park, Jiaelong Industry Port, Chengdu, Sichuan, China
France
Etirex SAS
23 Route de Chauteau Thierry, Noyant-et-Aconin, Soissons, Cedex, F-02203, France
Thermocoax Developpement SAS
40 Boulevard Henri Sellier, 92150 Suresnes, France
Thermocoax SAS
Usine de Planquivon, Athis-de-l’Orne, 61430 Athis-Val de Rouvre, France
Germany
Chromalox Isopad GmbH
Englerstraße 11, 69126 Heidelberg, 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
Chromalox Gulf DWC, LLC
PO Box 390012, Office No: E-2-0226, Business Park, Dubai Aviation City, United Arab Emirates
United Kingdom
Chromalox (UK) Ltd
AMP House, 2nd Floor, Dingwall Road, Croydon, Surrey, CR0 2LX, United Kingdom
Thermocoax UK Ltd
Tower House, Lucy Tower Street, Lincoln, LN1 1XW, 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
Thermocoax, Inc
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware, United States
222
Spirax-Sarco Engineering plc Annual Report 2020Corporate Information Watson-Marlow Fluid Technology Group
Country/Territory Company Name
Registered Office address
Australia
Austria
Belgium
Brazil
Canada
Chile
Watson-Marlow Pty Ltd
Unit 15, 19-26 Durian Place, Wetherill Park, NSW 2164, Australia
Watson-Marlow Austria GmbH
Rathaus Viertel 3/1 OG/TOP 311, Guntramsdorf A 2353, Wien, Austria
Watson-Marlow NV
Industriepark 5, B-9052 Zwijnaarde, Belgium
Watson-Marlow Bredel Ind e Com de Bombas
Ltda
Alameda Oceania, 63, Polo Empresarial Tamboré, Santana de Parnaiba, São Paulo, CEP
06543-308, Brazil
Watson-Marlow Canada Inc
383 Applewood Crescent, Concord, ON L4K 4J3, Canada
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
Czech Republic
Watson-Marlow sro
Pražská 1455/18a, 102 00 Praha 10, Czech Republic
Denmark
Watson-Marlow Flexicon A/S
Frejasvej 2, 4100 Ringsted, Denmark
Finland
France
Watson-Marlow Finland Oy
Niittytie 25 A 24, 01300 Vantaa, Helsinki, Finland
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
Hungary
India
Ireland
Italy
Japan
Malaysia
Mexico
Qonqave GmbH
Watson-Marlow Kft
Watson-Marlow India Private Ltd
Stadtplatz 11-13, 73249 Wernau Neckar, Germany
2/A Koer utca, Budapest 1103, Hungary
S No 81/7, Opp JSPM College, Pune-Mumbai Bypass Road, Tathawade, Pune, Maharashtra,
411 033, India
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
Watson-Marlow SDN BHD
6th Floor, Akademi Etiqa No. 23 Jalan Melaka, 50100 Kuala Lumpur W.P., Malaysia
Watson-Marlow S de RL de CV
Boulevard Alianza 30B, Parque Industrial CPA, Ciénega de Flores Nuevo León, CP 65550,
Mexico
Netherlands
Watson-Marlow BV
Oslo 9, 2993LD Barendrecht, 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
Norway
Watson-Marlow Norge AS
Vestvollveien 14A, 2019 Skedsmokorset, Norway
Philippines
Watson-Marlow Inc
Poland
Russia
Watson-Marlow Sp Zoo
Watson-Marlow LLC*
10th Floor EGI Rufino Plaza, Sen. Gil Puyat Avenue, Corner Taft Avenue, Barangay, 38 Pasay
City, Fourth District, Philippines
Ul. Fosa 25, 02-768 Warszawa, Poland
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 6 Cradleview Industrial Park, Cnr Beyers Naude Drive & Johan Street, Laser Park, South
Africa
Sweden
Spain
Taiwan
United Arab
Emirates
W-M Alitea AB
Watson-Marlow SLU
Watson-Marlow Co Ltd
Watson Marlow FZCO
Hammarby Fabriksväg 29-31, SE-120 30 Stockholm, Sweden
Tuset, 20 3 - 08006, Barcelona, Spain
No.9 Lane 270 Sec. Beishen Road, Shenkeng District, New Taipei City 222, Taiwan
Office Number FZJOA2005, Jafza One, Jebel Ali Free Zone, Dubai, United Arab Emirates
United Kingdom
Aflex Hose Ltd
Dyson Wood Way, Bradley, Huddersfield, HD2 1GZ, United Kingdom
BioPure Technology Ltd
Watson-Marlow Ltd*
Bickland Water Road, Falmouth, Cornwall, TR11 4RU, United Kingdom
Bickland Water Road, Falmouth, Cornwall, TR11 4RU, United Kingdom
United States
ASEPCO
1161 Cadillac Ct, Milpitas, CA 95035, 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
223
Spirax-Sarco Engineering plc Annual Report 2020Corporate Information Our global operations continued
Dormant companies
Country/Territory Company Name
Registered Office address
Canada
France
Canadian Heat Holding Corp
6600-100 King Street W., 1 First Canadian Place, Toronto, Ontario, M5X 1B6, Canada
Heat Holding France SAS
23 Route de Château-Thierry, 02200 Noyant-et-Aconin, Soissons, France
United Kingdom
Gervase Instruments Ltd*
Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER, United Kingdom
Heat Holding (UK) Limited
AMP House, 2nd Floor, Dingwall Road, Croydon, Surrey, CR0 2LX, United Kingdom
SARCO Ltd*
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 220 to 224 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 220 to 224 are indirect subsidiaries
of Spirax-Sarco Engineering plc, unless indicated*. All subsidiaries listed are
100% owned by the Group, except as follows:
Company
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
% owned by the Group
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 220 to 224, we have the
following operations:
Steam Specialties (Spirax Sarco):
Country
Cambodia
Denmark
Ghana
Greece
Ireland
Japan
Pakistan
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 Limited, UK
Spirax-Sarco India Private Ltd, India
Spirax-Sarco Limited, UK
Watson-Marlow Fluid Technology Group:
Country
Serbia
Switzerland
Argentina
China
South Korea
Indonesia
Thailand
Vietnam
Operating as a branch of
Watson-Marlow Austria GmbH
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:
BioPure Technology Ltd (company no. 03665190), Chromalox (UK) Ltd (company
no. 04325451), 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
2020. 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
(H) Holding company
224
Spirax-Sarco Engineering plc Annual Report 2020Corporate Information
Officers and advisers
Secretary and registered office
A.J. Robson
Group General Counsel and Company Secretary
Spirax-Sarco Engineering plc
Charlton House
Cirencester Road
Cheltenham
Gloucestershire GL53 8ER
Tel:
Email:
Web:
01242 521361
group.legal@uk.spiraxsarco.com
www.spiraxsarcoengineering.com
Auditor
Deloitte LLP
Financial advisers
Rothschild
J.P. Morgan Securities plc (J.P. Morgan Cazenove)
Financial PR
Citigate Dewe Rogerson
Bankers
Barclays Bank PLC
HSBC Bank PLC
BNP Paribas
Citibank, N.A.
Crédit Industriel et Commercial
UniCredit Bank AG
Wells Fargo Bank, N.A.
Corporate brokers
J.P. Morgan Securities plc (J.P. Morgan Cazenove)
Morgan Stanley & Co International plc
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Tel:
0371 384 2349* (UK)
or +44 (0)121 415 7047 (overseas)
* Lines open 8.30 am to 5.30 pm, Monday to Friday, excluding public
holidays in England and Wales
Website: www.shareview.co.uk
Solicitors
Baker & McKenzie LLP
Important dates
Annual General Meeting
2021 Half Year Results
12th May 2021
11th August 2021
Final dividend**
Ordinary shares quoted ex-dividend
Record date for final dividend
Final dividend payable
** Subject to shareholder approval at the AGM.
22nd April 2021
23rd April 2021
21st May 2021
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