Engineering
with Purpose
Annual Report 2021
Our Purpose
Engineering with Purpose
The Spirax-Sarco Engineering Journey
Our Purpose is to create sustainable value
for all ourstakeholders as we engineer a
more efficient, safer and sustainable world.
This Purpose guides us on our journey,
unites us, informs our decisions and
inspires us everywhere that we operate.
Our journey
to net zero
See pages 12-15
Our journey to a more
inclusive culture
See pages 52-53
Our journey to a more
efficient, safer and
sustainable future
See pages 16-19
Our journey to a more
biodiverse world
See pages 58-61
Our journey to
enabling critical
industrial processes
See pages 20-21
Our journeys in 2021
In a year fraught with challenges, our colleagues took inspiration
from our Purpose, energy from our culture and confidence from
ourstrong business model and strategy to respond to the
increaseddemand for our products and solutions.
Through our journeys we have helped our customers and communities to fight the
global pandemic; developed new technologies to advance industrial sustainability;
created a roadmap for our own net zero future and we’ve looked after our people
aswell as the planet.
Our journeys demonstrate how we are living our Purpose to create the more efficient,
safer and sustainable world we all aspire to have.
Spirax-Sarco Engineering plc Annual Report 2021 01
Strategic Report
Who we are
What we do
Thermal Energy Management
see pages 16 and 19 to find out how we are combining core
Group technologies to decarbonise industrial processes
Spirax-Sarco Engineering plc is a multi-national industrial
engineeringGroup with expertise in the control and management
ofsteam, electric thermal solutions, peristaltic pumping and
associated fluid path technologies.
Our technologies play an essential role in critical industrial processes across
multiple industries as diverse as Food & Beverage, Pharmaceutical
& Biotechnology, Power Generation and Healthcare.
With customers in 134 countries, weprovide the engineered solutions
thatsit behind the production of manyitems used in daily life.
Our Purpose, supported by our culture and Values,unites us, guides our
decisions andinspires us everywhere that we operate.
Electric Thermal
Solutions
Steam
Specialties
Watson-Marlow
Core product expertise
Industrial and commercial steam
systems, including condensate
management, controls and thermal
energy management products
andsolutions
See pages 76-78
Core product expertise
Electrical process heating and
temperature management solutions,
including industrial heaters and
systems, heat tracing and arange of
component technologies
See pages 79-81
Core product expertise
Peristaltic and niche pumps and
associated fluid path technologies,
including pumps, tubing, specialty
filling systems and products for
single-use applications
See pages 82-84
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202102
Our diverse Group
In this report
People
8,70 0
Sales and
service engineers
2,000
Countries with a resident
directsales presence
68
Operating units**
13 3
Direct buying customers
‡
110,000
Strategic Report
Our journeys in 2021 01
Who we are 02
Our diverse Group 03
Financial summary 04
The industries we serve 06
Chair’s statement 08
Our journey to net zero 12
Our journey to a more efficient,
safer and sustainable future 16
Our journey to enabling critical industrial processes 20
Making our difference 22
10 year financial summary 28
Strategic review 30
Key performance indicators 36
Financial review 38
Sustainability report 46
Operating review 69
– Steam Specialties 76
– Electric Thermal Solutions 79
– Watson-Marlow 82
Risk management 85
Governance Report
Approach to Governance 93
1. Board leadership and Company purpose 94
– Chair’s introduction 94
– Board of Directors 96
– Leadership and tone 99
– Engaging with our stakeholders 101
(including Section 172 Statement)
– Employee Engagement CommitteeReport 104
2. Division of responsibilities 108
3. Composition, succession and evaluation 113
– Nomination Committee Report 113
4. Audit, risk and internal control 118
– Audit Committee Report 120
– Risk Management CommitteeReport 127
5. Remuneration 131
– Remuneration Committee Report 131
– Remuneration at a glance 2021 135
– Annual Report on Remuneration 2021 136
– Remuneration Policy 2020 152
Regulatory disclosures 161
Statement of Directors’ Responsibilities 165
Financial Statements
Independent Auditor’s Report 167
Consolidated Statement of Financial Position 176
Consolidated Income Statement 177
Consolidated Statement of Comprehensive Income 178
Consolidated Statement of Changes in Equity 179
Consolidated Statement of Cash Flows 180
Notes to the Consolidated Financial Statements 181
Company Statement of Financial Position 223
Company Statement of Changes in Equity 224
Notes to the Company Financial Statements 225
Corporate Information
Our global operations 233
Officers and advisers 238
Core product lines
1,70 0+
** Operating units are business units that invoice locally
‡ Actively purchasing in the last 24 months
Spirax-Sarco Engineering plc Annual Report 2021
03
Strategic Report
Financial summary
for the year ended 31st December 2021
2021 key figures
Statutory 2021 2020 Reported
Revenue
†
£1,344.5m £1,193.4m +13%
Operating profit £320.9m £249.0m +29%
Operating profit margin 23.9% 20.9% +300 bps
Profit before taxation £314.5m £240.1m +31%
Basic earnings per share 318.3p 235.5p +35%
Dividend per share 136.0p 118.0p +15%
Adjusted* 2021 2020 Reported Organic*
Revenue
†
£1,344.5m £1,193.4m +13% +17%
Adjusted operating profit* £340.3m £270.4m +26% +31%
Adjusted operating profit margin* 25.3% 22.7% +260 bps +280 bps
Adjusted profit before taxation* £333.9m £261.5m +28%
Adjusted earnings per share* 338.9p 256.6p +32%
Cash conversion 82% 102%
†
The term ‘sales’ is used interchangeably with ‘revenue’ when describing the financial performance of the business.
* 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.
** Electric Thermal Solutions demand growth was ahead of demand growth in Steam Specialties, after adjusting for the record US$14 million order from the US Navy
in2020.
^ Net debt includes total borrowings, cash and bank overdrafts but excludes IFRS 16 lease liabilities, as set out in Note 2 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 192 to 194. A performance review by operating segment is set out on pages 70
to84.
2021
Revenue
Change
2021 Adjusted
operating
profit*
Change
2021 Statutory
operating
profit
Change
Reported Organic Reported Organic Reported
Steam Specialties £754.9m +9% +12% £188.7m +22% +27% £186.8m +18%
Electric Thermal Solutions £181.3m +2% +7% £24.0m -2% +3% £11.1m +131%
Watson-Marlow £408.3m +27% +32% £150.0m +40% +46% £145.4m +42%
Corporate expenses (£22.4m) (£22.4m)
Total £1,344.5m +13% +17% £340.3m +26% +31% £320.9m +29%
* All adjusted profit measures exclude certain items, which totalled a charge of £19.4 million (2020: charge of £21.4 million), as set out in Note 2 to the Financial Statements.
A year of record performance
• Revenues up 13%, or 17% organically; industrial production growth (IP) 7.6%
• Record adjusted operating profit margin of 25.3%, up 260 bps or 300 bps on a statutory basis
• Watson-Marlow organic sales up 32%; strong growth in all sectors
• Steam Specialties organic sales up 12%, well above IP; demand growth even stronger
• Electric Thermal Solutions organic sales up 7%; demand growth above Steam Specialties**
• Record closing order book across all three Businesses
• Accelerated revenue investments to support future organic growth
• Net debt
^
reduced to 0.35x EBITDA* despite record capital investment
• Total dividend up by 15% to 136.0p
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202104
Revenue £m
£1,344.5m
KPI
+17
-3
+6
+7
+6
Organic
change %
1,344.5
1,19 3.4
1,242.4
1,15 3.3
998.7
20
21
2020
2019
2018
2017
Statutory operating profit £m
£320.9m
320.9
24 9.0
245.0
299 .1
198.9
20
21
2020
2019
2018
2017
23.9
20.9
19.7
25.9
19.9
Margin %
Statutory earnings
per share
p
3
18.3p
318.3
235.5
226.2
3 03.1
214.4
20
21
2020
2019
2018
2017
Adjusted operating profit* £m
£
340.3m
KPI
25.3
22.7
22.8
23.0
23.6
Margin %
340.3
270.4
282.7
264.9
235.5
20
21
2020
2019
2018
2017
Adjusted earnings
per share*
p
338.9p
KPI
338.9
256.6
265.7
250.0
220.5
20
21
2020
2019
2018
2017
H&S over three-day lost time
injury rate per 1,000 employees
0.6
KPI
0.6
2.9
3.6
4.9
4.6
20
21
2020
2019
2018
2017
* All adjusted profit measures exclude certain items, which totalled a charge of £19.4 million (2020: charge of £21.4 million), as set out in Note 2 to the Financial Statements.
The Group’s three operating segments, as defined by IFRS 8, are Steam Specialties, Electric Thermal Solutions and Watson-Marlow.
Electric Thermal Solutions
Watson-Marlow
Steam Specialties
Adjusted operating profit by segment* %
Before corporate expenses of £22.4
million.
52%
7%
41%
Electric Thermal Solutions
Watson-Marlow
Steam Specialties
Revenue by segment %
56%
14%
30%
Electric Thermal Solutions
Watson-Marlow
Steam Specialties
Statutory operating profit by segment %
Before corporate expenses of £22.4 million.
54%
3%
43%
Spirax-Sarco Engineering plc Annual Report 2021 05
Strategic Report
The industries we serve
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
27%
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.
Oil & Gas
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 duringoil and
gasproduction.
Chemicals
5%
of Group revenue
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.
Power Generation
4%
of Group revenue
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.
Food & Beverage
19%
of Group revenue
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.
OEM Machinery
12%
of Group revenue
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.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202106
Healthcare
4%
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
Healthcareindustry.
Mining & Precious
Metal Processing
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.
Semiconductor
2%
of Group revenue
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.
Transport
2%
of Group revenue
Electrical heating components provide freeze
protection and defrost for engines, rotating
equipment, mechanical systems and fluid
delivery. PTFE lined hoses are used for
braking, cooling, transmission and steering
systems. Our steam heat exchange and
recovery solutions are used on cruise ships.
Water & Wastewater
3%
of Group revenue
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.
Buildings
3%
of Group revenue
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.
Spirax-Sarco Engineering plc Annual Report 2021 07
Strategic Report
Chair’s statement
Introduction
Our excellent performance in 2021 was
achieved against a backdrop of industrial
production growth (IP) of 7.6%, significant
supply chain disruption, a strong currency
headwind and the ongoing global pandemic.
Our position on Ukraine
andRussia
In response to the further escalation of the
conflict ordered by the Russian authorities,
as well as the tragic consequences for the
people and economy of Ukraine, we have
suspended all trading with Russia. This
means all Group Companies will no longer
trade with, or within, Russia. We will continue
to support our 70 Russian colleagues by
paying their salaries for a period of time. Our
business within the region represented close
to 1% of Group revenues in 2021.
Adapting our working
practices
Having adapted quickly to the constraints
caused by the COVID-19 pandemic in 2020,
our teams have been operating effectively
throughout 2021. Our direct sales and
service engineers have embraced virtual
tools to engage customers and continued
to self-generate sales. In-person visits to
customers resumed during the year where
this was possible. Our manufacturing facilities
have remained open and continued operating
with strong COVID-19 protocols in place in
order to meet significant levels of demand.
Following a successful transition to home
working for office-based colleagues during
the pandemic, our Group has adopted a
hybrid approach to work going forward. This
provides greater flexibility for individuals while
still meeting the needs of our customers and
continuing to support collaboration.
The health, safety and wellbeing of our
colleagues remained our highest priority
during 2021. We recorded an improved
Health & Safety performance across the
Group, achieving no lost-time accidents
in five of the twelve months and reducing
the number of lost-time injuries by 55%,
achieving its lowest level since we began
measurement. We maintained our COVID-19
Minimum Standards across all manufacturing
locations and offices and our controls were
commended by Inspectors from the UK
Health and Safety Executive. We applaud and
thank our teams for their continued vigilance
and commitment to ensuring we maintain
safe places of work. We also supported our
colleagues during the year by producing
a wellbeing toolkit in multiple languages,
announcing an additional ‘wellbeing day’ of
leave in 2022 and launching a Group-wide
Inclusion Plan called Everyone is Included.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202108
“Our excellent performance
was achieved thanks to the
outstanding efforts of our
teams in challenging
circumstances.”
Jamie Pike
Chair
raw materials and components. Within
ETS, supply chain constraints combined
with delays in the delivery of operational
performance improvements, resulted in lower
than anticipated sales growth. Our strategic
sourcing initiatives partially offset these
challenges and our Group achieved sales
growth materially above IP, ending 2021 with
a record orderbook.
During 2021 we saw material cost inflation
across a variety of input commodities
including energy, stainless steel, plastics and
rubber. Through our proactive approach to
price management, we mitigated the impact
of these pressures on our adjusted operating
profit margin.
This record adjusted operating profit margin
was achieved despite a significant increase
in our revenue investments, which underpin
our future organic sales growth and adjusted
operating profit margin improvement. During
2021, these investments were focused
on our sustainability and digital initiatives,
as well as new product development and
increasing our direct sales force. In light of
strong financial performance throughout the
year, these investments were more weighted
towards the second half. As a consequence,
the adjusted operating profit margin in the
year did not reflect the full-year effect of the
associated costs, which will be felt in 2022.
Board highlights
The Board met in-person twice during the
year, with the remaining six meetings held
virtually. We had the opportunity to speak
with colleagues from around the Group
through employee engagement forums
and attendance at the Group’s inaugural
Leadership Conference. This engagement
has informed key decisions, reflecting
colleagues’ views on topics such as hybrid-
working and wellbeing, now incorporated
within the Group’s new Inclusion Plan.
During the year, we approved substantial
investment programmes to support our
future growth, including investments in
our manufacturing capacity such as the
decision to accelerate the expansion
of Watson-Marlow’s BioPure facility in
Portsmouth (UK). We supported investments
to deliver on our net zero targets, through
commencing the decarbonisation of the
Steam Specialties’ manufacturing facility in
Cheltenham (UK), as well as continuing to
invest in the development of products and
solutions to help our customers decarbonise
their industrial processes. TheBoard also
approved the acquisition of Cotopaxi, a
digitally-enabled global energy consulting and
optimisation company. Theacquisition was
subsequently completed in January 2022 and
will help accelerate the implementation of the
Group’s Digital strategy.
Corporate governance
Having strengthened the Board in 2020,
we have 40% female representation and
30% ethnic diversity on the Board. In July
2021, Dr Trudy Schoolenberg stepped
down as planned after nine years as a
Director. On behalf of our shareholders, the
Board acknowledges with gratitude Trudy’s
significant contribution to the Group’s growth
and prosperity over the last nine years. Trudy
was succeeded as Senior Independent
Director by Richard Gillingwater, who joined
the Board in March 2021.
To continue enhancing the Board’s
effectiveness, we reorganised membership
Recognising our colleagues
On behalf of the Board, I would like to
thank all our colleagues around the world,
who have lived our Values in support of our
Purpose to deliver outstanding outcomes
for all our stakeholders. Our teams have
pulled together to meet the needs of
our customers and worked closely with
our supply chain partners to mitigate a
challenging environment, while supporting
each other as well as our local communities.
This has been especially evident in the way
our teams have embraced our volunteering
and community-based initiatives with over
11,000 volunteering hours recorded in 2021.
These hours, taken together with financial
and in-kind support represented close to £1
million being donated to good causes.
Meeting strong
demand growth
In 2021 our Group recovered rapidly from
the economic impacts of the COVID-19
pandemic. We saw unprecedented demand
growth across all three Businesses,
particularly in Watson-Marlow. In Steam
Specialties, demand growth was well
in excess of IP and in Electric Thermal
Solutions (ETS) demand growth was ahead
of demand growth in Steam Specialties,
after adjusting for the record US$14
million US Navy order in 2020. Our growth
benefitted from the exceptional demand
from our customers in the Pharmaceutical &
Biotechnology sector, with the Group’s other
revenue streams growing well above IP. Our
organic sales growth of 17% in 2021 more
than offset the 3% decline experienced in
2020, demonstrating both the resilience of
our business model as well as our exposure
to attractive long-term demand trends,
including the drive towards decarbonisation.
This strong growth was delivered amidst
an increasingly challenging operating
environment. Our teams were required to
deliver a significant ramp-up in capacity,
achieved through the expansion of our
existing manufacturing facilities, along
with additional shifts and new equipment,
while managing the impact of COVID-19
related absences. In parallel, there was
increasing disruption to the global supply
chain throughout the year, impacting freight
timelines and restricting the availability of
components, such as motors and printed
circuit boards.
While all three Businesses were impacted
by delayed deliveries from their supply
chains, the effects were greater within
Watson-Marlow and ETS. In Watson-
Marlow, shipments were impacted in the
second half of the year by shortages in
Spirax-Sarco Engineering plc Annual Report 2021 09
Strategic Report
of our Board Committees, better aligning
the skills of individual Non-Executive
Directors across our different Committees.
We also undertook a Board effectiveness
review, supported by independent advisors
EgonZehnder.
Management change
During 2021, Dominique Mallet, President
of our Electric Thermal Solutions (ETS)
Business, informed us of a change in his
personal circumstances which meant he
was unable to relocate to the USA from
France as planned and had instead elected
to pursue his career outside of our Group.
We were sorry to see Dominique leave but
we fully supported his decision and he left
with our best wishes and sincere thanks for
his contribution. We were very pleased to
appoint Armando Pazos as President for
ETS, effective 1st December 2021. Armando
is an experienced industrial leader who
joined ETS in March 2020 as Vice President
Global Sales, following a 24-year career with
Ingersoll Rand and Trane. Armando was
instrumental in the development of the ETS
strategy alongside Dominique and the wider
management team.
Dividends
The interim dividend paid on 12th November
2021 was 38.5 pence per share, an
increase of 15% (2020: 33.5 pence per
share). The Board is recommending an
increase in the final dividend of 15% to
97.5 pence per share (2020: 84.5 pence).
Subject to approval of the final dividend by
shareholders at the Annual General Meeting
on 11th May 2022, the total Ordinary
dividend for the year will be 136.0 pence per
share, an increase of 15% over the 118.0
pence per share for the prior year.
Dividend per share p
136.0
p
136.0
118.0
110.0
100.0
87.5
20
21
2020
2019
2018
2017
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 101 of the Governance
Report.
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 2021, 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 five-year period to 31st
December 2026. For the full Viability
Statement, see page 44; and
• the Annual Report contains the
information required for compliance
with the Companies, Partnerships
and Groups (and Non-Financial
Reporting) Regulations 2016, see
page 68; and
• in accordance with Listing Rule
9.8.6R(8) we confirm that the
Sustainability Report contains
disclosures consistent with the Task
Force on Climate-related Financial
Disclosures’ recommendations and
recommended disclosures, which
can be found on page 57.
The Strategic Report was approved by
the Board on 9th March 2022
Signed by:
Jamie Pike
Chair
on behalf of the Board of Directors
9th March 2022
Chair’s statement continued
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202110
Spirax-Sarco Engineering plc Annual Report 2021 11
Strategic ReportStrategic Report
“Our teams have lived
our Values and supported
our Purpose by delivering
outstanding outcomes for
customers, communities
and shareholders.”
Engineering
Harnessing
natural
technology
Steam is a clean and natural technology used
every day in a variety of industrial applications.
Sustaining this pure and natural source of
thermal energy in industrial and manufacturing
processes is critical for many of our customers.
That’s why we’re combining technologies from
across our Group to create innovative solutions
which decarbonise industrial processes,
including the use of steam.
Our journey to net zero
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202112
with Purpose
Supporting
a zero carbon
future
Because we only have One Planet, we’re doing
everything we can to preserve the Earth’s
natural resources. Our goal is to reach net zero
in scope 1 and 2 greenhouse gas emissions
by 2030* and we’re continuously investing in
products and solutions to help our customers
meet their own sustainability objectives, by
reducing carbon emissions and using energy
more efficiently. We estimate our solutions sold
in 2021 will save our customers 18.2 million
tonnes of CO
²
annually. The equivalent of 8.8
million less cars on our roads.
* We are targeting net zero in scope 3 emissions by 2050.
Read more in our Sustainability Report on pages 54 to 56.
Spirax-Sarco Engineering plc Annual Report 2021 13
Strategic Report
Our journey to net zero continued
Engineering a more
sustainable future.
The thermal energy storage
system utilises technology
from the Group’s Spirax
Sarco and Chromalox
brands, to offer a dynamic
and flexible solution that
converts electrical energy
into steam to be used
‘on demand’.
“When combined with renewable electricity,
it supports our customers’ aspirations
to decarbonise their steam generation.
By decoupling the electric charging from
the thermal energy (steam) discharging,
costs are optimised compared to other
current technologies.”
Rebecca Bowen
Project Manager, Spirax Sarco
Zero carbon steam,
when and where you
need it.
Eastwood Park is a leader in healthcare
management training, providing practical,
hands-on courses in decontamination,
engineering, facilities and estates
management. It puts sustainability at the
forefront of its operations. The centre recently
became the first pilot location for Spirax-
Sarco Engineering’s thermal energy storage
system which has been installed on site and
is powered by energy from solar panels on
the roof. The steam is generated while the
solar panels are active and is stored, ready
to be drawn down on demand for different
applications at any time of the day or night.
Bruce and his team use the steam generated
to demonstrate the procedures for safely
cleaning and sterilising medical equipment as
well as for heating and hot water. On average
the site will have demand of 300 kg/hour of
steam throughout periods of the day and the
thermal energy storage system enables safe
and reliant steam distribution on demand.
How it works
Steam supply
Thermal store
Steam
using
equipment
Drain
(heat recovery
& disposal)
Feedwater
pre-heat
Condensate
Blowdown
(heat recovery
& disposal)
Electricity
supply
Solar generation
National Grid
Water supply
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202114
Spirax-Sarco Engineering plc Annual Report 2021
Strategic Report
15
“Precision steam on
demand, with zero
carbon emissions is
good for us and for
our planet.”
Bruce Garbutt
Decontamination and Mechanical
Eastwood Park Training Centre,
Gloucestershire, UK
Engineering
Innovating
every day
We focus on improving the economics of our
customers’ business by helping them operate
efficiently, safely and sustainably. To meet their
needs today and anticipate what’s required
for tomorrow, we invest in new products and
solutions. Decarbonising industrial processes
is key to a more sustainable future. Through
technical innovation, we are playing our part.
Our Electric Thermal Solutions Business is
working with customers at the forefront of
change around the world to electrify systems
which previously relied on burning fossil fuels.
Our journey to a more efficient, safer and sustainable future
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202116
with Purpose
Solving
tomorrow’s
challenges
The campuses of McGill University in Montreal,
Canada, comprise around 200 buildings over
8,000,000 square feet and are home to more
than 50,000 students and staff. This leading
research University has set itself ambitious
sustainability targets, which include becoming
carbon neutral by 2040. Currently consuming
energy equivalent to that of 13,000 Canadian
homes the University is taking big steps towards
reducing the emissions from its downtown
powerhouse by 30%, through a partnership
with Chromalox, part of our Electric Thermal
Solutions Business.
Spirax-Sarco Engineering plc Annual Report 2021 17
Strategic Report
Our journey to net zero continued
Supporting McGill
University to reduce
its energy footprint
Achieving carbon neutrality
on a campus the size of
a small City is no easy
task. McGill’s Climate and
Sustainability Strategy
sets out the roadmap the
University has adopted
in order to achieve its
objectives through action in
eight categories, including
buildings and utilities.
The team charged with looking at how to
reduce the carbon emissions from energy
consumption have put a plan in place which
adopts a number of strategies including
reducing, recovering, converting and
offsetting energy use.
In order to decarbonise a significant
proportion of the University’s existing energy
consumption, McGill set out its technological
requirements which resulted in the creation
of a flagship decarbonisation project with
Chromalox. One of McGill’s natural gas-
fired boilers will be replaced by two of
Chromalox’s DirectConnect™ Medium
Voltage electric steam generators as part
of its customised solution. These high-
capacity steam generators are uniquely
designed for larger industrial applications
and were primarily selected for their ease of
operation and maintenance. The Medium
Voltage electricity is a highly efficient and
sustainable solution to generate the high
volumes of steam needed to power the
significant requirements of McGill’s heating
distribution network.
30%
Expected reduction in emissions
from the University’s
downtown powerhouse
Chromalox DirectConnect
TM
Medium Voltage
steam generator
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202118
Spirax-Sarco Engineering plc Annual Report 2021 19
Strategic Report
“Along with waste heat
recovery, our transition
toward renewable
sources of energy is a key
component of our energy
management strategy.”
Jerome Conraud
Director of Utilities and Energy Management
McGill University
Engineering
Building
world-class
manufacturing
facilities
At Spirax-Sarco Engineering we intensify our
market sector focus to bring unique solutions
to our customers. At 27%, Pharmaceutical &
Biotechnology is our Group’s largest sector and
accounted for almost 60% of Watson-Marlow’s
sales in 2021. Global manufacturing expansion
is a key enabler for our Group to continue to
meet strong customer demand and Watson-
Marlow is investing over £100 million in two new
state-of-the-art facilities in the UK and USA
which will come on stream in 2022.
Our journey to enabling critical industrial processes
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202120
with Purpose
Supplying
industry’s
most critical
applications
Biopharmaceutical customers need low risk,
high-quality and proven fluid path solutions
that guarantee product integrity throughout the
manufacturing process. Watson-Marlow is the
only peristaltic pump manufacturer in the world
to also manufacture fluid path components and
we are at the leading edge of meeting regulatory
expectations for this industry. The production
from our two new facilities coming on stream
during 2022 will expand our capacity and create
regional manufacturing capability at scale
outside of the UK to help our customers satisfy
demand for critical, lifesaving products such as
gene therapies andvaccines.
Spirax-Sarco Engineering plc Annual Report 2021 21
Strategic Report
Making our difference
Our ONE Group
approach
Purpose
Business
Model
Culture
Strategy
Group
O
u
r
I
m
p
a
c
t
Spirax-Sarco Engineering plc Annual Report 2021
Strategic Report
22
Our Purpose
To create sustainable
value for all our
stakeholders as we
engineer a more
efficient, safer and
sustainable world.
In living our Purpose,
our Group is united
by a strong culture,
a consistent business
model and common
strategic framework,
which enables us
to create outcomes
with lasting impact for
all our stakeholders
across a breadth
of geographies
and diverse end
market sectors.
Engineering
with Purpose
All the Businesses in our Group
provide products and solutions which
are essential to the efficient operation
of the critical industrial processes
responsible for essential products
used in everyday life. In this way, our
customers’ needs drive all that we do
and to meet their needs effectively,
we leverage our culture, business
model and strategic framework to
inform the way we work.
Read more about what we do on
page71.
Our culture
Achieving our Purpose depends on our culture,
what we do in our workplaces and how we operate.
Our culture is shaped by our shared Values. They guide our decisions and
behaviours wherever we work in the world.
As part of this culture based on Values,
we promise our colleagues challenging
work with real impact and the chance
for development every day. That’s best
achieved in supportive teams with
strong relationships. It’s those types of
teams and relationships that enable our
colleagues to better understand and help
each other, to learn and to grow.
Inclusion is present in all of this. It runs
through every one of our Values. It’s
central to the promises we make to
our colleagues. It’s critical to achieving
our Purpose.
That’s why we created Everyone is
Included. It’s our Group Inclusion Plan
through which we are committed to
empowering an inclusive and equitable
working culture where all our colleagues
can be themselves and achieve their
full potential.
Find out more on pages 50, 52 to 53
and115to 116.
Safety
Collaboration
Customer Focus
Excellence
Respect
Integrity
Our strategy
Our strategy is designed to help us do better what
we already do well. Our Business strategies, which
are refreshed from time to time, drive our Group’s
organic performance, while our Corporate strategy
drives inorganic revenue growth. Our Sustainability
strategy drives our Environmental, Social and
Governance performance.
To understand more, read about our strategy in action and the performance of our
Businesses on pages 30 to 35 and 70 to 84.
Spirax-Sarco Engineering plc Annual Report 2021
23
Strategic Report
Customer focus
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.
What we do
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.
1,70 0 +
core product lines
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.
29
manufacturing sites
Sell
With a resident direct sales
presence in 68 countries and
non-resident direct sales or
distributors in a further 66
countries, we serve customers
in 134 countries worldwide.
68
countries with
direct sales presence
Monitor and measure
We offer a comprehensive range of
site audits, maintenance services
and digital monitoring solutions,
to keep our customers’ systems
operating efficiently.
50%
revenue from
maintenance 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.
2,000
sales and service engineers
Educate
We help our customers to identify
in-house engineering knowledge
skill gaps and offer a wide range
oftraining courses, delivered in our
59 training centres worldwide, to
help plug those knowledge gaps.
59
training centres
Making our difference continued
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.
Customer
Closeness
Regional
Manufacturing
Applied
Engineering
Wide
Product
Range
Customer
Needs
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202124
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 manage
financial, human and natural resources; understand our associated
risks and opportunities; and implement our strategy for growth.
Colleagues
We focus on what
matters to our
colleagues wherever in
the world they work.
£411m
paid in wages, salaries and
pension contributions in 2021
Customers
Our products and
solutions support
mission critical
industrial processes all
around the world.
110,000
direct buying customers across
multiple industries globally
Suppliers
We build long-
term sustainable
relationships with our
supply chain partners.
£560m
paid to suppliers for materials
and services in 2021
Communities
Supporting our
local communities and
removing barriers to
education.
£2m
cash, in-kind donations and
colleague time to community
engagement activities worldwide in
2021, including the donation to our
Group Education Fund
Environment
Water is precious and
we are doing all we
can to preserve it.
To achieve a zero
carbon world we’re
doing all we can to
make our products
more sustainable.
9 6 .1m
m
3
of water saved by customers
annually from products sold in 2021
18.2m
tonnes of CO
2
saved annually from
products sold in 2021
Shareholders
We have a track
record of creating
sustainable value for
our shareholders.
£91m
paid as dividends in 2021
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
We have over 100 sales companies, mostly holding local
inventories, which are supplied by our manufacturing companies.
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.
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 usdirectly, specifying our products,
orbuying from distributors.
Direct sales channels
Contractors
and
consultants
Original
Equipment
Manufacturers
End
users
27%
Indirect
sales
channel
21%
9%43%
79%
Distributors
and
resellers
Spirax-Sarco Engineering plc Annual Report 2021
25
Strategic Report
85%
*
of Group revenue is
generated from annual
maintenance and operational (Opex)
budgets, ratherthan from capital
(Capex)budgets.
Why is this important?
Capex budgets are more likely to be
cut during periods of slower growth
or recession. Therefore, the high
proportion of revenue deriving from
Opex budgets gives us resilience
during economic downturns.
Additionally, through our direct
sales approach, we are able to
self-generate business by providing
bespoke engineered solutions,
typically with better margins.
Maintenance and repair sales
that maintain existing systems,
supported by the end users’ Opex
budgets, withatypical invoice value of
around £1.3k
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, withatypical invoice
value of over£100k
With the majority
of our revenues
coming from
our customers’
maintenance
activities and small
improvement
projects…
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.
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.
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 25 to 26 and 12 to 21
…and over a third
of sales coming
from self-generated
opportunities…
60+%
*
of Group revenue
is derived from
defensive, lesscyclical end markets,
including: Food & 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 2021 these ‘unknown’
sales accounted for 16% of total revenue.
OEM sales to identifiable industries have
been allocated to those industries. Sales to
OEM customers accounted for 27% of
Group revenue in 2021.
…our revenue is
balanced across
multiple less-
cyclical industries…
27%
19%
12%
5%
5%
4%
4%
3%
12%
3%
2%
2%
2%
OEM Machinery
Chemicals
Power Generation
Healthcare
Buildings
Mining & Precious Metal Processing
Water & Wastewater
Other
Pharmaceutical & Biotechnology
Food & Beverage
Oil & Gas
Semiconductor
Transport
Making our difference continued
Creating sustainable value for our shareholders
Our understanding of customers and markets, allows us to see where and
how our revenues are generated and where best to invest for future returns.
50%
35%
15%
C
a
p
e
x
b
u
d
g
e
t
s
O
p
e
x
b
u
d
g
e
t
s
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202126
12%
*
is our share of addressable
market, which is valued at
£11.1bn at the end of 2021.
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.
* Based on internal estimates. The increase
in market size in 2021 reflects underlying
changes in market segment sizes, expansion
of the addressable market as a result of
product development and the impact of
exchange movements.
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.
…and our long-term market drivers remain positive.
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 14% for Watson-Marlow
respectively and with just a 5% for Electric
Thermal Solutions’ 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.
Steam specialties market
Steam Specialties' market share
Electric thermal solutions market
Electric Thermal Solutions' market share
Niche pumps and associated equipment market
Watson-Marlow's market share
2021
Total addressable
market
£11.1b n
£4.8bn
£2.9bn
5%
14%
16%
£3.4bn
Spirax-Sarco Engineering plc Annual Report 2021 27
Strategic Report
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
2021
£m
Revenue 661.7 689.4 678.3 667.2 757.4 998.7 1,153.3 1,242.4 1,193.4 1,344.5
Operating profit 125.7 147.0 148.1 142.8 174.1 198.9 299.1 245.0 249.0 320.9
Adjusted operating profit* 136.2 151.6 153.0 152.4 180.6 235.5 264.9 282.7 270.4 340.3
Adjusted operating profit margin* 20.6% 22.0% 22.5% 22.8% 23.8% 23.6% 23.0% 22.8% 22.7% 25.3%
Profit before taxation 124.1 145.7 144.8 139.7 171.4 192.5 288.8 236.8 240.1 314.5
Adjusted profit before taxation* 134.9 151.1 151.1 151.1 177.9 229.1 254.6 274.5 261.5 333.9
Profit after taxation 87.6 102.3 100.6 96.7 121.3 157.9 223.4 167.0 173.9 234.9
Adjusted cash from operations 129.8 143.0 131.5 146.2 185.0 203.8 242.9 238.1 275.8 277.7
Cash conversion 95.3% 94.3% 85.9% 95.9% 102.4% 86.5% 91.7% 84.2% 102.0% 82.0%
Capital expenditure to sales
††
5.2% 4.3% 5.0% 5.0% 5.7% 3.8% 3.8% 5.0% 4.2% 4.8%
Basic earnings per share 112.2p 133.4p 132.8p 129.9p 165.0p 214.4p 303.1p 226.2p 235.5p 318.3p
Adjusted earnings per share* 122.2p 138.8p 140.4p 142.6p 171.5p 220.5p 250.0p 265.7p 256.6p 338.9p
Dividends in respect of the year 119.5 44.5 139.9 50.6 55.8 64.4 73.6 81.1 87.0 100.2
Dividends in respect of the year
(pershare) 53.0p 59.0p 64.5p 69.0p 76.0p 87.5p 100.0p 110.0p 118.0p 136.0p
Special dividend (per share) 100.0p – 120.0p – – – – – – –
Net assets 436.5 403.5 441.9 398.3 524.4 609.5 766.9 826.3 852.3** 1,010.0
Return on capital employed
†
37.6% 41.8% 41.4% 41.1% 44.8% 49.8% 51.6% 52.5% 48.9%** 59.3%
Return on invested capital
†
24.8% 27.6% 27.4% 27.1% 28.7% 22.6% 19.3% 19.0% 17.8%** 22.9%
* All adjusted profit measures exclude certain items as set out and explained in the Financial Review and in Note 2 to the Financial Statements.
** 2020 has been restated following the IFRS Interpretations Committee agenda decision on configuration and customisation costs in cloud computing arrangements (Software as a Service (SaaS)),
seeNote 1 to the Financial Statements for further details.
†
The results for 2019 to 2021 exclude the impacts of IFRS 16, which was adopted in 2019.
††
Capital expenditure excludes IFRS 16 lease repayments.
10 year financial summary
Our financial performance demonstrates a strong trajectory ofgrowth
and shareholder value creation.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202128
10
20
30
40
50
%
60
2014 2015 2016 2017 2018 2019 2020 202120132012
ROCE ROIC
Return on capital employed and return on invested capital %
2012
2013
p/share
2014
2015
2016
2017
2018
2020
2021
2019
0
50
100
150
200
300
250
350
DPS EPS Special dividend
Dividends and adjusted earnings per share p
2012
2013
Profit margin %
Revenue £m
2014
2015
2016
2017
2018
2020
2021
2019
1,200
1,400
Sales Adjusted operating profit margin
10
14
16
18
20
22
24
26
28
12
30
600
800
1,000
400
Revenue and adjusted operating profit margin £m / %
* All adjusted profit measures exclude certain items as set out and explained in the Financial Review and in Note 2 to the Financial Statements.
** 2020 has been restated following the IFRS Interpretations Committee agenda decision on configuration and customisation costs in cloud computing arrangements (Software as a Service
(SaaS)), see Note 1 to the Financial Statements for further details.
†
The results for 2019 to 2021 exclude the impacts of IFRS 16, which was adopted in 2019.
††
Capital expenditure excludes IFRS 16 lease repayments.
Spirax-Sarco Engineering plc Annual Report 2021 29
Strategic Report
Engineering with Purpose
Our Company Purpose supported by our
strong culture and Values, robust business
model and strategy continued to drive us
forward in 2021. Against the backdrop
of the disruptions caused by the ongoing
global pandemic, the work we do to create
a more efficient, safer and sustainable world
has never been more important. Our teams
have supported our customers across
the globe, providing essential solutions
which enable them to ramp-up their critical
manufacturing and industrial processes to
meet unprecedented demand growth.
This demand growth has been most
significant in defensive sectors such
as, Pharmaceutical & Biotechnology,
Food & Beverage and Healthcare, which
accounted for 50% of our Group sales in
2021. We remain a highly diversified Group
selling into 12 core industry sectors, as well
as multiple secondary industry sectors.
Consistent with 2020, our largest sectors in
2021 were Pharmaceutical & Biotechnology
and Food & Beverage, accounting for
27% and 19% of Group sales respectively.
We continue to serve a wide and diverse
range of customers with no single
customer accounting for more than 1.5% of
Group sales.
Self-generating growth
In line with our Group Purpose, we have a
long track record of helping our customers
to meet their efficiency and sustainability
goals, through our direct sales model
and breadth of products and solutions.
This means we are uniquely positioned to
continue supporting our customers, as they
address the dual trends of increasing energy
prices and the decarbonisation of industrial
processes, through reducing both their
energy costs and greenhouse gas emissions.
Our direct sales business model is highly
effective at uncovering opportunities to
improve the efficiency and effectiveness of
our customers’ processes. Our engineers
often identify unrecognised needs and
design bespoke solutions to meet those
needs by ‘walking our customer sites’.
Our work to accelerate the implementation of
our Digital strategy, including the acquisition
of Cotopaxi, enables us to provide a physical
and digital connection which extends our
capability beyond ‘walking the plant’ to
‘walking the data’.
As these self-generated solutions generally
have a short payback period for the customer
and are typically paid for from customers’
operating budgets, they remain attractive even
during challenging economic times. In addition
to this, our solutions, which evolve in response
to global trends and are influenced by voice
of customer activities, help our customers
to reduce their environmental impacts,
Strategic review
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202130
“Our excellent performance
is testament to the strength of
our organisation, business
model and strategy.”
Nicholas Anderson
Group Chief Executive
Sustainability strategy
Another key development was the launch, in
June, of our refreshed Group Sustainability
strategy, One Planet: Engineering with
Purpose. It sets out our commitment to
sustainability, as well as our roadmap to
building a more sustainable future. Within the
strategy, we have set ourselves some
stretching targets to deliver climate and
environmental action, customer sustainability,
resilient supply chains and stronger
communities. This includes achieving net
zero in scope 1 and 2 greenhouse gas
emissions by 2030 and net zero in scope
3 emissions by 2050. We have a clear
roadmap to achieve our 2030 target,
which includes sourcing or self-generating
100% of our electricity from renewable
sources and converting our vehicle fleet to
electric vehicles.
Inclusion, equity and wellbeing
During 2021, the Group has continued to
attract, develop and retain the best talent
in order to strengthen our organisational
capabilities, enhancing our diversity
through a focus on creating an inclusive
and equitable working culture where all
our colleagues can be themselves and
achieve their full potential. The Group made
55 senior appointments during 2021,
with just under half of those being internal
movements or promotions. Women now
account for 33% of our senior leadership
roles and 40% of our Board members.
We had a record 91% response rate to
our third bi-annual employee engagement
survey, with engagement scores up
compared to previous years and above
global benchmarks.
A highlight during 2021 was the development
and subsequent launch of Everyone is
Included, our Group plan for an inclusive,
equitable and healthy organisation. The Plan
includes ten Inclusion Commitments, which
are a set of global minimum standards.
Our Inclusion Commitments became
effective on 1st February 2022 and include:
a minimum of 16 weeks’ paid leave for all
new parents, whoever they are and however
they become a parent; additional support
for caregivers; support for colleagues who
experience pregnancy loss; being a safe
place for all lesbian, gay, bi, trans and queer
or questioning people; proactively promoting
better wellbeing and mental health as well as
enabling our hybrid workforce to be at their
best wherever they are working.
Enhancing organic growth
through acquisitions
We remain committed to deliver
organic growth through the disciplined
improve product quality, provide safer working
environments for their people and achieve
regulatory compliance.
The total proportion of Group sales which
are funded by our customer’s operating
budgets remains close to 85%, with the
balance coming from customers’ capital
budgets. Our direct sales business model,
diverse global and industry spread and our
network of 2,000 sales and service engineers
across 68 countries – unique in number
and expertise amongst our competitors
– has enabled our Group to continue
outperforming during 2021.
We have six strategic themes designed to
help us 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 research and development (R&D)
investments
• optimise supply chain effectiveness
• operate sustainably and help improve our
customers’ sustainability
As we implement our strategy, we ensure
that we have the right solutions, in the right
places, at the right times and the highly skilled
people with the expertise needed to provide
industry-leading support to our customers.
Refreshing our strategies
Business strategies
All three Businesses leverage our common
strategic framework and business model to
develop and refresh their own strategies.
In June 2021, Steam Specialties launched its
refreshed strategy, Customer first
2
(Customer
first squared), to colleagues across the
Business, which comprises the leading
product brands of Spirax Sarco and Gestra.
The refreshed strategy builds on the Customer
first strategy that has been in place since 2014.
The strategy maintains a focus on prioritising
attractive growth sectors and value-based
selling to deliver Total Customer Solutions.
Building upon customer insights, Customer
first
2
also further embeds sustainability and
digital as well as innovation and inclusivity within
its eight strategic initiatives. It completes a trio
of Business strategy refreshes, with Watson-
Marlow and Electric Thermal Solutions having
undertaken similar exercises in 2020. You can
read more about our progress against these
strategies in our Operating Review which
begins on page 69.
implementation of our six strategic
themes. Our Corporate (M&A) Strategy
is designed to enhance our platform
for continued organic growth through
selected acquisitions that accelerate the
implementation of our strategy. We continue
to develop and assess a pipeline of potential
acquisitions that expand our capabilities
through new products, technologies and
geographic coverage, while increasing our
addressable market.
During 2021 we agreed the £12.8 million
acquisition of Cotopaxi Limited, subsequently
completed at the end of January 2022,
which advances our journey of embedding
digital enablement across the Group.
This digitally-enabled, global energy
consulting and optimisation specialist will
accelerate Steam Specialties’ objective
to digitally enhance its customer bonding,
generating further opportunities that
support system uptime, reduce waste and
increase efficiency.
Strategy in Action
Mitigating global supply challenges
The Global Supply Chain team in
Steam Specialties has been working
closely with suppliers and logistics’
providers to mitigate the global
disruption and maintain service levels
throughout 2021.
The team implemented Short Interval
Control (a frequent review process
to improve efficiency) of its Inventory
Quality Management (IQM) system to
manage raw material holding levels
in real time to buffer against material
shortages and distribution disruption.
The team was also able to utilise
raw material stocks that had been
held in the UK in preparation for any
disruption due to Brexit.
Where raw material shortages were
identified the team partnered with its
supplier network to identify alternative
products or suppliers and flexibly
leveraged its manufacturing footprint
across our global sites to maintain the
production levels required and meet
our customers’ needs.
Spirax-Sarco Engineering plc Annual Report 2021 31
Strategic Report
Strategic review
Implementing our strategy
1
Increase
direct sales
effectiveness
through market
sector focus
By sectorising our sales and service
engineers around key industries and
developing our products and services in
response to voice of customer activities,
we increase our ability to self-generate
growth and provide value to customers.
Progress in 2021
Across our three Businesses we have
been implementing sector specific growth
programmes to generate demand,
including the launch of new solutions and
targeted campaigns.
We also expanded our direct sales
organisation, recruiting almost 200 sales
and service engineers to support our
global growth.
We continued to see the benefits of cross-
selling initiatives between Electric Thermal
Solutions (ETS) and Steam Specialties,
particularly in North America, as existing
customer relationships in Steam Specialties
helped to deliver decarbonisation related
orders for Chromalox.
Focus for 2022
• In Steam Specialties, we’ll increase our
focus on strategic account management,
leveraging insights from global customers
on areas such as sustainability and digital
to align our solutions with their needs
• In ETS we will implement our refreshed
‘go to market’ strategy, which leverages
existing Group frameworks, in EMEA and
Asia Pacific
• In Watson-Marlow we’re building
‘blueprints’ for operational excellence
to drive global alignment across our
Operating Companies
2
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 2021
We have continued to invest in the
training and development of our sales
and service engineers throughout 2021.
Advanced training programmes were
launched and adopted by engineers
across our Businesses. We have been
utilising our strength as a Group to
advance our training offering, with Steam
Specialties supporting ETS and Watson-
Marlow with the development of their own
Academy platforms.
During 2022, Steam Specialties will roll
out a learning programme designed
to support the effective integration of
Cotopaxi’s digital capability into our solutions
selling organisation.
Focus for 2022
• Steam Specialties will extend its Sales
Excellence to its other divisions
• Deploy the knowledge and skills needed
across our Steam Specialties Operating
Companies to embed the Cotopaxi offer
• ETS will migrate its materials across to
the new Academy and launch a new
programme focused on value-added
solution selling
• Watson-Marlow will launch curricula which
is sector specific to enhance its sales
force knowledge
Strategy in Action
More efficient, safer and sustainable
Our strategic account management
team at Steam Specialties gathers
important insights into the impact of
global mega trends, such as sustainability
and digital, through regular dialogue and
engagement with blue-chip, multi-national
industrial customers operating within our
prioritised sectors.
These customers look to us, as the
experts in thermal energy management,
to help them identify ways to solve
their efficiency, safety and sustainability
challenges across multiple manufacturing
sites. As part of its sustainability
commitment, a leading global petcare
manufacturer required an engineering
design solution to eliminate steam losses
while maintaining plant uptime.
By conducting an audit of the steam
systems our team was able to propose
and engineer a ‘double block and bleed’
configuration for the mains drainage
steam traps, enabling safe isolation for
replacement without the need for plant
shutdown. This solution means steam
traps can be changed out whenever
required, reducing steam losses to an
acceptable level, with improved worker
safety and optimum plant efficiency.
The same application is now being
replicated across our customer’s
12 European sites.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202132
Strategy in Action
Increasing
effectiveness with
digital technologies
Audit Pro, is a new app developed
by teams from Spirax Sarco, EMEA,
which is part of Steam Specialties.
The app enables engineers to capture
self-generative growth opportunities
in real time from a customer’s
site. It automatically generates the
customer proposal and updates our
CRM system, all while the engineers
are with the customer. The faster
response time as well as accuracy of
the information leads to an enhanced
customer experience. The app has
also increased the effectiveness of our
field engineers as they now only need
to capture the information once.
Following a successful trial in the
UK, plans are now being made to
roll this out to all Steam Specialties’
Operating Companies.
3
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 2021
The geographic expansion of our direct sales
presence is a key element of our strategy,
enabling us to increase our coverage and
access to customers. In 2021, this has
been achieved through a combination of
increasing headcount in existing territories
across all Businesses, expanding into
new countries, as well as widening the
geographic reach of ETS through investment
in resources in Asia Pacific. We opened
one new Operating Company for Gestra in
France during 2021 and Watson-Marlow
successfully started trading from its
Operating Company in the Czech Republic.
Our investment in a new manufacturing
facility in Massachusetts (USA) for Watson-
Marlow is also broadening our regional
manufacturing footprint as well as expanding
our capacity. Once operations begin in late
2022, this state-of-the art manufacturing
facility will better serve the needs of our
customers in the Americas, across our
portfolio of products and sectors.
Focus for 2022
• Steam Specialties will strengthen its
Spirax Sarco product brand’s direct sales
presence in developing markets, including
Middle East and Africa
• ETS will continue to expand geographically
with a focus on EMEA and Asia Pacific
• Watson-Marlow will increase its direct
sales presence in Asia and Latin America
as well as open two new manufacturing
facilities in the UK and USA
Strategy in Action
Successful first year for
newOperating Companies
Watson-Marlow Finland and Watson-
Marlow Norway were established as new
Operating Companies in July 2020. With a
combined growth of 116%, they’ve had
an impressive first year, set against the
backdrop of the global pandemic.
With an already established presence
in Denmark and Sweden, these two
new Operating Companies completes
Watson-Marlow’s footprint in the Nordic
countries. This successful broadening
of their geographic footprint has been
enabled through collaboration across
the region between the Watson-Marlow
teams but also through leveraging the
established footprint of the more mature
Steam Specialties organisation. As a
result, Watson-Marlow’s teams in Finland
and Norway are now on a growth path,
selling solutions and providing knowledge
to local customers.
Spirax-Sarco Engineering plc Annual Report 2021 33
Strategic Report
Strategic review continued
Implementing our strategy continued
4
Leverage
our R&D
investments
We leverage Research & Development (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 2021
Despite the continued challenges of remote
working our teams launched 37 new
product, service, or solution offerings during
the year across Steam Specialties, ETS and
Watson-Marlow. Steam Specialties and
ETS in particular have been instrumental
in driving up the Group’s Product Vitality, a
measure which compares total revenues
from new products, services or solutions
introduced in the previous five years to
overall Group revenue.
The Thermal Solutions Synergy project,
which is a collaboration between Steam
Specialties and ETS, is continuing to develop
and test solutions for the decarbonisation
of steam generation and other industrial
processes. Encouraging progress was
achieved during customer trials of our
thermal energy storage system, as well
as live testing of a retrofit system that
decarbonises fossil-fuelled industrial steam
boilers utilising electric solutions with both
Low and Medium Voltage technology.
Focus for 2022
• Launch the developed technologies from
the ‘Thermal Solutions Synergy’ team
to deliver decarbonised solutions for
industrial heating and steam generation
(see case study on pages 16 to 19.
• Develop additional solutions for the
decarbonisation of steam generation and
digitally enabled service benefits within
Steam Specialties
• Continue to develop projects across our
Watson-Marlow product portfolio that
will bring further sustainable benefits to
our customers
Strategy in Action
Realising the benefits
of new technologies
Watson-Marlow launched its Qdos
Conveying Wave Technology (CWT)
product range globally in 2021.
This revolutionary pump features
a patented pumping principle that
includes all the benefits of a peristaltic
pump, with a significantly longer
service life and broader range of
process chemicals. It also eliminates
expensive ancillary equipment and
better protects the pump operator
from exposure to chemicals. In one
recent customer application, the
extended lifespan of the pump
delivered a 250% improvement for
a water purification plant company
in France.
5
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 2021
With strong demand growth experienced
across our Group, combined with disruption
to the global supply chain, our Businesses
responded to mitigate the impact on our
On-Time-To-Request (OTTR) customer
service measure. While lower than prior year,
the performance was pleasing in light of the
challenges faced by the teams. We continue
to focus on increasing our supply chain agility
to compress lead times and enable improved
customer service.
In Steam Specialties, the reorganisation of
our 11 global supply sites under common
leadership has improved collaboration and
opportunities for growth enablement working
with our sales and business development
teams. In 2021, despite the persistent
economic and supply chain uncertainties
generated by the global pandemic, we did
not deviate from our planned investments
to modernise our manufacturing equipment
as part of our Future Factory initiative.
These investments in equipment have
resulted in greater flexibility, increased
automation and higher output, which has
better equipped the Business to respond to
increased demand from customers.
During 2021, we also completed
construction of three new manufacturing
facilities. The team at Aflex Hose, which
is part of Watson-Marlow, completed the
move into their new offices and state-of-
the-art 17,000m
2
factory in Yorkshire (UK),
which increased their production capacity
by 70%. In Normandy, (France), work was
completed on the new Thermocoax ‘One’
manufacturing facility which combined
four previous sites into one purpose-built,
13,000m
2
factory and associated offices.
Construction work was also completed on
the new BioPure facility for Watson-Marlow
in Portsmouth (UK). When the internal fit
out works are completed early in 2022, the
production capacity of BioPure will increase
significantly, allowing us to meet growth
in demand.
Focus for 2022
• Increase focus on supplier performance in
Steam Specialties, using improved data to
accelerate improvements
• Further improve alignment between Steam
Specialties’ sales and supply companies,
to reduce lead times and support
OTTR improvements
• Continue with our planned investments to
modernise our manufacturing equipment
as part of our Steam Specialties Future
Factory initiative
• Invest further in operational improvements
to step up shipments from our Chromalox
manufacturing facility in Ogden (USA)
• Complete construction of the new
BioPuresite at Dunsbury Park and
continue construction of the new
Watson-Marlow manufacturing facility
inMassachusetts, USA
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202134
Strategy in Action
Delivering
continuous
improvements
Our Steam Specialties business has
been embarking on a journey of
embedding a continuous improvement
culture for our global supply chain
operation in the Americas.
Starting in 2020 and continuing
throughout 2021, 22 Kaizen
events (short term idea generation
and implementation workshops
undertaken by a cross-functional
team with the goal of achieving rapid
process improvements) have taken
place across the world including in
Argentina, Brazil, China, India, France,
Mexico, the UK and the USA.
These events have addressed issues
including reducing manual handling
tasks and set up times, increasing
throughput as well as improving
colleague safety and productivity.
The results have been impressive.
1.2 miles of operator travel distance
saved. 52 unsafe conditions
eliminated. 283 days of lead time
reduced. Sustainability mechanisms
have been put in place to ensure
these gains are not lost in time.
6
Operate
sustainably and
help improve
ourcustomers’
sustainability
and we are proud of the way in which our
teams have embraced the strategy, with all of
our Operating Companies having developed
at least one community engagement project
during 2021.
Focus for 2022
• Develop and deliver role-specific
sustainability training to colleagues
• Complete the quantification of our scope
3 emissions
• Develop Life Cycle Assessments and
expand our customer use-phase
sustainability benefit model across our
Businesses to quantify the benefits of
select products (see case study on pages
12 to 15)
Strategy in Action
Every day Natural
Technology
Steam is familiar in nature and part of life
every day. Yet this extraordinary fluid is
a high efficiency, mission-critical heating
medium for diverse and important
industries and increasingly relevant as
part of our sustainable future.
In September 2021, Steam Specialties
launched its ‘Natural Technology’
campaign. This campaign was born
out of a Customer first
2
strategy
project and is leading the conversation
for the industry on the benefits and
opportunities of steam.
More and more industries and
organisations are recognising steam
as the Natural Technology that fits with
their sustainability agendas. With new
steam generation technologies,
we’re on a path towards carbon-free
steam generation for our customers.
Including through our partnership
with Electric Thermal Solutions, you
can read more about how we’re
working together to solve tomorrow’s
challenges on pages 69-85.
www.natural-technology.com
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 2021
Our products and solutions have always
enabled our customers to operate both more
efficiently and more sustainably. We calculated
the environmental benefits of 12 Steam
Specialties product ranges sold in the year,
which we estimate resulted in savings per
annum of 96.1 million m
3
of water, 250 million
GJ of energy and 18.2 million tonnes of CO
2
in
2021. During the year we completed Life Cycle
Assessments on two of Watson-Marlow’s
product types, which will be extended to other
product types in 2022. We also combined the
technology capabilities from across our Group
to develop innovative heating solutions for the
decarbonisation of steam generation and other
industrial processes.
We made significant progress in the
implementation of our One Planet
Sustainability strategy, including our journey
towards net zero. At the end of the year more
than 30% of our Group’s energy was being
sourced through green contracts and work
began to decarbonise our largest Steam
Specialties manufacturing facility. By the
end of 2021, our market-based greenhouse
gas (GHG) emissions (which take account
of green energy contracts) were 16% lower
than our 2019 baseline, consistent with our
target of achieving a 50% reduction by 2025.
This represents a 23% reduction over two
years in our carbon emissions intensity, which
is market-based carbon emissions relative to
inflation adjusted sales at constant currency.
We also signed up to two important initiatives,
Race to Zero and Business Ambition 1.5˚C,
to guide our activities in line with climate
science. The disclosure insight charity, CDP,
formerly known as the Carbon Disclosure
Project, increased our environmental
score from B to A- which takes us into the
leadership category.
To help meet our biodiversity offset target
of five times our operational footprint by
2025, we partnered with the World Land
Trust, making our first offset investment
by contributing to a new nature reserve
in Argentina.
We were very pleased to establish the Spirax-
Sarco Engineering Group Education Fund
in late 2021, contributing an initial £1 million
donation as part of our commitment to
remove barriers to education and improve
diversity in Engineering. In the six months from
launch to the end of 2021, One Planet has
become very well embedded in our Group
Spirax-Sarco Engineering plc Annual Report 2021 35
Strategic Report
Key performance indicators
Our key performance indicators are used to measure
the successful implementation of our strategy.
†
Organic growth is at constant currency and excludes contributions from acquisitions and disposals, see Note 2 to the Financial Statements.
* Based on adjusted operating profit. Adjusted operating profit excludes certain items as set out and explained in the Financial Review and in Note 2 to the
Financial Statements.
1. Organic Revenue Growth
†
%
2021
2
020
2
019
2
018
2
017
-3
6
6
7
17
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.
Progress in 2021
Organic sales increased by 12% in Steam
Specialties, 7% in Electric Thermal Solutions
and 32% in Watson-Marlow.
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 risk
1 2 3 4 5 6 87
No linkDirect link Indirect link
2. Adjusted operating profit
*
£m
2021
2
020
2
019
2
018
2
017
340.3
270.4
282.7
235.5
264.9
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.
Progress in 2021
Increased by 26%. The reported figure
reflects a 31% organic increase and a 4%
decline due to exchange.
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 risk
1 2 3 4 5 6 87
No linkDirect link Indirect link
3. Adjusted operating
profit margin
*
%
2021
2
020
2
019
2
018
2
017
25.3
22.7
22.8
23.6
23.0
Definition
Adjusted operating profit margin is defined
as adjusted operating profit expressed as a
percentage of revenue.
Progress in 2021
Increased by 260 bps to 25.3%. On an
organic basis the adjusted operating profit
margin increased by 280 bps.
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 87
No linkDirect link Indirect link
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202136
More information about our principal risks.
See pages 85 to 91
* Based on adjusted operating profit. Adjusted operating profit excludes certain items as set out and explained in the Financial Review and in Note 2 to the
Financial Statements.
Further reading
More information about remuneration.
See pages 131-160
6. H&S over three-day
lost time injury rate
per 1,000 employees
2021
2
020
2
019
2
018
2
017
0.6
2.9
3.6
4.6
4.9*
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 2021
Our over three day lost time injury rate
improved during 2021, falling from 2.9 per
1,000 employees in 2020 to 0.6 per 1,000
employees in 2021.
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
1 2 3 4 5 6 87
No link
Direct link
Indirect link
5. Cash generation* £m
2021
2
020
2
019
2
018
2
017
277.7
275.8
238.1
203.8
242.9
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.
Progress in 2021
Cash generation increased by 1% as higher
cash from operating activities was offset
by increases in capital expenditure and
investment in working capital to support
revenue growth.
Link to remuneration
Cash generation is one of two financial
measures on which Executive Directors’
variable remuneration is based.
Link to risk
1 2 3 4 5 6 87
No linkDirect link Indirect link
4. Adjusted earnings per
share (EPS)
*
p
2021
2
020
2
019
2
018
2
017
338.9
256.6
265.7
220.5
250.0
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 2021
Increased by 32% to 338.9 pence reflecting
an increase in earnings together with a
reduction in the Group’s effective tax rate.
Link to remuneration
EPS measured over three-year periods
is one of the two components of the
Performance Share Plan.
Link to risk
1 2 3 4 5 6 87
No linkDirect link Indirect link
* 2018 rate increased due to the full-year effect of
the Chromalox acquisition
Spirax-Sarco Engineering plc Annual Report 2021
37
Strategic Report
The Group reports
under International
Financial Reporting
Standards (IFRS) and
references ‘adjusted’
and ‘organic’ alternative
performance measures
where the Board
believes that they help
to effectively monitor
the performance of
the Group and support
readers of the Financial
Statements in drawing
comparisons with
past performance or
our peers.
Certain alternative performance measures
are also relevant in calculating a meaningful
element of Executive Directors’ variable
remuneration and our debt covenants.
Alternative performance measures referenced
in the text below are further explained in Note
2 to the Financial Statements, which includes
a reconciliation of adjusted operating profit to
statutory operating profit.
As a multi-national Group of companies, we
trade in a large number of foreign currencies
and occasionally acquire or dispose of
companies. Therefore, we also refer to
‘organic’ alternative 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 these
measures allow readers of the Financial
Statements to gain a further understanding
of how the Group has performed.
Sales
Group sales were up 13% to £1,344.5 million
(2020: £1,193.4 million) and 17% up on an
organic basis, the difference being due to a
negative foreign exchange impact of over 3%.
Organic sales growth more than offset the 3%
reduction experienced in 2020, with Group
sales well above the pre-pandemic level of
£1,242.4 million, demonstrating the resilience
of our business model and strategies, as well
as the quality of execution by our teams.
The Steam Specialties Business, which
accounted for 56% of Group revenue in 2021,
experienced strong growth in all regions,
Financial review
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202138
“With organic sales growth 13%
above pre-pandemic levels
and record margins, we have
demonstrated the resilience
of our Group.”
Nimesh Patel
Chief Financial Officer
Adjusted
operatingprofit
2021
£m
Adjusted operating
profit margin
2021
%
Adjusted
operatingprofit
2020
£m
Adjusted operating
profit margin
2020
%
Steam Specialties 188.7 25.0% 154.3 22.2%
Electric Thermal Solutions 24.0 13.2% 24.6 13.8%
Watson-Marlow 150.0 36.7% 107.3 33.4%
Corporate expenses (22.4) (15.8)
Adjusted operating profit 340.3 25.3% 270.4 22.7%
Post-retirement benefit plan in the UK & Canada being
closedto future accrual
– 10.5
Post-retirement benefit plan in Germany being closed to
futureaccrual
2.0 –
Restructuring costs – (4.3)
Amortisation of acquisition-related intangible assets (21.4) (26.6)
Reversal of acquisition-related fair value adjustments
toinventory
– (1.0)
Statutory operating profit 320.9 249.0
supported by a recovery of IP as customers
resumed maintenance activity and capital
expansion projects that were postponed in
2020. Sales of £754.9 million were up 9%
and 12% up on an organic basis, with growth
in demand outstripping sales growth and
leading to an expansion of the order book
carried forward into 2022.
The Electric Thermal Solutions (ETS)
Business, which accounted for 14% of
Group revenue in 2021, delivered sales of
£181.3 million, up 2% or 7% up organically
against 2020. Demand growth was ahead
of Steam Specialties demand growth, after
adjusting for the record US$14 million order
from the US Navy in 2020. Demand for
Chromalox’s decarbonisation-related solutions
and from Thermocoax’s customers in the
Semiconductor sector was particularly strong.
As demand growth was significantly ahead
of sales growth, the Business ended the year
with a record order book carried forward into
2022. Sales were impacted by disruptions
in the global supply chain and delays in
delivering operational improvements at two of
our manufacturing facilities in Chromalox.
Watson-Marlow, which accounted for 30%
of Group revenue in 2021, delivered record
sales of £408.3 million, 27% above 2020 and
32% up on an organic basis. This growth
was supported by exceptional demand
from the Pharmaceutical & Biotechnology
sector, which accounted for almost 60%
of Watson-Marlow’s sales in 2021, as well
as growth strongly above IP in the Process
Industries sector. Manufacturing capacity
was ramped-up significantly during the year
and would have been higher if not for the
impact of global supply chain disruptions.
Demand growth exceeded sales growth,
leading to the largest expansion in order
book of any of our Businesses.
Adjusted operating profit
Group adjusted operating profit was up
26% to £340.3 million and 31% up on an
organic basis, the difference being due to a
negative foreign exchange impact marginally
above 4%.
In Steam Specialties, adjusted operating
profit of £188.7 million was up 22%
compared with 2020 and 27% up on an
organic basis, with the benefits of operational
gearing partially offset by a significant
increase in revenue investments to support
future growth.
ETS delivered an adjusted operating profit
of £24.0 million, 3% up organically but 2%
down on a reported basis, due to a strong
currency headwind.
Watson-Marlow’s adjusted operating profit
was up 40%, and 46% up organically
compared with 2020, notwithstanding
continued revenue investments and
expansion of manufacturing capacity.
Adjusted operating
profitmargin
The Group adjusted operating profit margin
of 25.3% was up 260 bps, a record level
for the Group. On an organic basis, the
adjusted operating profit margin improved
by 280 bps. Margin expansion was driven
by strong growth in sales, with the benefit
of operational gearing partially offset by the
ramp-up of revenue investments to support
growth, which mostly impacted the second
half of the year. The adjusted operating profit
in 2021 does not reflect a full-year cost of
these investments. Had we incurred a full-
year of cost, the Group’s adjusted operating
profit margin would have been lower by less
than 200 bps.
Within Steam Specialties, the adjusted
operating profit margin grew 280 bps to
25.0%, and 290 bps on an organic basis.
For ETS, the adjusted operating profit margin
was 13.2%, down 60 bps on both a reported
and organic basis. Watson-Marlow’s adjusted
operating profit margin was up 330 bps to
36.7%, driven by a strong 340 bps organic
margin expansion.
ETS adjusted operating profit margin was lower
in 2021, due to lower than expected shipments
from our manufacturing facility in Ogden (USA)
and continued losses in our Soissons (France)
manufacturing facility, as well as increased
revenue investments and costs to support
operational improvements. In the Americas,
which represents over 75% of Chromalox
sales and experienced the highest demand
growth, the adjusted operating profit margin
has reached 20%. Thermocoax’s adjusted
operating profit margin was higher in 2021,
mostly as a result of continuing strong demand
for semiconductors.
Currency movements
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
Spirax-Sarco Engineering plc Annual Report 2021 39
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Financial review continued
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.
Currency movements negatively impacted
adjusted operating profit by over 4% with
translational losses of £10.3 million and an
additional transactional loss of £0.8 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
£110 million.
Statutory operating profit
and margin
Statutory operating profit of £320.9 million
was up from £249.0 million in 2020 and the
statutory operating profit margin of 23.9%
was up 300 bps (2020: 20.9%). The drivers
of the increase in statutory operating profit
and statutory operating profit margin are as
explained in the adjusted operating profit
sections above, as well as the reduction
in acquired intangible amortisation to
£21.4 million (2020: £26.6 million) and the
reduction in defined benefit pension credit to
£2.0 million (2020: £10.5 million).
Finance costs
Net finance costs decreased to £6.4 million
from £8.7 million in 2020. Net bank interest
decreased to £4.0 million from £6.0 million in
2020, as a result of lower average net debt.
Net costs under IAS 19 in respect of the
Group’s defined benefit pension schemes
decreased to £1.3 million (2020: £1.5 million).
The IFRS 16 interest charge for the year was
£1.1 million (2020: £1.2 million).
Profit before tax
Adjusted profit before tax was up 28% to
£333.9 million (2020: £261.5 million) and up
33% on an organic basis.
On a statutory basis, profit before tax was
£314.5 million (2020: £240.1 million), with the
items listed below excluded from adjusted
profit before tax:
• a charge of £21.4 million
(2020: £26.6 million) for the amortisation of
acquisition-related intangible assets; and
• a credit of £2.0 million resulting from the
defined benefit retirement plan in Germany
being closed to future accrual. In 2020,
a credit of £10.5 million related to the UK
and Canada defined benefit retirement
plans being closed to future accrual.
Taxation
The tax charge on the adjusted profit
before tax decreased by 240 bps to 25.1%
(2020: 27.5%) which was predominantly
driven by the claiming of additional innovation
tax reliefs available in a number of countries
in which the Group operates. The tax charge
in the year benefitted from first-time claims
being made on a retrospective basis to also
cover previous years.
The Group’s overall tax rate reflects the
blended average of rates in 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 25.3% (2020: 27.5%).
For 2022, we currently anticipate that based
on a forecast mix of profits, the Group
effective tax rate will be approximately 26%.
In April 2019, the European Commission’s
investigation into the UK’s Controlled Foreign
Company regime concluded that certain
aspects constituted State Aid, requiring
the UK tax authority to recover the benefit
from affected taxpayers. During 2021, the
Group received and settled Charging Notices
totalling £4.9 million for the benefit received
in 2017 and 2018 and has recognised a
receivable for this amount at the year end
balance sheet date. The Group has not
received a Charging Notice for the benefit
received prior to 2017, which it estimates
to be £2.8 million. Her Majesty’s Customs
& Excise has enquired into the benefit
received during 2019, which the Group
estimates to be £1.0 million. No provisions
have been recognised at the yearend
balance sheet date for these liabilities.
Further details are included in Note 9 to the
Financial Statements.
Earnings per share
Adjusted earnings per share increased by
32% to 338.9 pence (2020: 256.6 pence),
ahead of the increase in adjusted operating
profit due to a reduction in the effective
tax rate. Statutory earnings per share
were 318.3 pence (2020: 235.5 pence).
The statutory fully diluted earnings per share
were not materially different to the statutory
earnings per share in either year.
Dividends
The Group has a progressive dividend policy
where dividend payments follow underlying
earnings per share growth while maintaining
prudent levels of dividend cover. The aim is
to provide sustainable, affordable dividend
growth, building on our 54-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 97.5 pence per share for 2021
(2020: 84.5 pence) payable on 20th May
2022 to shareholders on the register at 22nd
April 2022. Together with the interim dividend
of 38.5 pence per share (2020: 33.5 pence),
the total Ordinary dividend for the year is
136.0 pence per share, an increase of 15%
on the Ordinary dividend of 118.0 pence per
share in 2020.
The total amount paid in dividends during
the year was £91.0 million, 10% above the
£82.5 million paid in 2020.
Total capital employed increased by 13%
at reported exchange rates and 16% on a
constant currency basis. This compares with
organic sales growth of 17%.
Tangible fixed assets (PPE and IFRS 16 right-
of-use-assets) increased by £42.7 million
to £340.3 million, primarily as a result of
an increase in right-of-use assets from the
addition of new manufacturing facilities at
Watson-Marlow BioPure in Portsmouth (UK)
and Thermocoax in Normandy (France).
Total working capital increased by
£39.5 million. The ratio of working capital
to sales (on a constant currency basis)
reduced by 40 bps to 20.8% (2020: 21.2%).
Going forward, we anticipate maintaining
a similar percentage of working capital
to sales.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202140
Capital employed
Capital employed
2021
£m
2020
£m
Property, plant and equipment 277.4 261.3
Right-of-use assets (IFRS 16) 62.9 36.3
Software & Development costs* 38.9 33.4
Inventories 201.3 180.1
Trade receivables 272.3 226.3
Prepayments and other current assets 61.7 41.3
Trade, other payables, current provisions and current tax (255.3) (194.9)
Capital employed 659.2 583.8
Acquired intangibles including goodwill 628.0 665.6
Investment in Associate – –
Post-retirement benefits (44.7) (98.6)
Net deferred tax (35.7) (28.5)
Non-current provisions and long-term payables (6.2) (7.1)
Lease liabilities (60.1) (34.1)
Net debt (130.5) (228.8)
Net assets 1,010.0 852.3
Adjusted operating profit 340.3 270.4
Adjusted operating profit (excluding IFRS 16) 339.2 269.3
Average capital employed 621.5 589.2
Average capital employed (excluding IFRS 16) 571.9 550.6
Return on capital employed 54.7% 45.9%
Return on capital employed (excluding IFRS 16) 59.3% 48.9%
* Restated following IFRS Interpretations Committee agenda decision on configuration and customisation costs in cloud computing arrangements (Software as a Service
(SaaS)) – see Note 1 to the Financial Statements for further details.
Return on capital
employed(ROCE)
ROCE measures effective management
of fixed assets and working capital
relative to the profitability of the business.
ROCE increased by 880 bps to 54.7%
(2020: 45.9%), primarily due to the 31%
organic growth in adjusted operating
profit, outpacing the growth in the Group’s
capital investment. Excluding the effect of
IFRS 16, ROCE increased by 1,040 bps.
On a constant currency basis and excluding
the impacts of acquisitions, disposals
and IFRS 16, ROCE increased by 1,170
bps. ROCE is defined in Note 2 to the
Financial Statements.
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 increased by 480 bps to 22.0%
(2020: 17.2%). Excluding the effect of IFRS
16, ROIC grew by 510 bps. On a constant
currency basis and excluding acquisitions,
disposals and IFRS 16, ROIC grew by
570 bps. ROIC is defined in Note 2 to the
Financial Statements.
Post-retirement benefits
The net post-retirement benefit liability
under IAS 19 decreased to £44.7 million
(2020: £98.6 million). Assets rose by
£29.0 million (5%), reflecting greater than
expected returns. Liabilities decreased by
£24.9 million (4%), largely due to an increase
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. During 2021 the
defined benefit scheme in Germany was
closed to future accrual, effective from 1st
January 2021, resulting in a £2.0 million
credit to the Income Statement (See Note 2
to the Financial Statements).
Spirax-Sarco Engineering plc Annual Report 2021 41
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Financial review continued
Cash flow and treasury
Cash flow
2021
£m
2020
£m
Adjusted operating profit 340.3 270.4
Depreciation and amortisation (excluding IFRS 16) 35.7 36.7
Depreciation of leased assets 11.4 12.1
Cash payments to pension schemes more than the charge to adjusted operating profit (5.6) (3.9)
Equity settled share plans 9.2 7.0
Working capital changes (39.5) 13.4
Repayments of principal under lease liabilities (11.7) (12.2)
Capital expenditure (including software and development) (64.1) (49.6)
Capital disposals 2.0 1.9
Adjusted cash from operations 277.7 275.8
Net interest (5.1) (7.2)
Income taxes paid (78.1) (71.9)
Free cash flow 194.5 196.7
Net dividends paid (91.0) (82.5)
Purchase of employee benefit trust shares/Proceeds from issue of shares (24.6) (12.5)
(Acquisitions)/Disposals of subsidiaries & restructuring costs – (9.4)
Cash flow for the year 78.9 92.3
Exchange movements 19.4 (25.9)
Opening net debt (228.8) (295.2)
Net debt at 31st December (excluding IFRS 16) (130.5) (228.8)
IFRS 16 lease liability (60.1) (34.1)
Net debt and lease liability at 31st December (190.6) (262.9)
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 £1.9 million to £277.7 million
(2020: £275.8 million) representing 82%
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 a record £64.1 million, equivalent to
5% of sales. Capital expenditure increased
by £14.5 million, principally as a result
of expenditure on new manufacturing
capacity for Watson-Marlow, including
BioPure in Portsmouth (UK). The Group
also continued to invest in other significant
projects, including development of our
digital capabilities.
We are targeting capital expenditure in
2022 to be between 6% and 7% of sales,
above our typical range as we invest in new
production facilities for Watson-Marlow.
Tax paid in the year increased by
£6.2 million to £78.1 million as a result
of the increase in profitability during
2021. Free cash flow for the year was
£194.5 million (2020: £196.7 million).
Dividend payments were £91.0 million,
including payments to minorities
(2020: £82.5 million) and represent the final
dividend for 2020 and the interim dividend
for 2021.
The net of share purchases and new shares
issued for the Group’s various employee
share schemes resulted in a cash outflow of
£24.6 million (2020: £12.5 million) reflecting
the move to acquire shares on the open
market rather than issue new equity.
The fundamentals of our
financial resilience
The strong operational and financial
performance of the Group during 2021
continues to reflect the resilience of our
business model. As the world continues
to operate against the backdrop of the
COVID-19 pandemic we have achieved
a record year of financial performance.
We have also continued to focus on
investment to support our future growth,
including in new manufacturing capacity,
delivering on our sustainability goals and
enhancing our digital capability. The Group’s
longstanding track record of increasing
returns to shareholders has continued
with a 15% year-on-year increase in
Ordinary dividends.
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 2021,
global IP rebounded following the decline
in 2020 due to the effects of COVID-19.
As in previous years, our business model
supported our outperformance against
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202142
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 60% of our sales
are to defensive, less cyclical sectors and
no single customer accounts for more than
1.5% of Group sales.
Strong focus on cash
generation and liquidity
A key strength of the business is our
ability to generate cash. Following the
exceptional performance during 2020 of
102% cash conversion, we have delivered
a more normalised 82% cash conversion
in 2021 as a result of (i) a step up in
capital expenditure as we have increased
investment in expanding production capacity
and (ii) working capital investment to support
underlying business growth.
This performance allowed us to continue to
strengthen our balance sheet, resulting in a
year end net debt position, excluding leases,
of £130.5 million (2020: £228.8 million)
and a net debt to EBITDA ratio of 0.35
times (2020: 0.7 times). At the end of
the year total committed and undrawn
debt facilities amounted to £346 million
alongside a net cash balance of £219 million.
The average tenor of our debt is 26 months
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 Group,
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 are
monitoring developments in both Russia and
Ukraine, which collectively account for just
over 1% of Group sales.
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 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 statement
The Group’s principal objective when
managing liquidity is to safeguard the
Group’s ability to continue as a going
concern for at least 12 months from the
date of signing the 2021 Annual Report.
The Group retains sufficient resources to
remain in compliance with all the required
terms and conditions within its borrowing
facilities with material headroom and no
material uncertainties have been identified.
The Group continues to conduct ongoing
risk assessments, which include the potential
impact of the ongoing COVID-19 pandemic
on its business operations and liquidity.
Consideration has also been given to reverse
stress tests, which seek to identify factors
that might cause the Group to require further
liquidity, and a view can be formed of the
probability of those occurring.
Our financial position remains robust, with
the earliest maturity of any facility due in
March 2022 being €70 million due on the
€160 million Term Loan, which is accounted
for within the cash flow forecast. The debt
facilities contain a leverage (net debt/EBITDA)
covenant of up to 3.5x. Certain debt facilities
also contain an interest cover (EBITDA/Net
Finance Expense) covenant of a minimum
of 3.0x. The Group regularly monitors its
financial position to ensure that it remains
within the terms of its banking covenants.
At 31st December 2021 leverage (defined
as net debt divided by adjusted earnings
before interest, tax, depreciation and
amortisation) was 0.35x (31st December
2020: 0.7x), showing a continued reduction
since the prior period. Interest cover (defined
as adjusted earnings before interest, tax,
depreciation and amortisation divided by net
bank interest) was 93x at 31st December
2021 (31st December 2020: 51x).
Reverse ‘stress testing’ was also performed
to assess what level of business under-
performance would be required for a
breach of the financial covenants to occur,
the results of which evidenced that no
reasonably possible change in future forecast
cash flows would cause a breach of these
covenants. In addition, the reverse stress test
does not take into account any mitigating
actions which the Group would implement
in the event of a severe and extended
revenue and profitability decline, which would
increase the headroom further.
Having assessed the relevant business
risks, including the impact of COVID-19 as
discussed in our principal risks on pages
85 to 91, and considered the headroom
available under several alternative scenarios
as set out in the viability assessment on page
43, the Directors consider it appropriate to
continue to adopt the going concern basis in
preparing the financial statements.
Assessment of Viability
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 the Risk Management section on pages
85-91.
The Board has adopted a five-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
proposed new principal financing facility
duration. 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 five-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. 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. The scenarios modelled to support
this process were as follows.
Spirax-Sarco Engineering plc Annual Report 2021 43
Strategic Report
Financial review continued
Scenarios modelled Links to principal risks
Scenario 1: Revenue Fall
We considered a combination of forward-looking scenarios in which sales were adversely impacted
in all years of the assessment period. The reductions reflected the combined impact on the Group
of economic political instability on global Industrial Production output, material foreign exchange
rate fluctuations and a loss of manufacturing output at a significant Group manufacturing site.
We assumed a reduction of 17% in sales and no mitigating actions were assumed to have been
taken by the Group.
Despite these impacts the Group continued to trade profitably and remained comfortably within the
financial covenants contained within our external financing facilities at all times.
Risk 1: Economic and political instability
Risk 2: Significant exchange rate movement
Risk 4: Loss of manufacturing output at any Group factory
Risk 7: Inability to identify or respond to changes in
customer needs
Risk 8: Loss of critical supplier
Scenario 2: Exceptional Charge
We considered the impact of a potential large, one-off expense as could be required in the case of
a legal or regulatory fine or a compensation payment. An expense equivalent to 10% of the 2021
adjusted Group operating profit was assumed alongside a negative impact of 10% on sales resulting
from the associated reputational damage.
Despite these impacts the Group continued to trade profitably and remained comfortably within the
financial covenants contained within our external financing facilities at all times.
Risk 6: Breach of legal and regulatory requirements
(including ABC laws)
Scenario 3: Cyber Attack
We considered the occurrence of a cyber attack that succeeds in severely impacting Group systems.
We assumed an immediate disruption to trading, followed by a fall in sales in subsequent years
resulting from the associated negative reputational impact; the combined effect being a loss of 5% of
sales in each year over the period. A significant initial cost was also included to rectify the immediate
impact of the attack followed by increased investment in all subsequent years to strengthen
our cybersecurity.
Despite these impacts the Group continued to trade profitably and remained comfortably within the
financial covenants contained within our external financing facilities at all times.
Risk 3: Cybersecurity
Scenario 4: Acquisition Failure
We considered a scenario whereby a large acquisition has failed to achieve the acquisition business
case. We assumed a 20% shortfall in sales in the acquired business and disposal for a lower cash
consideration than the original consideration.
Despite these impacts the Group continued to trade profitably and remained comfortably within the
financial covenants contained within our external financing facilities at all times.
Risk 5: Failure to realise acquisition objectives
An additional scenario was modelled to
ascertain what level of revenue or adjusted
operating profit margin reduction would be
required to cause a breach of the Group’s
banking covenants. The reductions in
revenue and adjusted operating profit margin
were significantly higher than those shown in
the above scenarios.
While linked to the Group’s principal risks,
the scenarios detailed above are hypothetical
and designed to test the ability of the
Group to withstand such severe outcomes.
In practice, the Group has an established
series of risk control measures in place that
are designed to both prevent and mitigate
the impact of any such occurrences from
taking place. The results of the stress
testing undertaken showed that the Group
would be able to absorb the impact of the
scenarios considered should they occur
within the assessment time period. In all of
the scenarios considered the Group was
not required to implement any mitigating
actions in relation to reductions in forecast
expenditure in order to remain within its
banking covenants.
Viability statement
Based on the outcomes of the scenarios
and considering the Group’s financial
position, strategic plans and principal risks,
the Directors have a reasonable expectation
that the Group will be able to continue in
operation and meet its liabilities as they fall
due over the period of their assessment.
The Directors’ statement regarding the
adoption of the going concern basis for the
preparation of the financial statements can
be found on page 165.
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 2021 we
launched our One Planet strategy covered in
more detail on page 47. We believe that the
focus on climate change will drive a positive
impact for the business and our customers.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202144
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,
wewill look to reduce our financial leverage
prior to considering new returns of capital
to shareholders.
Audit Tender
Deloitte was appointed as the Group’s
external auditor in 2014, with the year ended
31st December 2014 being the first year
Deloitte provided an audit opinion on the
Group’s Financial Statements.
In line with the Statutory Auditors and
Third Country Auditors Regulations 2016,
the Group is required to conduct a tender
process for the external audit at least every
10 years. A tender process is therefore
required to take place by 2023.
Due to a number of potential regulatory
changes, primarily resulting from the
proposals contained within the Department
for Business, Energy and Industrial Strategy
(BEIS) ‘White Paper’: Restoring trust in
audit and corporate governance, issued
during 2021, the Group will be conducting
an external audit tender process one
year early during 2022 in order to ensure
continuity of external auditor during the likely
multi-year period of implementation. It is
currently expected that the tender process
will take place in the first half of 2022 with
the expectation that the selected auditor will
be in place to review the Half Year results
for the period ending 30th June 2023.
Resolutions will be proposed at the 2023
AGM to appoint the proposed auditor.
Spirax-Sarco Engineering plc Annual Report 2021 45
Strategic Report
Sustainability report
One Planet:
Engineering
with Purpose
Spirax-Sarco Engineering plc Annual Report 202146
Strategic Report
Our One Planet
strategy is our commitment
to sustainability and our
roadmap for building a more
sustainable future. It will
guide our operations as we
work with stakeholders
to leave a better world
for tomorrow.
“Building on our responsible
business foundations, One Planet
will accelerate our sustainability
performance as we work with
our customers, suppliers and
communities to drive meaningful
and positive change.”
Sarah Peers
Group Head of Sustainability
Operating sustainably is not only the right
thing to do, it also makes good business
sense for us and our customers. Our products
and engineered solutions create sustainable
value for our customers by reducing their
environmental impacts and enabling them to
operate more efficiently and safely.
This in turn creates sustainable value for
our shareholders, enables us to manage
risk and puts us on a path to leadership in
industrial sustainability.
We have always been focused on
sustainability. However, since our first
Sustainability strategy was launched in
2015, we have changed and grown as an
organisation and the business landscape has
changed rapidly, particularly with regards to
sustainability. In order to continue to deliver
impactful and meaningful change, and to
tackle the environmental challenges being
faced, this year we launched our refreshed
Sustainability strategy – One Planet:
Engineering with Purpose.
The strategy is implemented at a Business
level, with central oversight from the Group
Executive Committee, for more information
please see page 51.
Our strategy
One Planet outlines our commitment to
becoming a global leader in industrial
sustainability by operating responsibly
and leveraging our expertise and influence
to deliver solutions that address global
sustainability challenges. In developing
One Planet, we were informed by the
Group Materiality Matrix completed in
2020, which can be found on our website
www.spiraxsarcoengineering.com/
sustainability/one-planet
The strategy will be delivered through six
strategic initiatives, which are:
zero
1. Net zero carbon
Achieve net zero greenhouse
gas emissions
2. Biodiversity net gain
Deliver biodiversity net gain
3. Environment improvements
Implement environmental
improvements in our operations
4. Sustainable products
Grow sales of products with
quantified sustainability benefits
5. Supply chain sustainability
Embed sustainability criteria in
supply chain management
6. Community wellbeing
Support the wellbeing of people in
our communities
Additionally, the strategy is supported by two
strategic projects that are critical to our ability
to deliver the strategy and assess progress:
1. Knowledge
Develop our employees’
sustainability knowledge
2. Data
Improve the availability and quality
of sustainability data
These initiatives and projects provide a
Group-wide framework for managing
sustainability, to achieve significant and rapid
improvements and to empower, align and
establish accountability for sustainability
across all of our Companies. With a strong
focus on our customers and the ways in
which our products and solutions can help
them achieve their sustainability targets,
we can deliver a better world for future
generations, because we only have
One Planet.
Watch our One Planet video:
www.spiraxsarcoengineering.com
Spirax-Sarco Engineering plc Annual Report 2021 47
Strategic Report
Safety is of the highest priority and is one
of our Company Values. This focus is
evident in the strong safety record we have
maintained for another year with zero work-
related fatalities among our colleagues or
contractors and the lowest rate of lost time
injuries since we began measuring. In 2021,
we continued to see the effects of the
pandemic globally and maintained our Group
COVID-19 minimum standards, enhancing
them in January and amending throughout
the year in line with safety measures and
global vaccination rollout. These measures
have enabled us to continue to operate
safely, without the need to shut down any
facilities due to an outbreak.
Health & Safety (H&S) continues to be
an important priority for the Group Chief
Executive, Board of Directors and Executive
management teams, with H&S being
a standing agenda item at every Board
meeting and Group Executive Committee
meeting. We have robust H&S management
systems across the Group and have
continued to improve our processes over
the year. At the time of publishing, 49 of
our Group Companies are certified to
ISO 45001, OHSAS 18001 or equivalent.
Certification to OHSAS 18001 has
decreased in line with our transition to
ISO 45001, therefore the total number of
certifications has reduced since 2020 when
there were a number of Group companies
with both certifications in place.
Progress
In 2021, we continued to invest in
technology to aid the tracking and prevention
of incidents. We implemented COMET,
a new root cause analysis software tool
and improved our process for identifying
root cause and implementing corrective
actions. Over 50 EHS Leaders attended a
five-day training course on the use of the
tool. We are now using the process and
tool for reviewing all serious accidents and
environmental incidents, looking at human
factors, barriers and change evaluation with
the aim of identifying root cause and robust
corrective actions to prevent reoccurrence.
We have also invested in a new Environment,
Health & Safety (EHS) platform. This replaces
the in-house system and enables
colleagues to raise concerns and to report
near misses and accidents as well as to
record Behavioural Based Safety (BBS)
observations. The system will also track
actions to reduce risk across the Group.
We continued to roll out training under
the BBS programme, which has been
successful, with a large increase in the
number of safety observations being raised.
Nearly 20,000 were raised across the
Group (2020: 7,586). We have commenced
phase one training of the BBS programme
within Electric Thermal Solutions (ETS) and
trained over 2,000 colleagues globally within
Watson-Marlow on phase one and two.
In January, we created a BBS roadmap
which has been implemented in Steam
Specialties and offers clear guidance for
the General Managers, Divisional Directors,
Supply and Sales Companies and for
central functions. This ensures that at-risk
behaviours are captured and our colleagues
are engaged and having conversations
with their peer groups. With the continued
focus on training, recording of near misses,
colleague concerns and tracking actions
through to implementation, we have seen
a drop in one to three-day lost time injuries
per 1,000 employees. Lost time injuries are
now at their lowest rate since we began
measuring, with rates of 1.2 one to three-day
injuries (2020: 1.3) and 0.6 over three-day
injuries (2020: 2.9) per 1,000 employees
in 2021. The Group achieved five months
across the year without any lost time injuries.
The number of safety concerns raised by
our colleagues increased to 3,582 per 1,000
employees demonstrating an increasingly
robust BBS culture (2020: 3,325) and near
misses reported decreased to 343 per 1,000
employees (2020: 370).
Health and Safety
Responsible business foundations
Sustainability report continued
2021
2
020
2
019
2
018
2
017
0.6
2.9
3.6
4.6
4.9*
Over three-day lost time injury rate per
1,000 employees
2021
2
020
2
019
2
018
2
017
1.2
1.3
1.4
1.7
2.2*
One to three-day lost time injury rate per
1,000 employees
2021
2
020
2
019
2
018
2
017
343
370
298
89
195
Near misses per 1,000 employees
2021
2
020
2
019
2
018
2
017
3,582
3,325
2,291
868
1,954
Health and Safety concerns raised
per 1,000 employees
* 2018 rate increased due to the full-year effect of
the Chromalox acquisition
* 2018 rate increased due to the full-year effect of
the Chromalox acquisition
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202148
Notable Achievements
During 2021, we had a number of notable
achievements across the Group. In the
Steam Specialties Business, Spirax Sarco
Limited, in the UK, received a Royal Society
for the Prevention of Accidents (RoSPA)
Gold Award, for the fourth year running,
demonstrating our commitment to a high
standard safety culture. A safety theme
competition was run within the Business,
focusing on hand safety, COVID-19 controls
and burn and scald risks and a number of
initiatives were undertaken to engage our
colleagues and their families.
Our Spirax Sarco Mexico manufacturing
facility achieved over five years without a lost
time accident and Electric Thermal Solutions
(ETS) continued to build upon the H&S
culture, investing in new safer equipment
as well as commencing phase one of the
BBS programme rollout. More additional
leading indicators were raised and corrective
actions implemented.
BioPure, part of Watson-Marlow,
commissioned the construction of a new
factory within the UK. Over 330 inductions
were given to contractors and as a result
of tightly controlled safety programmes,
therewere zero lost time accidents reported.
Focus for 2022
• Fully deploy of the new EHS
platform across the Group
• Fully implement BBS phase two
and three within Watson-Marlow
and deploy the BBS roadmap
• Fully implement the BBS phase
one, two and three programme
within Electric Thermal Solutions
and commence observations
• Complete the H&S framework and
undertake baseline audits
Colleague wellbeing
Our Company Value of Safety not only
encompasses physical safety, but also
the overall wellbeing of our colleagues.
Our global Employee Assistance Programme
(EAP), which benefits our colleagues and
their dependants, remains in place and we
have given more focus to mental wellbeing
this year. Launched in April 2020, the EAP
is available to all colleagues and their family
members and is available in all of the Group’s
local languages. Anecdotal feedback has
been positive. Usage is currently on or under
external benchmarks in different regions.
To encourage usage, we plan to further
promote the resource and improve usage
monitoring, while maintaining absolute
confidentiality for users of the EAP.
In February, we undertook a colleague
wellbeing check-in via a quick online
survey. We wanted to understand how our
colleagues were feeling during the ongoing
COVID-19 restrictions, so we could offer
support with particular challenges.
The feedback resulted in the launch of a
wellbeing toolkit which was distributed
globally in multiple languages. The toolkit
offers practical tips and resources on topics
such as loneliness, digital balance and
managing stress.
Focus for 2022
• Develop a wider range of
channels to support more
effective communications,
including for colleagues working in
manufacturing locations
• Implement planned actions
following the results of our biennial
global engagement survey
• All colleagues to have an additional
‘wellbeing day’
People and Wellbeing
Our Values of Safety, Excellence, Customer
Focus, Integrity, Collaboration and Respect
are the guiding principles that we use across
the Group to underpin decision-making,
guide our conduct and define our culture.
These Values underpin our HR policies
and employment practices as part of our
commitment to creating a culture in which
our colleagues feel included and safe to
challenge. We have robust HR policies and
systems that support us in protecting the
rights of our colleagues and ensure their fair
and equitable treatment.
Progress
In April, we ran our biennial global employee
engagement survey. The survey was
available for a three-week period and was
offered online and via paper to ensure
access for all of our colleagues. We were
delighted to achieve a 91% participation rate
and to see an increase in overall engagement
since our 2019 survey.
We consider the survey just the beginning
of a conversation with our colleagues.
The themes raised have been further
explored through a number of locally-led
focus groups and action plans have been set
at both a local and Group-wide level, in order
to address and also celebrate the feedback.
As a result of positive colleague feedback
on the increased levels of communication
during the COVID-19 pandemic, as well
as feedback from the survey, we have
established a Group Communications
function with a significant focus on improving
internal communications to ensure our
globally diverse colleagues have equal and
timely access to information and are able to
give their feedback. This will be instrumental
in ensuring we communicate the Group
actions taken following the survey, which will
be focused on explaining the purpose of our
initiatives more comprehensively, embedding
our Inclusion Plan, offering opportunity
for personal growth and increasing our
community engagement activities.
Spirax-Sarco Engineering plc Annual Report 2021 49
Strategic Report
Focus for 2022
• Inclusion Plan launch and
commitments to be embedded
across our global organisation
• Gender targets to be set for
graduate and commercial roles and
targets on ethnicity to be explored
Gender – Board of Directors*
Male
Female
60%
40%
Male – 6
Female – 4
Inclusion and Diversity
In 2021, we developed our first global
Inclusion Plan ‘Everyone is Included’ based
on a wide range of external research and
engagement across our Group. Our Plan
sets out how we will continue to create
a truly inclusive and equitable working
culture where all of our colleagues can be
themselves and achieve their full potential.
We believe this is the right thing to do for
our people and that it is vital to fulfilling our
Group Purpose. A focus on inclusion, equity
and wellbeing empowers high performance,
attracts great talent and ensures we remain a
responsible employer and solutions provider.
Our Inclusion Plan became effective on 1st
February 2022. It has four priorities:
• Inclusive leadership
• Inclusive behaviours
• Inclusive processes
• Inclusive partnerships
As part of the Inclusion Plan, we developed
and launched a set of ‘Group Inclusion
Commitments’. These commitments are
minimum standards, partnerships and
pledges on key inclusion topics that will help
make a tangible difference for our colleagues
at work and home as well as supporting our
ongoing inclusion journey. They cover topics
as diverse as gender-neutral parental leave,
caregivers’ leave, support on pregnancy loss,
menopause-friendly workplaces, LGBTQ+
inclusion, hybrid working, support on
domestic violence and abuse and more.
Our focus on inclusion, equity and wellbeing
remains a priority for our global organisation.
It supports the UN Sustainable Development
Goals and forms part of the responsible
business foundations that underpin our One
Planet Sustainability strategy.
Our Diversity and Inclusion Policy outlines,
amongst other things, a commitment to
provide equality, fairness and respect for
allcolleagues, regardless of background;
tooppose all forms of unlawful discrimination
and a commitment 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.
Progress
In 2021, we contributed to the FTSE Women
Leaders: Hampton-Alexander Review.
We have appointed and promoted a number
of women to leadership roles within our
organisation. At the end of the year, 33% of
the Executive Committee and their Direct
Reports were female, an increase from 27%
last year.
We continue to report on gender pay gap in
the UK and our starting salaries are regularly
analysed by our regional teams, using an
in-house modelling system, to ensure parity
at the time of hire.
We have launched three more colleague
networks to join our already successful
Women’s Career & Personal Development
Network, which include our Working
Families Forum, the Disability Network in
Watson-Marlow and the LGBTQ+ and
friends network that currently resides
within the EMEA division of our Steam
Specialties Business. These networks offer
a place for peer-to-peer support across our
global locations.
Our Employee Value Proposition, initially
launched in 2020, has been used to further
engage colleagues through a number of
global colleague interactions and learning
sessions with leadership teams across the
Business. The Employee Value Proposition
is now a cornerstone of our recruitment
process. During 2021, we continued to
invest in our Female Executive Mentoring
Programme and celebrated a number of
events such as International Women’s Day,
International Women in Engineering Day,
Pride, International Men’s Day and Black
History Month to acknowledge the diversity
of our organisation and the communities in
which we operate.
Responsible business foundations
Sustainability report continued
Gender – Senior Managers*
Male
Female
67%
33%
Male – 33
Female – 16
Gender – Total Workforce*
Male
Female
76%
24%
Male – 6,548
Female – 2,123
* At 31st December 2021
** Definition of senior managers updated to align with
Hampton-Alexander Review in 2021
Watch our Everyone
is Included video:
www.spiraxsarcoengineering.com
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202150
Our strong Company Values and robust
Group Policies instil a culture of ethical
behaviour and provide a framework under
which we operate to ensure that these high
expectations are met by our colleagues in all
parts of our global operations.
Progress
All colleagues with an email address are
required to complete our Group Essentials
training programme when joining the
Company and annually thereafter. Some of
the topics covered include Anti-Bribery
and Corruption (ABC), Health & Safety at
work and Our Values, which are mandatory
for around 7,000 colleagues. In 2021
we created a new training course as an
introduction to sustainability principles, as
part of strategic project one of One Planet.
We are in the process of rolling out the
Group Essentials programme to warehouse-
based colleagues. By the end of the year
this had been completed in the UK, France,
Argentina, Brazil and Italy, equating to 459
additional users. In total 6,412 colleagues
had completed ABC training by the end of
the year and 5,848 completed Corporate
Criminal Offence training.
Sustainability
In November, we began the rollout of
our new Group Essentials Sustainability
course to all colleagues who complete their
training in English and we are in the process
of translating it into another 16 Group
languages. This training aims to build our
colleagues’ understanding of sustainability to
enable them to contribute more meaningfully
to our sustainability objectives, as well as
prepare them for a global economy that
will increasingly value and demand this
knowledge. By the end of the year 1,978
of our colleagues had completed this
essential training.
Whistle-blowing
Any colleague with a concern about
potentially unethical behaviour is able to raise
it confidentially through a local, independent
third-party whistle-blowing hotline, hosted
by Safecall. In 2021, 23 cases were raised
globally via this hotline, an increase from
2020, which shows that our colleagues
are both aware of the hotline and finding it
helpful for reporting purposes. All calls were
investigated by senior management and
action taken if necessary, with summaries
of calls and related actions reviewed by the
Audit Committee and the Board.
Governance
The One Planet strategy has central
strategic oversight and sponsorship by the
Group Executive Committee and day-to-
day oversight by the Group Sustainability
Management Committee (GSMC).
Implementation is supported at a Group
level through the six strategic initiatives and
two strategic projects, which each have an
Executive sponsor, an initiative lead, and a
cross-business working group. The GSMC
meets regularly to discuss the initiatives and
support each other where required and in
turn informs the Group Executive Committee
on their progress. The Group Chief
Executive is the overall Executive sponsor for
the strategy.
Responsibility for implementing the strategy
sits at a Business level, with the strategy
embedded into the core Business strategies
of Steam Specialties, Electric Thermal
Solutions and Watson-Marlow.
Each Business and Operating Company
is responsible for implementing the One
Ethical Business
Planet strategy through their own Business
strategy; ensuring that all colleagues have
the opportunity to get involved; meeting
and, where possible, exceeding minimum
expectations; delivering timely and accurate
data and collaborating to share learning
across the Group.
The Board received an update at every
Board meeting and the Group Executive
Committee received monthly updates on
progress during 2021, as well as holding
quarterly Steering Committee meetings
following the launch of the strategy, to
receive reports on performance and review
progress against the strategic initiatives
and targets.
This combination of Board and Executive
Committee oversight, ensures that the
One Planet strategy is a key focus area for
the Group.
Focus for 2022
• Continue the rollout of the
Group Essentials Sustainability
course to be available in all 17
Group languages
• Increase availability of all Group
Essentials training to warehouse-
based colleagues globally
Spirax-Sarco Engineering plc Annual Report 2021 51
Strategic Report
Engineering
Our journey to a more inclusive culture
Strategic Report
Shaping
our culture
Doing the right thing for our people. Valuing
difference as a strength. Empowering our
colleagues to be their best. Creating opportunity
for positive change.
These are the four foundations on which we’ve
built our Group Inclusion Plan, because they
matter to our colleagues. We are bringing
this plan to life through a focus on inclusive
leadership, inclusive behaviours, inclusive
processes and inclusive partnerships – and
by living our Values every day. As part of this,
we’ve introduced ten new Group Inclusion
Commitments. They are our way of supporting
our colleagues through life’s challenges
and ensuring everyone is included wherever
wework.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202152
with Purpose
Including
everyone
Across our Group, our goal is to create a truly
inclusive and equitable working environment
where ALL of our colleagues can be themselves
and achieve their full potential.
Our culture is one where everyone feels safe,
supported and able to bring their whole selves
to work. It’s shaped by our leaders, who
bring diverse perspectives and are confident,
authentic, active champions of inclusion. Our
culture promotes fair and equitable treatment
for all, as well as positive wellbeing and mental
health. We collaborate with partners who help
us to drive positive change at work, at home
and in our local communities. In our culture
Everyone is Included.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 2021
53
Strategic Report
zero
Net zero carbon
We previously committed to achieving
net zero by 2040, however, during the
development of our One Planet strategy we
recognised that more stretching targets are
needed to limit the existential threats arising
from climate change. We assessed the
technological and management challenges
to credibly decarbonise and determined
it is possible to credibly achieve net zero
emissions for scopes 1 and 2 by 2030. As a
result, we have brought forward our net
zero target by a decade. In 2021, we also
signed up to the Science Based Targets
Initiative (SBTi) ‘Business Ambition for 1.5°C’
and, in addition to our 2030 net zero target
(scopes 1 and 2), committed to an even
more ambitious target to achieve net zero for
scopes 1, 2 and 3 emissions by 2050.
In 2021, we commenced a scope 3
emissions assessment using third-party
consultants to define the scope, boundary
and a calculation methodology specific to our
value chain. We are also making progress in
measuring each category of emissions using
the International Greenhouse Gas (GHG)
Protocol guidance. In 2022, our assessment
should be completed, which will allow us to
subsequently develop scope 3 emissions
reductions targets, aligned with science and
– into 2023 – complete our application to
SBTi, in support of our Business Ambition for
1.5°C commitment. To further support our
value chain emissions plan we are recruiting
additional resources and skills to enable the
delivery of our 2050 targets.
2025 Targets
• 50% reduction in scope 1 and 2 GHG
emissions (compared to 2019)
• 80% of electricity sourced or self-
generated from renewable sources
• 30% reduction in Group energy use from
plant, equipment and building assets
(compared to 2019)
• 60% of our vehicle fleet to be electric and
a 15% reduction in travel energy (scope 1)
2030 Targets
• Achieve net zero GHG emissions from our
operations (scopes 1 and 2)
• 100% of electricity sourced or self-
generated from renewable sources
• 100% of our vehicle fleet to be electric
• Scope 3 milestones to be established
once data has been collected and
methodology for measurement determined
Progress
Our roadmap for our scope 1 and 2 net
zero transition will focus on four areas of
our operations where the most difference
can be made to our carbon footprint. 1)
We will increase efficiency in our production
processes, inorder to reduce energy use
from our internal operations; 2) wewill
utilise new technologies developed in
Electric Thermal Solutions (ETS) in order
to decarbonise our systems; 3) we will
convert our vehicle fleet to electric vehicles
where practically possible; and 4) we will
transition our electricity supplies to certified
green contracts to remove the greenhouse
gas emissions associated with purchased
electricity. After we have made these
changes, wewill offset remaining emissions
by credible means. It is currently expected
that we will need to offset less than 10% of
emissions against our baseline year (2019).
With the launch of our One Planet strategy
and the new targets that have been
established, we are restating our previously
reported figures for 2019 and 2020.
Previous figures included a small number
of estimates, due to the availability of billed
data at the time of reporting. Our new
baseline and restated 2020 figures are
based on actual data and therefore have a
higher level of accuracy. In May 2019, we
acquired Thermocoax and its subsidiaries.
Previously, Thermocoax’s energy and carbon
emissions were only included in our 2020
data, in line with our reporting methodology,
as this was the first full year in the Group
for the Business. However, to ensure a
representative baseline, we have included
a full year of Themocoax’s energy use and
emissions in our restated 2019 figures.
During 2021, we made good progress with
transitioning our electricity supplies to green
contracts, with over 30% of our electricity
now sourced from certified renewable energy
generation. Much of this progress has been
made within our European operations where
electricity from renewable sources is widely
available. For the next phase of our green
energy transition we will focus on our larger
manufacturing facilities in the Americas and
Asia. We’re focusing on forming long-term
relationships with suppliers and supporting
an increase in the global renewable energy
industry from both on and off-site generation.
In 2021, at a Group level, we invested in
third-party energy efficiency audits at five
of our larger manufacturing sites across
Europe, the Americas and Asia Pacific (2020:
zero). Through commissioning these audits,
we have gained a deeper understanding
of fuel use and developed roadmaps to
reduce energy use from the most carbon
intensive plant and equipment. In 2022, we
will assess all of our manufacturing plants
to ensure best practice energy reduction
initiatives are integrated within the investment
planning cycle.
Sustainability report continued
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202154
Greenhouse gas (GHG)
emissions performance
The carbon footprint was verified by TÜV
NORD CERT GmbH in accordance with
DIN EN ISO 14064-3:2020 regarding its
correctness and completeness for Spirax-
Sarco Engineering plc, providing limited
assurance as follows:
“Acting as an independent Certification
Body TÜV NORD CERT GmbH has verified
the carbon footprint, scope 1 and scope 2
(Location based) of the organisation for the
reporting period 01.01.2021 - 31.12.2021
(inclusive) to be 39,893 tonnes CO
2
e.
The level of assurance is limited. The carbon
footprint covers direct and indirect emissions.
The calculation of the carbon footprint
comprises emissions arising from scope 1:
Stationary and Mobile Combustion, Fugitive
Emissions; scope 2: Electricity purchased
(location and market based); scope 3:
Well to Tank (WTT) and Transmission and
Distribution (T&D).
On the basis of the verification, there is no
evidence that the greenhouse gas statement
is not materially correct and is not a fair
representation of greenhouse data and
information. Furthermore, no facts have
become known that lead to the assumption
that the greenhouse gas statement has not
been prepared in accordance with the ISO
14064-1 and the GHG Protocol standard.
TÜV NORD CERT GmbH, February 2022.”
In 2021, on a location-basis, absolute Group
CO
2
e emissions increased by 4% vs 2020,
although they were 9% lower than our
baseline of 2019. This increase in 2021 was
due to an increase in production, as well as
a bounce-back effect due to recovery from
the pandemic. At 29.7 tonnes per million
pounds of inflation adjusted sales at constant
currency, on an intensity basis, our Group
emissions fell by 7% compared with the prior
year and were 17% lower than 2019, our new
baseline year. This absolute fall compared to
our baseline and fall in intensity is due in part
to a drop in transport emissions and a higher
proportion of electricity use as a proportion of
the total energy use. Some of the decrease
is also due to efforts across the Group to
increase operational efficiency, helped by the
new focus from One Planet but we expect
this to have a larger affect in future years as
the improvements are embedded across
the Group.
On a location basis, the UK accounted for
27% of our GHG emissions in 2021, with
10,795 tonnes being generated in total and
an intensity of 34 tonnes per million pounds
of inflation adjusted UK sales at constant
currency. These emissions are comprised of
7,833 tonnes of scope 1 and 2,962 tonnes
of scope 2 calculated using location-based
emission factors. Our emissions in the UK
increased by 8% compared to 2020 due to
the reasons outlined above for the Group as
a whole.
2021
2
020
2
019
39,893
38,319
44,022
Scope 1 Scope 2
21,781
18,112
20,182
18,13 6
24,018
20,004
2021
2
020
2
019
38,699
40,031
46,233
Scope 1 Scope 2
21,781
16,918
20,182
19,849
24,018
22,215
Group GHG emissions (scope 1 and 2)
tonnes CO
2
e (location-based)
Group GHG emissions (scope 1 and 2)
tonnes CO
2
e (market-based)
2021
2
020
2
019
10,795
10,040
10,598
Scope 1 Scope 2
7,833
2,962
7,4 26
2,614
7,9 6 9
2,630
UK GHG emissions (scope 1 and 2 )
tonnes CO
2
e (location-based)
2021
2
020
2
019
29.7
31.9
35.8
Group GHG intensity tonnes CO
2
e per
£m of inflation adjusted sales at constant
currency (location-based)
2021
2
020
2
019
34.0
3 8 .1
38.3
UK GHG intensity tonnes CO
2
e per £m of
inflation adjusted sales at constant currency
(location-based)*
GHG emissions performance:
market-based
For the first time, we are disclosing a
figure for our market-based scope 2
emissions. This means that our emissions
are calculated using supplier-specific
emission factors where available and allows
us to take into account contracts that we
have purposefully entered into in order to
switch supply to green electricity sources.
Using market-based factors means that
we can disclose our impact in a way that is
more representative of the choices we make
as a Company and the true impact that our
operations have.
Using market-based emissions factors,
our Group scope 2 emissions were 16,918
tonnes in 2021. This is 1,194 tonnes lower
than our reported location-based figure,
reflecting a benefit from the green energy
contracts entered during the year. Many of
our green energy contracts did not come into
force until the second half of 2021, meaning
that we have not yet seen the full impact
of these contracts on our total emissions.
The full-year impact of these contracts, as
well as any additional contracts entered, will
further drive down our emissions in 2022.
Combining our scope 1 emissions with our
market-based scope 2 emissions, we had
total emissions of 38,699 tonnes in 2021, a
16% reduction on an absolute basis and a
23% reduction on an intensity basis against
our 2019 market-based baseline.
Scope 3 emissions
Throughout 2021, we used a third-party to
help us develop our scope 3 data and are
now confident to report a partial scope 3
disclosure. In 2022, we will continue to refine
our currently unreported categories and it
is our intention to report our full scope 3
emissions as soon as we have confidence in
the accuracy of the data.
For the purpose of this report, we are
including emissions relating to well-to-tank
and transmission and distribution losses,
which have been verified by TÜV NORD
CERT GmbH to a limited level of assurance.
Emission reduction initiatives
Our Steam Specialties manufacturing and
R&D site in Cheltenham is the Group’s
largest consumer of fossil fuels, producing
nearly 7,000 tonnes CO
2
e per annum,
or 30% of the Group’s total scope 1
emissions in 2021. To reduce our carbon
emissions from this site, we are embarking
on a programme to decarbonise our steam
system within this facility by electrifying the
boilers and decommissioning the site’s
Group GHG emissions (partial scope 3)
tonnes CO
2
e (well-to-tank and transmission
and distribution)
10,927
2021
* From UK operations including inter-company sales, to reflect the fact that we manufacture in the UK for sale
overseas into global markets
Spirax-Sarco Engineering plc Annual Report 2021
55
Strategic Report
Sustainability report continued
Combined Heat and Power Plant, thus
removing dependence on natural gas.
By using the Medium Voltage electrification
technology we have within our Electric
Thermal Solutions Business we will be
able to convert our fossil fuel boilers to
electricity with minimum disruption. In 2021,
we completed a proposal and achieved
approval from the Board of Directors for
a multi-million pound investment for this
critical decarbonisation project. Work is due
to begin in the first quarter of 2022, with
planned completion due for the end of 2023.
We expect this significant investment to cut
our Group CO
2
emissions by over 15%, as
well as significantly improving site energy
efficiency, reducing steam loss, water and
chemical treatments needed.
Energy performance
In 2021, total Group energy use increased
by 9% against 2020 to 163,474MWh,
butdecreased by 2% on an intensity
basis to 121.6MWh per million pounds of
inflation-adjusted sales at constant currency.
Absolute Group energy use increased
due to a rebound in production during the
pandemic, while intensity decreased in part
due to energy reduction initiatives, some of
which are detailed below.
Energy use in the UK accounted for
34% of the Group’s total usage in 2021,
at 54,996MWh and increased by 13%
compared with 2020. On an intensity basis,
UK energy use decreased 6% year-on-year,
to 173.2MWh per million pounds of inflation
adjusted UK sales at constant currency.
2021
2
020
2
019
163,474
149,811
169,407
2021
2
020
2
019
121.6
124.6
13 7.7
Group energy consumption MWh
2021
2
020
2
019
54,996
48,695
50,617
UK energy consumption MWh
Group energy intensity MWh per £m of
inflation-adjusted sales at constant currency
2021
2
020
2
019
173.2
184.9
183. 2
UK energy intensity MWh per £m of
inflation-adjusted sales at constant currency*
Energy Management
We undertook a range of energy
management activities in 2021. For example,
Chromalox Ogden is one of the largest
consumers of energy in ETS. Investments in
the facility included upgrading interior lighting
to LEDs with occupancy sensors and smart
technology. Smart technology was also
added to control cooling in the offices to align
with normal working hours. Future energy
reduction opportunities were identified, such
as upgrading ventilation units, developing
methods to capture and reuse process heat
and to reduce fossil fuel use. Activities in
2021 built on those reported in 2020 in
Argentina, France and the UK.
Scenario Analysis
Having completed a high-level scenario
analysis in 2020, we wanted to build on
this by assessing the risk of climate change
in more detail in the individual Businesses.
In Steam Specialties, we commissioned
a third-party to produce a climate risk
resilience report for all global manufacturing
sites. Information was provided on physical
risks related to flooding, storms, wildfires,
sea level rise and water stress and how
these risks may develop over time due to
climate change, enabling the Business to
be forward-thinking in mitigating any future
risks. We have aligned our reporting with
the recommendations of the Task Force
on Climate-related Financial Disclosure
and, in addition, we have provided more
comprehensive disclosures in our annual
submission to CDP, for which we received an
A- score (Leadership band) in 2021.
Focus for 2022
• All manufacturing sites to complete
net zero roadmaps, based on a
GHG reduction priority hierarchy
• Commence the transition to electric
vehicles with the launch of a UK-
wide leasing contract
• Quantify scope 3 emissions and
commence development of
science-based reduction targets
Alignment with
UN SDGs
Methodology statement
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 all
entities we have measured and reported on
our relevant scope 1, scope 2 and partial
scope 3 emissions.
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, 2020 and 2021, data from
The International Energy Agency 2019, 2020
and 2021, ISO 140064-1, and regionally
specific Environmental Reporting Guidelines
to calculate our total CO
2
e emissions figures
on a location-basis.
To report under the market-based method
we have used the GHG Protocol data
hierarchy, striving for the highest precision
possible. For sites with green energy
contracts, we have obtained emissions
factors for the relevant tariff and/or supplier
in the first instance, using the residual mix
where supplier-specific emissions factors
(SSEFs) are not available. For sites without
green energy contracts, we follow the
data hierarchy and apply location-based
factors only where SSEFs or residual mix
are not available. When entering new green
contracts, we apply SSEFs (where available)
from the start of the year and do not restate
prior years with SSEFs. No certified green
energy contracts are included in our market-
based figures for 2019 or 2020.
Net zero carbon
* From UK operations including inter-company sales, to reflect the fact that we manufacture in the UK for sale
overseas into global markets
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202156
Task Force on Climate-related Financial Disclosures (TCFD)
Governance
Describe the Board’s oversight of
climate-related risks and opportunities
• Our Risk Management Committee, a principal committee of the Board, oversees the management of our climate-
related risks and opportunities. During 2021, day-to-day management of the Group’s climate change mitigation
activities was overseen by the Group Executive Committee and the Group Sustainability Management Committee,
utilising the management structure outlined on page 51.
Describe management’s role in
assessing and managing climate
relatedrisks and opportunities
• The Board has collective responsibility for managing climate-related risks and opportunities. In particular, Maurizio
Preziosa, Managing Director, Steam Specialties and Andy Robson, Group General Counsel and Company Secretary,
had specific delegated responsibility for overseeing climate related risks, mitigation activities and performance in 2021.
None of the below risks have been identified as a principal risk at the year end, please see principal risks on page 86.
Strategy
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 some sales
could be at risk in the Steam Specialties Business for applications where steam or electric heating solutions are
equally viable, there is an opportunity for Electric Thermal Solutions and new technology arising from the Thermal
Synergies project to decarbonise steam systems.
• Medium-term (5-10 years): growth in electric vehicles could cause a decline in the oil and gas industry,
particularly refinery demand, but could present an opportunity for sales growth into the vehicle battery industry.
• 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 but potentially increasing opportunities
for retrofit solutions from ETS.
• Increasing frequency of climate related extreme weather events.
Describe the impact of climate-
related risks and opportunities on the
organisation’s businesses, strategy
and financial planning
• 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 have launched our
refreshed One Planet Sustainability strategy that is informing our Business strategies and advancing 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. During 2021, we established a new
sustainability planning process, including financial planning for net zero investments within the Group.
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C
or lower scenario
• With customers in almost all industries worldwide and across 134 countries, steam remains the world’s most
efficient heat transfer medium with multiple onsite applications including the production of foods, beverages
and medicines, the generation of power and the treatment of water and wastewater. Our steam solutions are
complemented by our ETS product and service offering. We thus have a highly resilient business that will remain
relevant across different climate-related scenarios. Building on the high-level Group-wide scenario analysis that
was completed in 2020 including a 2°C or lower scenario, in 2021 Steam Specialties engaged a third-party to
complete a more detailed climate risk resilience report for the manufacturing sites. Desktop assessments were
completed for each site analysing how these sites might be affected by physical risks due to the changing climate
in the future. These reports gave us comfort that our organisation is resilient to physical risks, however it did result
in the identification of two manufacturing sites for a more detailed physical site risk assessment on-site in 2022.
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. In 2021, the risk register was updated to include detail of risk management
process in each Business strategy, with focus on opportunities identified for each Business.
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
• We report various consumption and intensity metrics relating to energy, CO
2
e, waste and water in our
Sustainability Report, as well as customer carbon, energy and water saving metrics. Please see pages 54 to 56
and63 to 65.
Disclose scope 1, scope 2, and, if
appropriate, scope 3 greenhouse gas
(GHG) emissions, and the related risks
• Streamlined Energy and Carbon Reporting (SECR) disclosures can be found on pages 54 to 56.
• Throughout 2021, we used a third-party to help us develop our scope 3 data and are now confident to report
a partial scope 3 disclosure. In 2022, we will continue to refine these data and it is our intention to report our full
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
• In 2021, we developed a range of targets aligned to our net zero roadmap. Within Strategic Initiative 4 we are
developing our ability to measure the environmental impacts of our products, with the intention of using this
information to set targets related to increasing sales of products that are shown to have quantifiable sustainability
benefits for our customers. Please see pages 54 to 56 and 63 to 65 for details of performance against targets.
Spirax-Sarco Engineering plc Annual Report 2021 57
Strategic Report
Engineering
Our journey to a more biodiverse world
We are doing all we can to leave a better world
for tomorrow. That’s why we’re committed to
creating a biodiversity net gain at all our new
facilities as well as offsetting the equivalent of
five times our operational footprint by 2025.
We’re working with teams around our Group
to support the creation of biodiverse habitats
at our workplaces and we’ve partnered with
the World Land Trust (WLT) to help us achieve
our offsetting goals. Our chosen project is in
Argentina, where we have approximately 200
colleagues. Through the ‘Buy an Acre’ project
we are providing a vital lifeline to a fragile
community of species found nowhere else
onEarth.
Offsetting
our land use
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202158
with Purpose
On the Somuncurá plateau in Argentinian
Patagonia, our support will help to protect
10.5km
2
of a new nature reserve. Our aim is
to protect this habitat from invasive species
and unsustainable land use. Our support
means fencing will be put in place in vulnerable
sections of the reserve to enable the delicate
ecosystem to recover. When we learnt of
Somuncurá and its unique biodiversity,
weknew WLT had found a special place.
Bypartnering with WLT we have the chance to
make a real difference in this remote corner of
Patagonia. It is our hope that a host of endemic
and threatened species will thrive once more
on the reserve. Species like the ElRincon-
stream Frog which features in the top 100
amphibians most at risk of extinction as
compiled by the Zoological Society of London.
Protecting
wildlife
habitats
Spirax-Sarco Engineering plc Annual Report 2021 59
Strategic Report
Offsetting our impact
Alfex Hose is part of our Watson-Marlow
Business. When the leading manufacturer
of PTFE lined flexible hose products
was designing its new 17,000m
2
UK
manufacturing site in Huddersfield’s Bradley
Business Park, the team paid just as much
attention to the external landscaping as they
did to the internal fit out.
Construction was completed in 2020,
which was before the Group published its
biodiversity offset and net gain commitments
within its One Planet: Engineering with
Purpose Sustainability strategy.
With their passion for creating a safe
haven for nature, the team at Aflex were
unknowingly setting a benchmark for
creating a truly biodiverse habitat around an
industrial manufacturing setting. Hundreds of
trees comprising multiple different species
were planted across the grounds, together
with hedges, shrubs, lawns, meadows
and wildflowers. The result has created a
wonderful green ‘belt’ around the perimeter
of the site which is a haven that is attracting
local wildlife and key pollinators.
Neil Hooper, who is the Managing Director
of the Alfex Hose business and oversaw
the biodiversity project together with his
team, said; “Aflex’s new facility is positioned
in the local community and surrounded by
ancient woodland used for leisure activities.
Working with local authorities we felt it
essential to minimise any ecological impact
throughout the development and to create
a safe environment where nature can thrive.
Our team have found our biodiversity project
extremely rewarding and we know our green
space is something we can continue to
nurture and improve upon moving forward.”
Sustainability report continued
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202160
Spirax-Sarco Engineering plc Annual Report 2021 61
Strategic Report
We are committed
to preserving biodiversity
to leave a better world
for tomorrow.
Sustainability report continued
Biodiversity net gain
Biodiversity is in decline, across the world.
Many experts believe we are in the midst of
a sixth mass extinction, with human factors
leading to a dramatic decline in biodiversity.
Changes in land use, such as deforestation,
intensive mono-culture and urbanisation,
direct exploitation such as hunting and
over-fishing, the impact of climate change,
pollution and introduction of invasive alien
species all contribute to biodiversity loss.
Business and industry can have significant
impacts on biodiversity, both directly and
indirectly, through use of land, natural
resources, depletion of natural materials
and the generation of emissions, discharges
and waste.
In 2020, the Group made public
commitments to identify and address any
harmful direct impacts our organisation has
on nature and biodiversity and to establish a
2030 biodiversity net gain target.
Having completed a biodiversity impact and
dependencies assessment in 2020, we have
now made more detailed commitments
to protect and restore biodiversity and
deliver a biodiversity net gain*. This means
that our Company will aim to have a net
positive impact on biodiversity and that
biodiversity will benefit overall as a result of
our direct operations.
Targets
• Deliver a biodiversity offset equivalent to
five times our global operational footprint
by 2025
• Deliver biodiversity net gain of +10% for all
new manufacturing sites and facilities
• Deliver at least one biodiversity
improvement per Operating Company, on
site or in the local community by 2025
• Manage our manufacturing operations
to minimise risks to biodiversity, ensuring
necessary controls are in place to
mitigate risk
Progress
With the launch of the One Planet strategy
in June we committed to deliver at least
a 100% offset of our global operational
footprint by 2025. During the second half of
the year we completed a project to calculate
our global operational footprint, which we
determined to be 517 acres. Based on this
figure we increased our target and have
committed to a 500% offset, equivalent to
our operating footprint each year up to 2025.
Following comprehensive due diligence,
thefirst investment in this offset was made in
2021, working in partnership with the World
Land Trust to help to create a new nature
reserve in Argentinian Patagonia, detailed on
page 59.
Additionally, we have developed and
published Biodiversity Guidance for onsite
and community initiatives, which has helped
inspire our colleagues, with many of our
Group Operating Companies committing to
carry out a biodiversity initiative in 2022.
As a Group, we are investing significantly
in infrastructure, with a number of major
development projects currently underway.
As part of these, we are formulating plans to
increase the biodiversity on site or in the local
community, in order to achieve at least a net
10% gain in biodiversity.
When we launched One Planet, we asked
our colleagues to pledge their support for
our new Sustainability strategy. Because of
this, in partnership with registered charity,
One Tree Planted, we funded the planting
of 7,996 trees across six vital tree planting
projects around the globe in Brazil, North
America, India, Kenya, Denmark and
Australia, as a ‘thank you’ to our colleagues
who committed to support our One
Planet strategy.
Focus for 2022
• Operating Companies to carry out
biodiversity initiatives globally
• Complete another 1x operational
footprint biodiversity offset through
charitable partnership with the WLT
• Implement biodiversity net gain
plans as part of our ongoing
major projects
Alignment with
UN SDGs
* Quantification of net gain will be focused on large development projects, where locally-specific net gain
methodologies will be applied, similar in approach to the UK’s DEFRA methodology.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202162
Environmental
improvements
Water is one of the most precious natural
resources. It is critical to all forms of life
globally and is acutely sensitive to changes in
global temperature. We have an obligation to
manage how we use it now for the future.
Waste is generated by every person and
company around the world and, if managed
poorly, has the potential to cause irreversible
pollution to air, water and land. We can
control how much waste we generate in our
facilities and how we dispose of our waste.
Some of the common chemicals used in our
manufacturing process, such as in paint,
have the potential to cause harm to our
environment. We have an obligation to look
at these chemicals and do what’s right by
eliminating them from our process, finding
greener alternatives where we can and
carefully managing them to ensure they don’t
become a source of environmental pollution
where we can’t.
Managing our organisation to ensure
environmental compliance and conformance
is a critical obligation, it can be complex at
times and requires us to invest in and utilise
appropriate management systems in order
to support our Operating Companies and
protect the environments where we live
and work.
One Planet renews our focus on these areas
with new, ambitious targets to lessen our
impact on the environment with the ways in
which we manage our natural resources.
2025 Targets
• Reduce water consumption by 15%
(compared to 2019)
• Achieve zero waste to landfill
• Reduce waste generated by our sites by
10% (compared to 2019)
• Eliminate solvent-based paint (unless
mandated by customer requirements and
with Executive Committee approval)
• All manufacturing sites certified to
ISO14001 standard or equivalent
2030 Targets
• Reduce water consumption by 30%
(compared to 2019)
• Reduce waste generated by our sites by
20% (compared to 2019)
Progress
Water
During 2021, we focused on ensuring the
accuracy of water data, reviewing previously
disclosed figures to more precisely define
our 2019 baseline. The review included trend
analysis to identify anomalies, reviewing
site-level evidence and identifying sites
where limited or no data are available.
Where data are unavailable, water use
has been estimated using an agreed
methodology. Estimated figures account for
approximately 2% of the total use in 2021.
During this review, we identified a reporting
error in previously reported water use figures,
which had resulted in over-reporting water
use. As stated on page 54, 2019 data have
previously not included water and waste use
from Thermocoax in line with our reporting
methodology. To ensure a representative
baseline, we have now included a full year
of Themocoax’s water use in our restated
2019 figures and have also restated 2020 to
correct the error found.
In 2021, we appointed TÜV NORD CERT
GmbH to conduct an audit of our water
data for the first time, which has provided
reasonable assurance.
The water usage was verified in accordance
with International Standard on Assurance
Engagements 3000: ‘Assurance
engagements other than Audits or Review of
Historical Financial Information’ (ISAE 3000),
regarding its correctness and completeness
for Spirax-Sarco Engineering plc.
Acting as an independent Certification
Body TÜV NORD CERT GmbH has verified
the water usage of the organisation,
for the reporting period 01.01.2021 -
31.12.2021 (inclusive) to be 168,742,102
litres (168,742 m
3
) and has provided the
following statement:
“Based on the reasonable assurance
procedures we have undertaken and the
evidence we have obtained, nothing has
come to our attention that causes us to
believe that the Selected Information for
the year ended 31st December 2021,
is not materially correct and is not a fair
representation of the Selected Information for
the reporting period.
TÜV NORD CERT GmbH, February 2022.”
During 2021, our water use from our global
operations increased by 3% to 168,742m
3
.
This increase in water use was due to
an increase in production that drove up
water use on some sites, being largely
offsetbythe benefit of our Aflex Hose
site consolidation and efficiency gains in
a number of sites, as well as an ongoing
pandemic impact of lower site occupancy
after the introduction of hybrid working.
Since 2019, absolute water use has fallen
by 8%.
Spirax-Sarco Engineering plc Annual Report 2021 63
Strategic Report
On an intensity basis, water use decreased
by 8% compared with 2020, which means
an overall reduction of 16% compared
to our 2019 baseline. With the increased
focus on this area coming from the
Sustainability strategy, we expect to see
further improvements in this area in the next
few years.
In 2022, we plan to continue to build on
the reductions that we have seen since
2019, with newly developed water and
waste reduction action plan templates to be
rolled out globally early in 2022. We have
developed these water and waste reduction
plan templates for our locations to customise
and apply locally.
Waste
Similarly to water, we conducted an
extensive review of our historic waste
data in 2021. As a result of this review, we
identified a number of gaps in our data
particularly in small, shared-ownership
sites and at sites where we have municipal
waste collections only. We have applied
a methodology to estimate missing data,
based on an estimated per-capita waste
figure. Estimated figures account for 4% of
the total waste reported in 2021. We have
restated our prior year figures, to include
Thermocoax in 2019, and estimates where
data is unavailable. Estimated data accounts
for 9% of reported waste in 2019 and 6%
in 2020.
Our global operations generated 6,248
tonnes of waste in 2021, which is an
increase of 7% from the previous year. On an
intensity basis, reduction in waste generated
was 4% at 4.6 tonnes per million pounds of
inflation-adjusted sales.
We have continued to increase the
proportion of waste that is diverted from
landfill globally, with 88% of our waste
recovered, recycled or used to generate
electricity in 2021 (2020: 83%).
Solvent-based paint
We have committed to eliminating solvent-
based paints. During 2022 we completed
a benchmarking exercise to understand
current solvent-based-paint usage. Currently,
half our manufacturing sites globally use
solvent-based paints, while half have already
phased out their use. We have formed a
solvent-based paints central working group
with the aim of identifying common paints
and processes used, so that common
solutions can be identified and implemented
to eliminate solvent-based paints
going forward.
Management
With the help of our One Planet strategy,
we continued to focus on implementing
improvements at our sites in 2021. In Electric
Thermal Solutions (ETS) there has been a
reduction of approximately 50% in water use
across the Group since 2019, with a number
of actions taken, including leak detection
and fixing, reduction in hydro testing
and efficiency projects at the Chromolox
Ogden site.
At our Steam Specialties China
manufacturing site, a new solution for
condensate recycling from the chilling
tower is saving an estimated 850 tonnes
of water per year, with an associated
7% improvement in cooling efficiency.
This site has been recognised as having
a strong commitment to ISO 50001 from
management and has been awarded
a Green Plant Certificate as part of
the development of Shanghai’s green
manufacturing sector.
We have begun a standardised
implementation process for ISO 14001,
to ensure that all sites are operating to the
same high standards for their environmental
management and process. Currently, 20 of
our manufacturing sites are certified to ISO
14001 and we are confident in our ability to
meet our target of 100% of manufacturing
sites by 2025.
Sustainability report continued
Environmental
improvements
Focus for 2022
• Action Plans to be deployed to all
locations providing best practice
guidelines for water use and
waste reduction
• Internal exploratory team focused
on researching alternative painting
and coating process to replace
solvent-based paint
2021
2
020
2
019
2018
2017
168,742
163,280
18 2,74 6
167,000
211,540*
Total water use m
3
2021
2
020
2
019
2018
2017
125.5
135.8
148.5
185.4
177.8
Water intensity m
3
of water per £m of
inflation adjusted sales at constant currency
2021
2
020
2
019
2018
6,248
5,831
6,014
167,000
5,843
Total waste generation tonnes
2021
2
020
2
019
2018
4.6
4.8
4.9
185.4
4.9
Waste intensity tonnes
of waste per £m of
inflation adjusted sales at constant currency
Alignment with
UN SDGs
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202164
Sustainable products
Delivering products and services that
improve the sustainability of our customers’
operations is central to our Company
Purpose. Innovation is key to helping us
unlock the solutions to the global challenges
we all face as a result of climate change, now
and in the future. We enable our customers
to optimise operational efficiency through
our knowledgeable people, solutions and
services. We are a trusted partner, offering
credible solutions to the challenges our
customers face and enabling our customers
to produce more with less. By sharpening
our focus on the environmental impacts of
our products and services and validating our
products’ environmental performance, we
will continue to offer credible solutions that
meet our customers’ requirements now and
in the future.
2025 Targets
• Quantify the whole life cycle carbon
footprint and sustainability benefits of
selected existing and new products
• Grow sales of products with quantifiable
sustainability benefits to customers
• Eliminate all virgin, non-recyclable or
non-biodegradable packaging by 2025
atthe latest
Progress
During 2021, we continued to work with
Ricardo Energy & Environment to further
develop the methodology by which we
calculate our customer environmental savings.
The methodology we use currently has been
in place in Steam Specialties since 2009 and
we are now developing models which, in time,
will enable us to significantly expand the scope
of our reporting to include a variety of products
we offer from across the Group as a whole.
We have undertaken a screening exercise of
existing product categories to identify those
with the greatest opportunity for sustainability
benefits and savings for our customers,
with the aim of conducting full Life Cycle
Assessments (LCA) on these products.
In 2021, Watson-Marlow continued its
partnership with the University of Exeter
Environment and Sustainability Institute by
conducting two further LCAs on strategically
important product category types.
LCAs enable us to investigate our product
sustainability performance across the entire
life cycle in a standardised and transparent
manner for communication across the value
chain and throughout our organisation;
supporting strategic decision making and
product development and ensuring we
deliver products that align with our and our
customers’ sustainability goals.
While it is important that we understand and
quantify the impact of our existing products,
we also recognise that products need to be
designed with sustainability in mind. With the
information learned in our LCAs, we are
now developing common frameworks for
integrating eco-design into our New Product
Development (NPD) processes across
the Group.
Packaging
In 2021, we initiated a pilot project in Spirax
Sarco’s UK manufacturing site to focus on
the elimination of virgin, non-recyclable and
non-biodegradable packaging. We identified
14 improvement areas and have started
implementing major changes in our customer
packaging and also the packaging that we
use internally.
The outcomes of the pilot project are
intended to be scalable with the intent of
repeating the successes in the rest of our
global manufacturing companies.
Focus for 2022
• Develop the customer savings
model with Ricardo Energy &
Environment to expand ittoinclude
a number of Watson-Marlow and
Electric Thermal Solutions products,
as well as a wider product range
within Steam Specialties
• Increase integration of sustainability
criteria into NPD processes and
standardise this across the Group
• Each Group Business to carry
out a number of LCAs including
quantification of product benefits of
existing products
Alignment with
UN SDGs
Customer environment benefits
Annual estimated customer CO
2
, energy and water savings from
a select range of 12 Steam Specialties products sold in 2021:
18.2m
tonnes of CO
2
per year
250m
GJ per year
of energy
96.1m
m
3
per year
ofwater
To put these savings into context, that is the equivalentof:
828m
Mature trees
absorbingCO
2
2.81m
People’s annual
averageenergy
consumption
(UK)
38,500
Olympic-sized
swimming
pools of water
Spirax-Sarco Engineering plc Annual Report 2021 65
Strategic Report
Sustainable supply chain
Our ambition is to become a leader in
industrial sustainability; therefore, it is vital
that we develop, educate and work closely
with our supply chain in all aspects of
sustainability, expanding on the minimum
expectations as set out in our existing
Supplier Sustainability Code and increasing
monitoring of supplier standards.
We recognise the need to deliver a proactive
and engaging supply chain sustainability
strategy that meets both our own high
standards and the growing expectations of
our stakeholders. We intend to work with our
suppliers to build mutually-beneficial, long-
term partnerships, to ensure measurable,
long-term sustainability improvements
throughout our supply chain.
We have committed to implement
more rigorous supply chain monitoring,
combined with continuous improvement
methodologies, with our suppliers to
drive these changes, in order to deliver
a robust, high-performing supply chain
capable of meeting our future needs, that
simultaneously delivers for the needs of
the planet.
2025 targets (on or before)
• 80% of potential high-risk suppliers
confirmed as meeting or exceeding our
updated sustainability standards
• Embed sustainability criteria in all new
supplier qualification by 2022 and all
purchase contracts from 2023
2030 targets
• 25% reduction in category 1 and category
4 scope 3 GHG emissions
• 100% of potential high-risk and
strategic suppliers to be confirmed as
sustainability compliant
Progress
In 2021, we made good progress on
creating the framework for our supply chain
sustainability strategy. We have reviewed
and re-defined our minimum standards for
suppliers. Since the One Planet strategy
was launched, we have completed a tender
process to identify a third-party platform that
we will begin to roll out in 2022 and which
will be used for the on-going monitoring and
assessment of suppliers to our new supplier
minimum standards and a range of additional
sustainability measures, including starting to
track GHG emissions originating from our
supply chain.
We have commenced development
of a training plan for suppliers and our
purchasing teams, which we will be rolling
out in 2022. In combination with the new
monitoring platform, this will help to increase
engagement with suppliers on a broader
range of sustainability topics and support
training and education both internally and
with suppliers.
Our Supplier Sustainability Code (Code)
continues to form the backbone of our
ethical and sustainable sourcing strategy, by
ensuring that we can embed sustainability
into our purchasing processes and apply
minimum standards to our supply chain
around ethics, human rights, health and
safety and environmental sustainability.
In 2021, our focus for rolling out this code
was on phase four (suppliers to Thermocoax)
and by the end of the year, 86% of these
suppliers had signed the code, thus falling
slightly short of our target of 90%. Overall,
96% of the Group’s direct material suppliers
have now signed the Code. During 2021,
we commenced the rollout of the Code to
Chromalox Germany’s suppliers and these
have now been incorporated into the Group’s
totals. While progress was made, we failed
to reach our phase four target for two main
reasons. Firstly, the ongoing challenges
posed by the COVID-19 pandemic and the
need for purchasing teams to be actively
managing the situation to ensure continuity
of supply, which delayed the Code rollout.
Secondly, throughout 2021, Thermocoax
has completed the build of their new site
and consolidated five smaller sites into this
new facility, taking team focus. Further work
will be done in 2022 to increase the number
suppliers that have signed the Code.
Occasionally, it is necessary that we cease
working with certain suppliers if they are
unwilling to sign the Code, or whose
standards fall short of those required.
In 2021, we exited eight suppliers under
these conditions.
Focus for 2022
• Trials and roll out of the supplier
monitoring platform
• Audits of high-risk and
strategic suppliers
• Delivery of supplier and internal
communication and training plan
Alignment with
UN SDGs
Sustainability report continued
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202166
Support people in
our communities
As a financially successful organisation
we have the opportunity to support
our local communities, strengthening
their resilience to global sustainability
challenges and advancing the UN’s
Sustainable Development Goals (UN SDGs).
By combining strategic and philanthropic
giving we can address both the immediate
needs of local people and also support their
longer-term economic wellbeing, for example
through providing access to education,
while securing a range of business benefits
such as improved colleague engagement,
retention and attraction, a stronger talent
pipeline and improved relationships with
our communities.
Targets
2025
• Deliver 150,000+ hours (cumulative) of
colleague volunteering
• Over 90% of colleagues to complete at
least one day of volunteering per year
• £2 million of cash or in-kind
donations (cumulative) made by our
Group Companies
• Establish a Spirax-Sarco Engineering
educational fund and a mechanism for
delivering it, to promote inclusive and
equitable access to education
2030
• Donate £5 million to the Group Education
Fund by 2030*
* Additional to existing Group Charitable
Fund donations
Progress
Group Education Fund
In 2021, we established the Spirax-Sarco
Engineering Group Education Fund
(Education Fund) and funded it with a
£1 million donation. The Education Fund has
the following four aims:
• To improve diversity in engineering
• To tackle poverty through education
• To remove barriers to education
• To improve female access to education
With these broad aims we will empower our
Group Companies to identify local education
needs and apply to the Education Fund for
grants to support a wide range of proposals,
which will then be administered locally.
These grants will ensure that the Education
Fund can fulfil its purpose, to promote
inclusive and equitable access to education
in the communities in which we operate.
Group Charitable donations
During 2021, the Group Charitable Fund
donated £345,100 to charitable causes,
an increase of 30% from 2020. Some of
our donations included £35,000 to UNICEF
VaccinAid to provide global access to
vaccines, test and treatments £10,000
to Acorns Children’s Hospice which
provides care, support, fun and laughter
for more than 1,000 families of life limited
and life threatened children; and £2,000
to Gloucestershire Young Carers which
provides a range of services for young carers
and their families.
Operating Company charitable
donations and volunteering
While volunteering was still affected by
pandemic restrictions, more of our colleagues
were able to participate in volunteering
activities in 2021, with a focus on activities that
could be completed outside or while adhering
to social distancing guidelines. We achieved
our highest number of volunteering hours
since we began reporting in 2017, as well
as the highest levels of cash or in-kind
donations and the highest level of Operating
Company engagement. In 2021, 11,057
hours of working time were volunteered,
£236,000 was donated to charitable causes
and approximately £100,000 of in-kind (non-
cash) donations were made. In addition, our
colleagues donated approximately £47,000
of their own money in work-place organised
fundraising activities.
Focus for 2022
• Increase volunteering hours and
colleague participation
• Roll out a new Group-wide
volunteering and charitable
donations reporting system
• Develop an impact framework
for the Group Education Fund,
establish the application process
and commence donations
Alignment with
UN SDGs
Find out about the winners
of our 2021Community
Engagement Awards on
our website
www.spiraxsarcoengineering.com
2021
2
020
2
019
2
018
2
017
345.1
265.8
280.3
231.1
263.0
Group Charitable Fund donations
£’000
1,930
2021
2
020
2
019
2
018
2
017
11,057
3,154
5,311
4,856
Volunteering hours
2021
2
020
2
019
2
018
2
017
335.6
19 7.7
188.5
182.6
225.8
Operating Company cash/in-kind
donations £’000
Spirax-Sarco Engineering plc Annual Report 2021 67
Strategic Report
This Annual Report and in particular the Sustainability 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, in conjunction with the Sustainability Report, comprises the Non-Financial
Information Statement for 2021.*
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
Sustainability Report, pages 47 and 54 to 66
Principal risks, pages 85 to 118
Our business model, pages 24 to 25
Section 172 Statement, pages 10 and 101
Company Purpose, inside front cover and page 99
Employees • Group Diversity and Inclusion Policy
• Group Management Code
• Group Human Rights Policy
• Group Environmental, Health, Safety,
Energy and Sustainability Policy
Sustainability Report, pages 48 to 53
Our business model, pages 24 to 25
Employee Engagement Committee Report,
pages 104-107
Section 172 Statement, pages 10 and 101
Company Purpose, inside front cover and page 99
Social matters • Group Human Rights Policy
• Group Charitable Donations Policy
• Group Employee Volunteering Policy
• Supplier Sustainability Code
Sustainability Report, page 67
Our business model, pages 24 to 25
Section 172 Statement, pages 10 and 101
Company Purpose, inside front cover and page 99
Respect for
human rights
• Group Human Rights Policy
• Modern Slavery Statement
• Supplier Sustainability Code
Sustainability Report, page 66
Principal risks, page 90
Anti-corruption and
anti-bribery matters
• Group Anti-Bribery and Corruption Policy
• Group Gifts, Entertainment and Hospitality Policy
• Group Competition Law Compliance Policy
• Group Whistle-Blowing Policy
• Supplier Sustainability Code
Sustainability Report, page 51
Principal risks, page 90
Risk Management Committee Report, page 128
Description of the business model Our business model, pages 24 to 25
Description of the principal risks in relation to the above matters, including
business relationships, products and services likely to affect those areas ofrisk,
and how the Company manages the risks
Risk management and principal risks, pages 85 to 91
Risk Management Committee Report, pages 127 to 130
Sustainability risk assessment, page 56
Climate change risk, page 57
Non-financial key performance indicators Sustainability Report, pages 48, 50, 54 to 56 and 62 to 67
Key performance indicators, page 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.
We have disclosed, to the fullest extent possible, against the requirements of the Industrial Machinery & Goods Standard of the Sustainability
Accounting Standards Board (SASB), in respect of 2021, which can be found on our website www.spiraxsarcoengineering.com/investors/
results-reports-and-presentations/year/2021.
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.
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.
Non-financial information statement 2021
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202168
Operating
Review
Spirax-Sarco Engineering plc Annual Report 2021 69
Strategic Report
All three
Businesses provide
essential services to
critical industrial processes.
Our teams stepped up to
meet exceptional growth
in demand across
the world.
Operating review
At a glance
Electric Thermal
Solutions
Chromalox & Thermocoax
Revenue
14%
£181.3m
Reported
+2%
Organic
+7%
Statutory operating profit £m
£ 11.1 m
Adjusted operating profit £m
£24.0m
Statutory operating margin %
6 .1%
Adjusted operating margin %
13.2%
No. of operating units at year end
25
Key Industries
Steam Specialties
Spirax Sarco & Gestra
56%
Revenue
£754.9m
Reported
+9%
Organic
+12%
Statutory operating profit £m
£186.8m
Adjusted operating profit £m
£18 8.7m
Statutory operating margin %
24.7%
Adjusted operating margin %
25.0%
No. of operating units at year end
62
Key Industries
Watson-Marlow
Watson-Marlow
Revenue
30%
£408.3m
Reported
+27%
Organic
+32%
Statutory operating profit £m
£145.4m
Adjusted operating profit £m
£150.0m
Statutory operating margin %
35.6%
Adjusted operating margin %
36.7%
No. of operating units at year end
46
Key Industries
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202170
Operating review continued
What we do
Steam Specialties
Steam is an environmentally safe, clean,
sterile and natural technology that is
critical for today’s industrial processes. It is
relatively easy to control and is capable of
transferring large energy loads in the form
of heat. Steam is used across a broad
range of industries, in all geographies and
a wide range of applications including:
heating, curing, cooking, drying, cleaning,
sterilising, space heating, humidifying,
vacuum packing and producing hot water
on demand. The generation of steam can
also be decarbonised and we’re leading the
way by combining technologies with our
Electric Thermal Solutions Business, we’ve
developed a range of sustainable first-fit
and retrofit heating solutions, as well as
thermal energy storage applications for more
sustainable steam on demand.
Electric Thermal
Solutions
Electrical heating solutions are a
complementary medium to steam and there
are synergies in terms of the broad industrial
and geographical application. Our electrical
process heating and temperature
management solutions provide more efficient
processes through improved thermal energy
management and control systems. They are
easy to incorporate, install, maintain and
control and they omit zero emissions at
point of use, making them a sustainable
choice. Our solutions are particularly
utilised in applications that require rapid
‘on-off’ control, higher temperatures and
concentrated power loads as well as in an
increasing range of sustainable applications
where decarbonisation of industrial
processes is a key driver.
Watson-Marlow
Peristaltic and other niche pumps as well
as associated fluid path components are
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. They are often used
in critical processes, such as found in
Pharmaceutical & Biotechnology and Food
& Beverage sectors, where accuracy,
reliability and efficient transfer of fluids is
paramount and are favoured for their low
maintenance requirements.
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.
Spirax-Sarco Engineering plc Annual Report 2021 71
Strategic Report
Operating review continued
Market Environment
Global industrial
production growth
1
(IP) was 7.6% in 2021,
compared to 4.1%
contraction in 2020
and is now higher than
the pre-COVID-19
pandemic level of
2019. While all regions
recovered strongly, Asia
Pacific was the only
major region where IP
in 2021 was materially
above pre-pandemic
levels, driven mostly
by strong IP in China
and Korea. IP for the
Europe, Middle East &
Africa region in 2021
closed marginally ahead
of 2019, while IP in both
North America and Latin
America remained below
pre-pandemic levels.
<-5%
≤0% to -5%
>0% to 5%
>5% to 10%
>10% to 15%
>15%
unavailable
2020 Exchange Organic
Acq’n &
disposal 2021 Organic Reported
Revenue £1,193.4m (£41.0m) £192.1m – £1,344.5m +17% +13%
Adjusted operating profit £270.4m (£11.1m) £81.0m – £340.3m +31% +26%
Adjusted operating profit margin 22.7% 25.3% +280 bps +260 bps
Statutory operating profit £249.0m £320.9m +29%
Statutory operating margin 20.9% 23.9% +300 bps
North America
+5.4%
IP growth in 2021
compared with -7.3% in 2020.
Latin America
+6.2%
IP growth in 2021
compared with -7.0% in 2020.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202172
Europe
+8.2%
IP growth in 2021
compared with -7.2% in 2020.
China
+8.2%
IP growth in 2021
compared with 2.5% in 2020.
Asia Pacific
+8.0%
IP growth in 2021
compared with -1.2% in 2020.
Europe, Middle
East and Africa
+6.5%
IP growth in 2021
compared with -6.2% in 2020.
IP was very strong in the first half at 11.5%,
against a weak comparator in 2020 that
reflected the worst of the economic impacts
of the pandemic. The 4% growth in the
second half was below earlier forecasts, with
lower month-on-month sequential growth
rates reflecting the impacts of global supply
chain challenges on factory output.
In our largest sectors, Pharmaceutical &
Biotechnology and Food & Beverage, which
accounted for 46% of Group sales in 2021,
IP was 13.6% and 4.0% respectively. In the
Oil & Gas sector which accounted for 5% of
Group sales, IP was 4.1% having contracted
6.7% in 2020.
Over the past three months, forecasts
1
for global industrial production growth (IP)
in 2022 have ranged between 4.0% and
4.4%, reflecting the ongoing global supply
chain disruptions but not yet the unfolding
geopolitical tensions.
1 Source for industrial production data: Oxford
Economics, February 2022
Spirax-Sarco Engineering plc Annual Report 2021
73
Strategic Report
Operating review continued
Summary of progress in 2021
Sales
Group sales were up 13% to £1,344.5 million
(2020: £1,193.4 million) and 17% up on an
organic basis, the difference being due to
a negative foreign exchange impact of over
3%. Organic sales growth more than offset
the 3% reduction experienced in 2020, with
Group sales well above the pre-pandemic
level of £1,242.4 million, demonstrating
the resilience of our business model and
strategies, as well as the quality of execution
by our teams.
The Steam Specialties Business, which
accounted for 56% of Group revenue in
2021, experienced strong growth in all
regions, supported by a recovery of IP as
customers resumed maintenance activity
and capital expansion projects that were
postponed in 2020. Sales of £754.9 million
were up 9% and 12% up on an organic
basis, with growth in demand outstripping
sales and leading to an expansion of the
order book carried forward into 2022.
The Electric Thermal Solutions (ETS)
Business, which accounted for 14%
of Group revenue in 2021, delivered
sales of £181.3 million, up 2% or 7% up
organically against 2020. Demand growth
was ahead of Steam Specialties demand
growth, after adjusting for the record
US$14 million order from the US Navy
in 2020. Demand for Chromalox’s
decarbonisation-related solutions and
from Thermocoax’s customers in the
Semiconductor sector was particularly
strong. As demand growth was significantly
ahead of sales growth, the Business ended
the year with a record order book carried
forward into 2022. Sales were impacted by
disruptions in the global supply chain and
delays in delivering operational improvements
at two of our manufacturing facilities
in Chromalox.
Watson-Marlow, which accounted for 30%
of Group revenue in 2021, delivered record
sales of £408.3 million, 27% above 2020 and
32% up on an organic basis. This growth
was supported by exceptional demand
from the Pharmaceutical & Biotechnology
sector, which accounted for almost 60%
of Watson-Marlow’s sales in 2021, as well
as growth strongly above IP in the Process
Industries sector. Manufacturing capacity
was ramped-up significantly during the year
and would have been higher if not for the
impact of global supply chain disruptions.
Demand growth exceeded sales, leading to
the largest expansion in order book of any of
our Businesses.
Adjusted operating profit
Group adjusted operating profit was up
26% to £340.3 million and 31% up on an
organic basis, the difference being due to a
negative foreign exchange impact marginally
above 4%.
In Steam Specialties, adjusted operating
profit of £188.7 million was up 22%
compared with 2020 and 27% up on an
organic basis, with the benefits of operational
gearing partially offset by a significant
increase in revenue investments to support
future growth.
ETS delivered an adjusted operating profit
of £24.0 million, up 3% on an organic basis
but 2% down on a reported basis, due to a
strong currency headwind.
Watson-Marlow’s adjusted operating profit
was up 40%, and 46% up organically
compared with 2020, notwithstanding
continued revenue investments and
expansion of manufacturing capacity.
Adjusted operating profit margin
The Group adjusted operating profit margin
of 25.3% was up 260 bps, a record level
for the Group. On an organic basis, the
adjusted operating profit margin improved
by 280 bps. Margin expansion was driven
by strong growth in sales, with the benefit
of operational gearing partially offset by the
ramp-up of revenue investments to support
future growth, which mostly impacted
the second half of the year. The adjusted
operating profit in 2021 does not reflect a full-
year of cost of these investments. Had we
incurred a full-year of cost, the Group’s
adjusted operating profit margin would have
been lower by less than 200 bps.
Within Steam Specialties, the adjusted
operating profit margin grew 280 bps to
25.0%, and 290 bps on an organic basis.
For ETS, the adjusted operating profit
margin was 13.2%, down 60 bps on both
a reported and organic basis. Watson-
Marlow’s adjusted operating profit margin
was up 330 bps to 36.7%, driven by a
strong 340 bps organic margin expansion.
ETS adjusted operating profit margin was
lower in 2021, due to lower than expected
shipments from our manufacturing facility in
Ogden (USA) and continued losses in our
Soissons (France) manufacturing facility, as
well as increased revenue investments and
costs to support operational improvements.
In the Americas, which represents over
75% of Chromalox sales and experienced
the highest demand growth, the adjusted
operating profit margin has reached
20%. Thermocoax’s adjusted operating
profit margin was higher in 2021, mostly
as a result of continuing strong demand
for semiconductors.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202174
Statutory operating profit
and margin
Statutory operating profit of £320.9 million
was up from £249.0 million in 2020 and the
statutory operating profit margin of 23.9%
was up 300 bps (2020: 20.9%). The drivers
of the increase in statutory operating profit
and statutory operating profit margin are as
explained in the adjusted operating profit
sections above, as well as the reduction
in acquired intangible amortisation to
£21.4 million (2020: £26.6 million) and a
lower defined benefit pension credit of
£2.0 million (2020: £10.5 million).
Outlook
Our robust business model and disciplined
execution of our strategies have underpinned
the resilience of our performance throughout
economic cycles, so we remain confident
in our ability to navigate the growing
uncertainties ahead. If exchange rates at
the end of February were to prevail for the
remainder of the year, there would be a
less than 1% headwind impact on 2021
sales and adjusted operating profit, as
reported. Movements in exchange rates are
often volatile and unpredictable, especially
given the current geopolitical uncertainties,
therefore the actual impact could be
significantly different.
Over the past three months, forecasts
1
for global industrial production growth (IP)
in 2022 have ranged between 4.0% and
4.4%, reflecting the ongoing global supply
chain disruptions but not yet the unfolding
geopolitical tensions. Against these IP
forecasts, for most of the Group’s organic
revenue streams we currently anticipate
organic sales growth well above IP in
2022, supported by record order books
in all three of our Businesses. In Watson-
Marlow’s Pharmaceutical & Biotechnology
sector, which accounted for almost 60%
of their sales in 2021, we anticipate very
strong organic sales growth around 20%.
Achieving these growth levels continues to
be dependent on each Business expanding
its manufacturing capacity and mitigating
supply chain constraints.
During 2021, we accelerated our revenue
investments to support future organic growth
and improve our sustainability performance.
However, these revenue investments had a
lower impact on the first half performance,
which drove the record adjusted operating
profit margin of 2021. This is evidenced
by the very high 51% drop-through from
increased organic sales to adjusted
operating profit in the first half, compared
to a more typical 34% organic adjusted
operating profit drop-through in the second
half of the year. We estimate the full-year
effect of these revenue investments would
have reduced the Group’s 2021 adjusted
operating profit margin by less than 200 bps.
While the full-year impact of these revenue
investments will reduce the 2022 adjusted
operating profit organic growth rate, we
currently anticipate the adjusted operating
profit margin in 2022 will remain comfortably
above pre-pandemic levels.
We anticipate that cash conversion will be
lower than our historical levels of around
90%, as we step up capital investments to
between 6% and 7% of sales and increase
working capital in line with revenue.
1 Source for industrial production data: Oxford
Economics, February 2022
Spirax-Sarco Engineering plc Annual Report 2021
75
Strategic Report
Operating review continued
Steam Specialties
Steam Specialties
Market overview
Global Industrial Production growth (IP) was
7.6% in 2021, more than recovering the
4.1% contraction of 2020.
In Europe, Middle East and Africa, IP
was 6.5% in 2021, compared to a 6.2%
contraction during 2020. In Asia Pacific,
IP was 8.0% in 2021, following a 1.2%
contraction in 2020. North America was
5.4% and Latin America 6.2% in 2021, with
IP in most countries across these regions
failing to recover to pre-pandemic levels.
The Food & Beverage sector, representing
28% of Sales, grew at 4.0% in 2021.
The OEM (19% of sales) and Pharmaceutical
& Biotechnology (13% of sales) sectors grew
at 15.3% and 13.6% respectively.
Progress in 2021
Steam Specialties, which comprises the
two leading product brands of Spirax
Sarco and Gestra, operates across the
three geographic divisions: Europe, Middle
East and Africa (EMEA), Asia Pacific and
the Americas.
Steam Specialties’ sales of £754.9 million
were up 9% in 2021 or 12% up organically.
The Business experienced strong demand
growth across all regions, above the
growth rate of sales. Demand growth was
supported by a recovery of global IP with
customers resuming maintenance activities
and capacity expansion projects that were
postponed in 2020.
The dual effect of the strong economic
recovery and global supply chain shortages
had an impact on the Business in 2021.
This included labour shortages caused by
COVID-19 isolation requirements, reduced
availability of some materials and freight
disruptions. The strong demand growth and
the impact of these supply chain constraints
was reflected in an expansion of the order
book at the end of 2021, despite the
ramp-up of activities at our manufacturing
facilities to meet the increased demand.
As a consequence of these factors and
despite the mitigating actions taken, Steam
Specialties’ customer service metric,
On-Time-To-Request (OTTR), suffered a
slight decline compared to 2020.
In EMEA, Steam Specialties achieved 10%
organic sales growth, more than offsetting
the 7% contraction experienced in 2020.
Across the four main markets of the UK,
Germany, France and Italy, which together
account for over 55% of sales in EMEA,
IP was relatively modest with the first three
of those countries recovering almost half
their 2020 IP decline. In this context, Steam
Specialties performed strongly, growing sales
between 6% and 11% across those four
countries. Demand in most EMEA countries
exceeded growth in sales, reflecting strong
IP and the challenges of supply chain
disruptions during the second half of 2021.
In Asia Pacific, 13% organic sales growth
was driven by the excellent performance
of China that grew 28%, supported by
strong demand from the Pharmaceutical &
Biotechnology sector and sales to customers
who serve the growing battery production
“We continued to invest significantly to
support our future revenue growth,
with an expansion in sales-related
headcount, new product development,
as well as digital and sustainability
initiatives.”
Maurizio Preziosa
Managing Director, Steam Specialties
2020 Exchange Organic
Acq’n &
disposal 2021 Organic Reported
Revenue £694.1m (£21.8m) £82.6m – £754.9m +12% +9%
Adjusted operating profit £154.3m (£5.7m) £40.1m – £188.7m +27% +22%
Adjusted operating profit margin 22.2% 25.0% +290 bps +280 bps
Statutory operating profit £157.8m £186.8m +18%
Statutory operating margin 22.7% 24.7% +200 bps
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202176
market. In Korea, our second largest
market in the region, sales were down 12%
compared to 2020 despite demand being
flat. This was a reflection of the higher mix
of larger projects shipped in 2020, which
experienced a slower recovery than mid-
size projects in 2021, especially in the Oil &
Gas sector.
In the Americas, 17% organic sales growth
represented a strong performance against
a backdrop of regional IP that did not fully
recover the contraction of 2020. In North
America, which accounts for more than
60% of sales in the Americas, growth was
particularly strong at 13%. Latin America
was the fastest growing region of 2021,
driven by outstanding mid-teens real terms
sales growth in Brazil and Argentina, which
account for over 60% of Steam Specialties’
Latin American sales.
Adjusted operating profit of £188.7 million
was up 22% or 27% up organically.
At 25.0%, the adjusted operating profit
margin was up 280 bps or 290 bps up
organically. Statutory operating profit
of £186.8 million was up 18% from
£157.8 million in 2020.
Steam Specialties adjusted operating profit
margin expanded substantially in 2021,
reflecting strong sales growth and the
benefits of operational gearing. We continued
to invest significantly to support our future
revenue growth, with an expansion in
sales-related headcount and new product
development, as well as digital and
sustainability initiatives. These investments
were ramped-up during 2021 and more
heavily weighted to the second half of the
year. As a result, the adjusted operating profit
in 2021 does not reflect the full-year impact
of these investments. Had we incurred a
full-year cost, Steam Specialties’ adjusted
operating profit margin would have been
lower by around 200 bps.
Strong demand coupled with supply chain
shortages also resulted in underlying input
cost inflation, consistent with trends being
experienced globally. The impact of these
cost increases was mitigated through our
proactive price management practices.
Revenue £m
£754.9m
2020: £694.1m
Group revenue %
56%
2020: 58%
2021
2
020
2
019
2
018
2
017
754.9
6 9 4 .1
755.4
675.4
733.5
Reported
+9%
Organic
+12%
Adjusted operating profit £m
£18 8 .7m
2020: £154.3m
Adjusted operating margin %
25.0%
2020: 22.2%
2021
2
020
2
019
2
018
2
017
188.7
154.3
17 7.9
15 4.6
170.1
Reported
+22%
Organic
+27%
Reported
+280bps
Organic
+290bps
Steam Specialties at a glance
(at year end)
62
operating units*
67
countries with a resident
direct sales presence
4,964
colleagues
Key markets
* Operating units are business units that invoice locally.
Spirax-Sarco Engineering plc Annual Report 2021
77
Strategic Report
Business strategy update
In June 2021, Steam Specialties launched
its refreshed strategy, Customer first
2
(Customer first squared). This refreshed
strategy builds on the Customer first strategy
that has been in place since 2014 and
expands on key areas such as customer
insight, sustainability, innovation, digital and
inclusivity. The Business remains focused on
the most attractive industries where we can
deliver most value to customers and drive
self-generated growth.
Following the acquisition of Gestra in
2017, Steam Specialties has pursued a
sector-driven dual brand strategy, while
implementing our business model and
Customer first strategy within Gestra to
drive higher growth and improved adjusted
operating profit margins. Since 2019,
Gestra’s sales growth performance has
remained in line with the Spirax Sarco
brand, while adjusted operating profit
margins continued improving in line with
our acquisition plans and reaching the 20%
threshold.
In January 2022, Steam Specialties
completed the acquisition of Cotopaxi
Limited a digitally-enabled global energy
consulting and optimisation specialist,
for £12.8 million, to further accelerate
implementation of our Digital strategy.
Cotopaxi will enhance our ability to connect
to customers’ systems and analyse their
data, generating further opportunities and
solutions that support system uptime, reduce
waste and increase efficiency.
We work closely with our customers to
understand and support their sustainability
goals. Recognising the critical role that
steam plays in industrial processes globally,
we launched the ‘Natural Technology’
campaign in 2021. This campaign reinforces
the natural, clean properties of steam and
demonstrates its importance to processes
such as sterilisation, cooking, heating and
cleaning. The ability to decarbonise the
process of raising steam is critical to building
a more sustainable future. Our ‘Thermal
Solutions Synergy’ team, comprised of
colleagues from Steam Specialties and
Electric Thermal Solutions (ETS), have
developed and are continuing to test
innovative new solutions that use both Low
Voltage and our patented Medium Voltage
technologies to decarbonise the generation
of steam with minimal impact to our
customers’ operations.
Alongside our drive to help customers
meet their sustainability goals, we are also
taking steps to meet our own ambitious
target of achieving net zero scope 1 and
2 greenhouse gas emissions by 2030.
Work has begun at our UK manufacturing
site in Cheltenham, to deploy our
innovative decarbonisation solutions for
the electrification of our gas-fired boilers.
Upon completion of this project in late 2023,
we will reduce our site’s scope 1 and scope
2 emissions, with our electricity needs being
supplied via green energy contracts.
We continue to invest in new product
development across Steam Specialties
and released 19 new product offerings
throughout 2021 to support the efficient
use and control of steam. These included
development of the next phase of our
Boiler House control range, developed for
Spirax Sarco using Gestra technology, as
well as the M16i OEM Ball Valve range for
the rapidly growing Original Equipment
Manufacturing (OEM) market in China.
Technology from our product brand Hiter,
which is based in Brazil and was acquired by
Steam Specialties in 2015, has been used
for the first time in a global product range of
Variable Area Desuperheaters, which helps
customers with the efficient use and control
of superheated steam.
We extended our range of clean
steam products for Pharmaceutical &
Biotechnology and Food & Beverage
markets, including Clean Steam Generators,
as well as launching a Steam Quality Training
Programme for customers.
We also introduced a new range of control
valve positioners, used widely in our solutions
and packages across all sectors, as well as
a controls system upgrade for the Spirax
Sarco EasiHeat™ Compact Heat Transfer
Solution, offering improved energy efficiency
over previous product generations.
Against the backdrop of record demand
for our products and solutions, we
made improvements at a number of our
manufacturing sites. These improvements
included the consolidation of two
manufacturing locations in Italy and
outsourcing production of specific
products as part of our Future Factory
investment programme, which is an ongoing
commitment to equipment modernisation
in order to increase our manufacturing
capacity and efficiency. This resulted in a
better alignment of the combined operation
to future market demand, following the
introduction of new innovations such
as our sector-specific ranges of Clean
Steam Generators.
In our UK and Brazilian manufacturing
facilities, the introduction of new machines is
driving increased flexibility and automation,
enabling faster growth and improved
response to changes in customer demand.
The Future Factory programme continued
throughout the pandemic and supported an
increase in manufacturing capacity in 2021.
We also continued to invest in our direct
sales capability and expanding our
geographic reach, with Gestra France
beginning trading in January 2021.
Investment was approved to establish a
stronger sales presence across Africa and
the Middle East with a substantial step up
in the recruitment of direct sales engineers
across that region. Our self-generated sales
capability is underpinned by a strong focus
on training delivered through our Steam
Academy. During the year, we expanded the
training available to support our engineers
with their technical development through
programmes of learning with increasing
degrees of difficulty.
Business outlook
Over the past three months global industrial
production growth (IP) forecasts
1
for 2022
ranged between 4.0% and 4.4%, reflecting
ongoing global supply chain disruptions
but not yet the unfolding geopolitical
tensions. We currently anticipate that Steam
Specialties’ organic sales will continue to
grow ahead of global IP forecasts in 2022.
We also anticipate that in 2022, the adjusted
operating profit organic growth rate will
be lower than the sales organic growth
rate, reducing the adjusted operating profit
margin. The full-year impact of our revenue
investments in 2021, which we estimate
would have reduced Steam Specialties’
2021 adjusted operating profit margin by
around 200 bps, will reduce our adjusted
operating profit growth in 2022. While we
expect the benefits of operational gearing
from increased sales to be partially offset
by the full-year impact of the 2021 revenue
investments, we currently anticipate the 2022
adjusted operating profit margin will remain
slightly above pre-pandemic levels.
Operating review continued
Steam Specialties continued
1 Source for industrial production data: Oxford
Economics, February 2022
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202178
Operating review
Electric Thermal Solutions
Electric Thermal Solutions
Market overview
The geographic footprint of the Electric
Thermal Solutions (ETS) Business differs
from Steam Specialties and Watson-Marlow,
with over two-thirds of revenue generated in
the Americas and less than 10% generated
in Asia Pacific. ETS also has a greater
weighting of sales to the Oil & Gas, Power
Generation and Semiconductor sectors than
Steam Specialties, plus a lower weighting to
the Food & Beverage and Pharmaceutical &
Biotechnology sectors.
Chromalox, which accounts for three-quarters
of ETS revenues, generates over 75% of its
revenue in North America and therefore has
a higher exposure to the USA where IP was
5.5% in 2021. The Oil & Gas sector, which
accounts for 14% of Chromalox sales grew
at 4.1% during the year, while Buildings is the
second largest sector at 13% of sales.
Our customers’ focus on the
decarbonisation of their industrial processes
and heating systems to reduce their own
greenhouse gas emissions, continues to
drive demand for Chromalox’s products
and solutions. Cross-selling opportunities
referred by Steam Specialties have also
delivered additional demand for Chromalox,
particularly in municipal heating applications
in North America.
Almost half of Thermocoax’s sales
were in EMEA, where IP was 6.5%.
The Semiconductor sector now accounts
for over 40% of Thermocoax sales, having
grown 7% during the year. The drive to 7nm
and smaller architecture continues to create
opportunities for our lithography and atomic
layer deposition solutions.
Progress in 2021
ETS experienced strong overall demand
growth, ahead of Steam Specialties demand
growth, after adjusting for the record
US$14 million order from the US Navy, the
largest order in our Group’s history.
ETS sales were up 2% to £181.3 million or
7% up on an organic basis, with the difference
due to currency headwinds. ETS experienced
demand growth significantly ahead of sales
growth, which led the Business to end the
year with a record order book carried forward
into 2022. Sales were impacted by disruptions
in the global supply chain, a tight labour
market in the USA and delayed delivery of
operational performance improvements in two
of Chromalox’s manufacturing facilities.
Chromalox’s 12% sales growth in the
Americas reflected strong demand for
bespoke solutions supporting customers’
decarbonisation. Outside of the Americas,
demand grew at a lower rate due to a slower
recovery of larger projects in the Oil & Gas
sector, which remains below pre-pandemic
levels. Thermocoax’s sales, which grew in
2020 despite pandemic effects, continued
to benefit from strong demand in the
Semiconductor sector.
Adjusted operating profit of £24.0 million,
was up 3% on an organic basis but 2%
down on a reported basis due to a strong
currency headwind. Statutory operating
profit of £11.1 million was up 131% from
£4.8 million in 2020.
ETS adjusted operating profit margin was
13.2%, down 60 bps on both a reported
and organic basis. Chromalox’s adjusted
operating profit margin was lower in
2021, partly driven by increased revenue
investments in sustainability, new product
development and to support operational
improvements. Thermocoax’s adjusted
operating profit margin was higher in 2021,
supported by sales growth and the benefits
of operational gearing.
“Our customers’ focus on the
decarbonisation of their industrial
processes and heating systems
toreduce their own greenhouse
gas emissions, continues to
drive demand.”
Dominique Mallet
President, Electric Thermal Solutions
2020 Exchange Organic
Acq’n &
disposal 2021 Organic Reported
Revenue £178.0m (£7.9m) £11.2m – £181.3m +7% +2%
Adjusted operating profit £24.6m (£1.2m) £0.6m – £24.0m +3% -2%
Adjusted operating profit margin 13.8% 13.2% -60 bps -60 bps
Statutory operating profit £4.8m £11.1m +131%
Statutory operating margin 2.7% 6.1% +340 bps
Spirax-Sarco Engineering plc Annual Report 2021 79
Strategic Report
Operating review continued
Electric Thermal Solutions continued
In the Americas, which represents over
75% of Chromalox sales and experienced
the highest demand growth, the adjusted
operating profit margin reached 20%,
reflecting the scale of the business in that
region. In EMEA, which represents around
15% of Chromalox sales, the reorganisation
of the Chromalox Soissons (France)
manufacturing facility during 2020 delivered
the expected increase in shipments to
customers in 2021, albeit with continued
losses. The Chromalox EMEA Sales Director
retired at the end of the year and was
succeeded by an experienced Sales Director
from our Steam Specialties Business, who
will focus on accelerating sales growth
and improving EMEA price management
practices in a manner consistent with the rest
of our Group. As these price management
practices become embedded, we will be
able to better assess the adjusted operating
profit margin outlook of the manufacturing
operations at Soissons.
During 2021, shipments from our
manufacturing facility in Ogden (Utah, USA)
were slightly above 2020, but fell short of our
expectations for the year. We estimate this
sales shortfall impacted the ETS adjusted
operating profit margin by over 200 bps.
Ogden is currently capacity constrained as
it transitions to focus on the manufacture
of both Low Voltage and patented Medium
Voltage technology industrial heating
solutions, supporting the decarbonisation
of buildings and industrial processes.
This capability remains vital to delivering our
strategy for ETS.
In order to step up our shipment levels at
Ogden, we continue to invest in increased
staffing and specialist skills, as well as further
operational improvements which include the
re-engineering of manufacturing processes
to reflect the more complex and bespoke
engineered solutions delivered by the plant,
while relocating higher volume standard
products to our manufacturing facility in
Nuevo Laredo (Mexico).
Business strategy update
ETS carried out a strategy refresh during
2020, resulting in the launch of the
Engineering Premium Solutions (EPS)
strategy. An important component of
this strategy is the drive towards ‘Total
Customer Solutions’ and during 2021 we
strengthened our business development
function and increased our focus on new
product innovation, with demonstrable
technological advantages and quantified
sustainability benefits.
Revenue £m
£181. 3 m
2020: £178.0m
Group revenue %
14%
2020: 15%
2021
2
020
2
019
2
018
2
017
181.3
178.0
186.1
75.1
154.6
Reported
+2%
Organic
+7%
Adjusted operating profit £m
£24.0m
2020: £24.6m
Adjusted operating margin %
13. 2%
2020: 13.8%
2021
2
020
2
019
2
018
2
017
24.0
24.6
24.7
13.8
22.8
Reported
-2%
Organic
+3%
Reported
-60bps
Organic
-60bps
Electric Thermal Solutions at a glance
(at year end)
25
operating units*
19
countries with a resident
direct sales presence
1,487
colleagues
Key markets
* Operating units are business units that invoice locally.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202180
ETS is evolving its solutions in electrification,
decarbonisation and sustainability which
remain important growth drivers for the
Business as it builds a significant pipeline
of opportunities. Chromalox is already
the process heating technology partner
for several large energy storage solutions
providers and we are engineering a full-scale
commercial thermal energy storage system
for a major European renewable energy
company, utilising more than 30MW of
electric process heating.
Additionally, we are working with a leading
power company in the USA to develop
a 5MW molten salt storage system for a
new type of highly efficient power cycle.
Chromalox’s patented DirectConnect
Medium Voltage (MV) technology provides
the innovative step necessary to enable a
grid-scale thermal energy storage system to
operate effectively. Our DirectConnect MV
technology is part of a solution for McGill
University in Canada, which has an energy
requirement equivalent to 13,000 homes,
helping them reduce scope 1 carbon
emissions from their downtown powerhouse
by an expected 30%.
By combining our core capabilities with
Steam Specialties, we have been able to
develop synergies within our thermal energy
management portfolio. This has enabled
the ‘Thermal Solutions Synergy’ team to
design new industry-leading products that
deliver significant sustainability benefits for
customers. In 2021, the team successfully
installed and started-up the first customer
trial of a steam thermal energy storage
system, with the second being installed for
start-up in 2022. This solution is a dynamic
and flexible thermal storage system that
converts electrical energy into steam for
use ‘on demand’. When combined with
a renewable energy source or via green
energy contracts, it supports our customers’
aspirations to decarbonise their steam
generation. Prototypes of different scales of
the thermal energy storage systems have
also been built and are being tested.
A retrofit boiler system that allows for the in-
place conversion of fossil-fuel-fired industrial
steam boilers into electric steam boilers
with minimal disruption to the customer’s
processes has also been developed and
tested. This system eliminates scope 1
carbon emissions from the steam generation
process, as well as reducing scope 2 carbon
emissions when coupled with renewable
power generation sources, improving the
sustainability of our customers’ operations.
ETS delivered 11 new product introductions
to the market in 2021. For Thermocoax,
these included a new chuck for the
Semiconductor market, a heating plate
used during the process of atomic layer
deposition, with three heating zones
delivering thermal homogeneity, as well as a
tantalum heating element for the Aerospace
market that can withstand temperatures of
up to 1600°C.
A project to consolidate Thermocoax’s
four existing manufacturing sites in
Normandy (France) into a new purpose-
built manufacturing and office facility
was completed as planned in 2021.
Completion and handover of the building
took place in Q3 and a carefully planned
and phased transition plan for the sites
was implemented in Q4 with minimum
disruption to operations and customers.
Production of orders from the new site
began in December 2021.
We have continued to identify opportunities
within ETS to leverage its position as part of
our Group by adopting best practice from
other parts of the organisation. We have
identified a new leader for Chromalox EMEA
from within the Group and have adapted
existing ‘go-to-market’ tools to support our
organic growth and sector focus. In 2021,
we launched our revised go-to-market
strategy in the Americas, optimising the
number of accounts assigned to individual
direct sales engineers in order to enable
them to spend more time with existing and
new customers, identifying their needs and
customising solutions. We will be rolling out
this approach in EMEA and Asia Pacific
during 2022.
We are also investing in our self-generated
sales capability by developing the skills
and knowledge of our expert engineers
through the ETS Academy. The Business
is fully utilising the virtual and visual assets
already available in the Steam Specialties
Academy to provide a rich and immersive
experience for our direct sales teams and
end user customers.
Business outlook
Electric Thermal Solutions ended the year
with a record order book that reflects the
strong demand growth of 2021. In 2022,
we anticipate Electric Thermal Solutions
sales will increase at an organic growth rate
above Steam Specialties, as we continue to
address operational constraints and ramp-up
our manufacturing capacity. As a result of
the operational gearing from increased sales,
we anticipate an increase in the adjusted
operating profit margin in 2022.
Spirax-Sarco Engineering plc Annual Report 2021 81
Strategic Report
Operating review continued
Watson-Marlow
Watson-Marlow
Market overview
Watson-Marlow also benefitted from a
recovery in global Industrial Production
growth (IP), similar to Steam Specialties,
albeit with a geographic footprint of sales
that is more weighted to the Americas and
less weighted to Asia Pacific.
The Pharmaceutical & Biotechnology
industry, Watson-Marlow’s largest sector, has
historically grown at an annual rate between
12% and 14%, while Watson-Marlow’s sales
to this sector have historically grown close
to 20% per annum. During 2021, the sector
continued to experience exceptional growth
given the industry’s role in the development
and production of COVID-19 vaccines.
Watson-Marlow also benefitted from the
strong recovery in IP through its sales to the
Process Industries sector.
Progress in 2021
We have continued to see exceptional
demand from our Pharmaceutical &
Biotechnology customers, as well as
strong demand growth in the Process
Industries sectors, strongly above IP.
Demand exceeded our ability to deliver
shipments in some of our manufacturing
plants, despite our significant investments to
expand capacity, leading to a record order
book being carried forward into 2022.
Watson-Marlow sales were up 27% to
£408.3 million on a reported basis and
32% up on an organic basis. Sales to the
Pharmaceutical & Biotechnology sector
grew 43% and the sector now accounts
for almost 60% of Watson-Marlow’s total
sales, while sales to the Process Industries
sector grew well ahead of global IP.
During 2021, we ramped up activity to
meet demand despite disruption to global
supply chains and shortages of some raw
materials and key components, increasing
shipments from BioPure (UK) and Falmouth
Pumps and Tubing (UK) by over 50% and
35%,respectively.
Watson-Marlow’s adjusted operating profit
was up 40% to a record £150.0 million,
due to sales growth and the benefits of
operational gearing. Organically, adjusted
operating profit was up 46% due to a
strong currency headwind, reflecting the
strengthening of sterling and our significant
manufacturing footprint in the UK. At 36.7%,
the adjusted operating profit margin was
up 330 bps, or 340 bps up on an organic
basis. Statutory operating profit was up 42%
from £102.2 million in 2020 to £145.4 million
in 2021.
During 2021, we continued to invest
significantly to support our future revenue
growth, with an expansion in manufacturing
capacity, sales-related headcount, new
product development, as well as digital and
sustainability initiatives. Investments were
ramped-up during 2021 and more heavily
weighted to the second half of the year. As a
result, the adjusted operating profit in 2021
does not reflect the full-year impact of these
investments, which enhanced the adjusted
operating profit margin by over 200 bps.
Business strategy update
Strategy25 is Watson-Marlow’s five-year
organic growth strategy, building momentum
through ten strategic initiatives which are
led and supported by team members
across the Business. Through Strategy25
we are targeting sustainable growth that
outperforms our markets.
We continued to invest in our Business
to support future growth and better serve
the needs of our customers, through the
recruitment of almost 130 people in direct
“During 2021, we ramped up activity
to meet demand despite disruption
to global supply chains and shortages
of some raw materials and key
components.”
Andrew Mines
Managing Director, Watson-Marlow
2020 Exchange Organic
Acq’n &
disposal 2021 Organic Reported
Revenue £321.3m (£11.3m) £98.3m – £408.3m +32% +27%
Adjusted operating profit £107.3m (£4.2m) £46.9m – £150.0m +46% +40%
Adjusted operating profit margin 33.4% 36.7% +340 bps +330 bps
Statutory operating profit £102.2m £145.4m +42%
Statutory operating margin 31.8% 35.6% +380 bps
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202182
sales roles. Our newest operating company
in the Czech Republic began trading at
the start of 2021 and also serves Slovakia.
We have developed a new Sales Engineer
Training Curriculum that is sector specific
and will encompass a 12-month training
programme, supported by Sector Specific
Training Hubs.
In response to exceptional demand from the
Pharmaceutical & Biotechnology sector, we
have increased both short and long-term
capacity at our existing facilities, including
BioPure, Falmouth Pumps and Tubing
and Flexicon sites. A new building close
to our UK manufacturing site in Falmouth
was leased to relocate warehousing and
new product development activities.
This freed up space for manufacturing
expansion within our current site to meet
increased demand. During the third
quarter, we installed a third tubing line and
associated clean room for Falmouth Tubing,
anticipating further customer demand in
2022. Manufacturing cell capacity for pump
assembly was supported by the recruitment
of additional staff.
Construction of the new BioPure site at
Dunsbury Park in Portsmouth (UK) has
been completed and the internal fit out is
progressing well. The project remains on
schedule for first deliveries to customers
by the end of the first quarter of 2022.
In 2021, we increased the total project
budget to £37 million to increase the number
of moulding machines from 10 to 24 and
increase cleanroom capacity, which will allow
us to more than double the existing output
and meet significant growth in demand.
In the USA, plans for our state-of-the-
art greenfield manufacturing facility in
Massachusetts are well advanced and
running to schedule. The build phase of
the 14,000m
2
facility began in October
2021, with first production due in late
2022. The site will incorporate a suite of
eight ISO14644-1 Class 7 cleanrooms,
warehousing and offices, with space for two
further cleanrooms within the initial footprint.
This new facility will deliver products from
across our portfolio of Watson-Marlow
brands and strengthen the support we
provide to customers in the Americas and
across all our sectors. As anticipated there
has been an escalation in expenditure for
this project due to the sharp inflation of raw
materials and commodity costs within the
construction sector.
Revenue £m
£408.3m
2020: £321.3m
Group revenue %
30%
2020: 27%
2021
2
020
2
019
2
018
2
017
408.3
321.3
300.9
248.2
265.2
Reported
+27%
Organic
+32%
Adjusted operating profit £m
£15 0 . 0 m
2020: £107.3m
Adjusted operating margin %
36.7%
2020: 33.4%
2021
2
020
2
019
2
018
2
017
150.0
10 7. 3
95.8
80.3
84.8
Reported
+40%
Organic
+46%
Reported
+330bps
Organic
+340bps
Watson-Marlow at a glance
(at year end)
46
operating units*
43
countries with a resident
direct sales presence
2 ,17 0
colleagues
Key markets
* Operating units are business units that invoice locally.
Spirax-Sarco Engineering plc Annual Report 2021
83
Strategic Report
Operating review continued
Watson-Marlow
Watson-Marlow launched 7 new products
in 2021. Following a soft launch in the
first half of the year, the Qdos CWT
was fully launched to the market in the
second half. This product features a
revolutionary new pumphead called the
ReNu 30 CWT, which utilises Conveying
Wave Technology (CWT) and fits onto
our existing range of Watson-Marlow
Qdos pumps. The patented technology
pumphead delivers superior accuracy
and chemical resistance for metering and
dosing applications, establishing the next
level of high performance for our industry.
It is an evolution in long-life chemical
metering and expands our addressable
market downstream into sectors requiring
higher flow, pressure and enhanced
chemical resistance.
A new peristaltic filling machine, the
Flexicon PF7+, designed for high accuracy
aseptic filling in critical applications
for zero waste was launched to the
Pharmaceutical & Biotechnology market, as
well as a new grade of BioPure tubing for
transfer applications.
The Watson-Marlow Maxthane FDA
and EC1935 food grade tubing and the
MasoSine Certa Clean In Place (CIP)/Clean
Out of Place (COP) pump were all launched
for the Food & Beverage sector in 2021,
while the thin-walled Watson-Marlow TPU
tubing for handling Aliphatic hydrocarbons
was also launched for the Industrial sector.
The new MasoSine Certa pump design
removes the operational requirement to
repeatedly strip down pumps to clean, or
prove cleanliness, between batch runs and
has opened up additional applications for
the product.
Business outlook
During 2021, Watson-Marlow experienced
exceptional demand growth from customers
in the Pharmaceutical & Biotechnology
sector, ahead of sales growth, resulting in
a record order book at the end of the year.
Given the strong underlying demand and
a larger opening order book, we anticipate
around 20% organic sales growth to the
Pharmaceutical & Biotechnology sector in
2022. Across Watson-Marlow’s Process
Industries, we currently anticipate organic
sales growth to be well above global
industrial production growth.
We also anticipate that in 2022, the adjusted
operating profit organic growth rate will
be lower than the sales organic growth
rate, reducing the adjusted operating profit
margin. The full-year impact of our revenue
investments in 2021, which we estimate
would have reduced Watson-Marlow’s
2021 adjusted operating profit margin by
more than 200 bps, will reduce our adjusted
operating profit growth in 2022. While we
expect the benefits of operational gearing
from increased sales to be partially offset
by the full-year impact of the 2021 revenue
investments, we currently anticipate the 2022
adjusted operating profit margin will remain
above 2020 levels.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202184
Risk management
Risk likelihood, control and impact
Our approach and appetite
for risk
Risk is an inherent part of our business
operations and we approach it 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 ongoing basis, while the Board is
responsible for the overall stewardship of risk
management and internal control.
We hold annual reviews, either top-down or
bottom-up reviews, that provide information
and evaluations that the Committee uses
alongside our principal risk appetite ratings
to create an effective system for monitoring,
planning and developing our Group-wide
approach and culture regarding risk.
The General Managers of our operating units
are directly involved in the risk assessment
process and the evaluations of the
Committee, including setting the appropriate
levels of risk that are communicated to all
Group companies.
This ongoing monitoring and engagement
contribute to the Group’s risk register and
the way we manage our risks. As they are
dynamic and fluid, both our risk register and
principal risks reflect the current conditions
across the Group and guide our ongoing
monitoring and mitigation activities.
Further reading
Our principal risks
See pages 87 - 91
“We continue to closely monitor existing
and developing risks facing the Group.
In light of the ongoing pandemic and
global economic uncertainty, most
of our principal risks have remained
well managed and largely unchanged,
but we recognise the pressures these
factors have placed on our supply
chain this year.”
Nicholas Anderson
Group Chief Executive
Principal risks
1 Economic and political instability
2 Significant exchange rate movement
3 Cybersecurity
4 Loss of manufacturing output at any Group factory
5 Failure to realise acquisition objectives
6 Breach of legal and regulatory requirements (including ABC laws)
7 Inability to identify and respond to changes in customer needs
8 Loss of critical supplier
Increase
from
FY2020
Decrease
from
FY2020
No change
TrendLikelihood
Control
High LowMedium
High LowMedium
Impact
High Low
6
1
2
7
3
5
8
P
e
o
p
l
e
O
p
e
r
a
t
i
o
n
a
l
S
t
r
a
t
e
g
y
4
Spirax-Sarco Engineering plc Annual Report 2021 85
Strategic Report
Risk management continued
Key risk management
actions during 2021
The following key actions were undertaken
by the Group during 2021 in addition to
the regular monitoring of existing and
developingrisks:
• Bottom-up risk review: the Committee
received high quality input from its Group
companies and determined that they
have sufficiently robust measures in
place to effectively mitigate the Group’s
principalrisks
• Risk register: the bottom-up risk review
informed the annual review, validation and
update of the risk register
• Fraud risk: a number of fraud risks were
identified at the fraud risk workshop held in
February 2021 including payments fraud
and financial misrepresentation. TheRisk
Management Committee approved a
number of actions to mitigate such risks
including the development of a Red
Flagtoolkit to help our leaders identify
early warning signs that wrongdoing might
be occurring
• COVID-19 pandemic: the key risks
impacted by the COVID-19 pandemic
were again reviewed and revised as
the pandemic moved into a new phase
during2021
• Enterprise risk management:
benchmarking the current risk
management activity and process against
a standard framework using a third party
consultant was deliberated and approved
• Board review of risk management:
the risk management process and
substantive risk matters were discussed
with the Board yielding a number of
outcomes including definition of the
distinction between strategic and
operational risks
• Risk Appetite Statement: the Risk
Management Committee confirmed
the statement, which can be found on
page130
The Committee’s analysis of the principal
risks affecting the Group, before mitigation,
isset out in the diagram on page 85.
Managing risks
Group operating companies
Group-wide risk register
Maintained and reviewed by the Risk Management Committee
Risk assurance
Internal audit (ongoing review of effectiveness
by the Audit Committee and Risk Management Committee)
Risk review (external/internal)
Carried out at regular intervals
Reports to
Top-down review
Bottom-up review
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
theeffectiveness of internal controls and theaudit process
Audit
Committee
Board
Moving into a new phase of
the COVID-19 pandemic
As the world emerged from the first year of
COVID-19, we continued to closely monitor
the ongoing impacts of the pandemic,
particularly on our workforce, supply chain,
and the availability of materials, components
and other resources. The effect of the
pandemic on the Group, the importance
of critical suppliers, together with the need
to control and mitigate the risk, meant
diversifying supply for key components. This
led to the Committee approving the elevation
of Loss of Critical Supplier to a principal risk.
Review of risk management
by the Board
The Board discussed the risks affecting the
Group and determined a distinction between
strategic risks which, if they materialise in
the medium to long term, could have a
material adverse effect on the growth and/
or returns of the Group’s business, from
operational risks (including the principal
risks) which, if they materialise in the short
to medium term, could have a material
adverse effect on the Group’s business by
impacting business performance. Whilst
both risk types fall within the remit of the
Board, the Board has delegated to the Risk
Management Committee the management
of the operational risks.
It was further determined that the Committee
retain its assessment of top-down and
bottom-up risk reviews on an alternating year
review basis to maintain the quality of the
returns.
The speed of change of each risk, Risk
Velocity, was agreed to be deliberated
in 2022 to assess its inclusion in the risk
management process from 2022 onwards.
Enterprise risk management
Arising from the internal audit undertaken
in 2021, the Risk Management Committee
discussed the value in benchmarking
the current risk management activity and
process against a standard framework
using a third party consultant. The value
of such process was recognised and was
deemed to be beneficial in further developing
the Group’s risk management process.
Itwas determined that the exercise would
be undertaken in the first quarter of 2022
prior to the finalisation of the report for the
consideration of the Risk Management
Committee.
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202186
Risk register review
Following the annual review of the risk
register, principal risks and the responses
from the bottom-up risk review, Loss of
Manufacturing Output at any Group Factory
was further elevated in priority as a principal
risk in the risk register and Failure to Realise
Acquisition Objectives was subsequently
lowered in ranking. Loss of Critical Supplier
was introduced as a new principal risk in the
risk register to recognise the pressures our
supply chains have faced over the lastyear.
The year-on-year trend for each principal risk
was assessed and updated and risk appetite
ratings validated or adjusted for each of the
principal risks.
Climate risk
Climate risk is an emerging risk that we
continue to closely monitor in light of national
and global developments. We recognise
the importance of considering climate risks
and opportunities in our business decisions.
Our climate risk is managed holistically by
the Committee with regular updates to
the Group Executive Committee and the
Board. The risk remains on our risk register
and a part of key strategy discussions
at the Board. We also acknowledge the
role of the Task-Force on Climate-related
Financial Disclosures (TCFD) in supporting
the transition to a low-carbon economy.
Our disclosures, set out on page 57 of the
Sustainability Report demonstrate how we
are managing our climate impact and how
our organisation is evolving in response to
the risks and opportunities arising.
Emerging risks
We are monitoring the current conflict
in Ukraine. Our business in the Ukraine
is confined to Steam Specialties and is
small. Sanctions apply to Russia where
our Businesses account for close to 1%
of Group revenue. Contingency plans are
in place to respond to our announced
suspension of trade with, or within, Russia.
The Risk Management Committee and the
Board keep a watching brief on emerging
risks and over-the-horizon risks. This
included identifying future opportunities
and risks that develop from changes in
materials technology and nano technology.
We alsoconsider technologies such as
the industrial internet of things and digital
technologies. It is vital that we keep our
business current and able to use the
latest know-how.
Committee focus
for2022
• Top-down risk review and annual
review of risk register
• Continue in the first half of 2022 to
undertake the remaining approved
actions arising from the fraud risk
workshop in 2021
• Consider and assess the inclusion
of Risk Velocity as an additional
metric in the risk management
process
• Evaluate and assess the risk
management framework in light of
the Enterprise Risk Management
process review and report to be
produced in 2022
• Continue with accelerated
sustainability implementation and
digital capabilities and monitor the
impacts of the same on our risks
and risk management process
Further reading
Information on the Group’s approach to
risk, including risk appetite, along with the
roles, responsibilities and actions of the Risk
ManagementCommittee.
See pages 127 to 130
Our Viability Statement
See page 130
Our Going Concern Statement
See pages 43
Principal risks
The following table sets out the Group’s
principal risks, as agreed at the most recent
meeting of the Risk Management Committee
and describes the links to strategy, the
mitigation measures and the appetite for
each risk. The trend column sets out the
direction of change from2020.
The table includes those risks that we
haveidentified as currently most relevant
tothe 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
Seeking to integrate sufficient
control and mitigation methods
in order to accommodate a low
level of risk, though this will also
limit reward potential.
Balanced
An approach which brings
a high chance for success,
considering the risks, along with
reasonable rewards, economic
and otherwise.
High
Willing to consider bolder
opportunities with higher levels
of risk in exchange for increased
businesspayoffs.
Very high
Pursuing high-risk, unproven
options that carry with them the
potential for high-level rewards.
Spirax-Sarco Engineering plc Annual Report 2021
87
Strategic Report
Risk management continued
Principal risk and
why it is relevant
Trend
Key mitigation, sponsor
and explanation of change
Risk
appetite
rating Rationale for rating
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
andcurrency.
• Strong internal controls, including internal audit and
appropriate insurance
• Operating in line with the Group Treasury Policy, including
currency exchange hedging and cashpooling arrangements
• Externally-facilitated scenario planning exercises
• Resilient business model, strengthened by regular strategic
business reviews
• Well spread business by geography and sector
• Increased liquidity through more headroom on Group debt
facilities
Executive sponsors: Group Chief Executive
Change: No change.
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 exceed
the impact of this risk.
1 2 3 4 5 6
Link to strategy:
2. Significant exchange rate movement
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
ratevolatility.
• 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, including sourcing
materials from cheaper markets, and purchasing in the UK in
foreign currency
• Deployment of price management tools
Executive sponsors: Chief Financial Officer
Change: No change
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.
1 2 3 4 5 6
Link to strategy:
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202188
Principal risk and
why it is relevant
Trend
Key mitigation, sponsor
and explanation of change
Risk
appetite
rating Rationale for rating
3. Cybersecurity
Cybersecurity risks include
risks from malware,
accident, statutory and
legislative requirements,
malicious actions and
other unauthorised access
by third parties, including
through our supply chain.
• 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
• System access rights regularly reviewed and new MFA (Multi
Factor Authentication) introduced
• Further strengthening of security for centrally-managed
systems for heightened protection and consistency
• Cyber insurance cover for all Group companies
• Mandatory cyber awareness training is delivered to all staff
electronically each year
Executive sponsors: Group IS Director
Change: No change
Very high
High
Balanced
Low
Very low
Concerns of potential
impact on the
business, in addition
to the important
considerations
surrounding
protection of personal
data, reinforce
our commitment
to implement and
maintain robust
security measures
across the Group.
1 2 3 4 5 6
Link to strategy:
4. Loss of manufacturing output at any Group factory
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
salesoperations.
• New facility planned for Watson-Marlow in North America
• Expansion of capacity planned for Thermocoax in France and
BioPure in the UK
• 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
allemployees
• Comprehensive manufacturing footprint project undertaken
• Investment in new sites to open alternate lines of supply
Executive sponsors: Managing Directors of Steam Specialties,
Electric Thermal Solutions and Watson-Marlow
Change: There has been an increase in this risk taking account
of COVID-19 infections among a skilled workforce. This risk has
been controlled and mitigated by more Group factories coming on
stream such as the expansion of existing capacity at Thermocoax
in France and BioPure in the UK and the planned new Watson-
Marlow facility in North America.
Very high
High
Balanced
Low
Very low
While we have
mitigated this risk
through a geographic
spread of factories,
calculated replication
of capacity and
management of
stock, we have a
low appetite for
this risk due to the
potential negative
consequences
to the Group and
itscustomers.
1 2 3 4 5 6
Link to strategy:
Spirax-Sarco Engineering plc Annual Report 2021
89
Strategic Report
Risk management continued
Principal risk and
why it is relevant
Trend
Key mitigation, sponsor
and explanation of change
Risk
appetite
rating Rationale for rating
5. Failure to realise acquisition objectives
While the Group mitigates
this risk in various
ways, including through
comprehensive due
diligence, professional
advisers and contractual
protections, there are
some variables that are
uncontrollable or difficult to
control, such as economic
conditions, culture clashes
and colleague movement,
which 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
warrantyclaims
• Use of insurance as protection against seller breach
andnon-disclosure
• Ensuring valuation models show a healthy return
oninvestment
• Regular monitoring of performance by the Board against the
approved investment case
Executive sponsors: Group Chief Executive
Change: No change
Very high
High
Balanced
Low
Very low
Thorough planning
and proper due
diligence can
mitigate many
of the potentially
risky aspects of
an acquisition.
Implementation
plans must be
well-developed and
carefully pursued
to achieve the
full strategic and
financialbenefits.
1 2 3 4 5 6
Link to strategy:
6. Breach of legal and regulatory requirements (including ABC laws)
We operate globally and
must ensure we comply
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 colleagues
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.
• Ongoing global monitoring of commercial arrangements and
agreements, with appropriate professional advice
• Established procedures to maintain accreditations
• Annual Group-wide ABC training improved with a new
programme
• Multi-lingual, multi-national secure whistle-blowing hotline
• Group Litigation Report and ongoing monitoring of cases
• Regular updates on Corporate Governance and Stock
Exchange rules
• General Data Protection Regulation compliance plan in place
• Conducting supplier audits
• Engaging suppliers to commit to compliance with the
principles of the Supplier Sustainability Code
Executive sponsors: Group General Counsel
Change: No change
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.
1 2 3 4 5 6
Link to strategy:
Strategic Report
Spirax-Sarco Engineering plc Annual Report 202190
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 because
of a failure to respond
rapidly to changes in the
needs of customers or
technologyshifts.
• Stronger presence of sales engineers, compared with
competitors, in the marketplace
• Watson-Marlow implemented a product development
pipeline process which tracks trends and changes in each
industrysector
• New product ideas generated by market development
managers from close alignment with sales engineers
andcustomers
• Sales and competitor analyses undertaken to identify any
trends or technology shifts
• Digital strategies for Steam Specialties, Electric Thermal
Solutions and Watson-Marlow are under preparation with
longer term implications on investment, resource levels, new
skills and need to develop external partnerships
• Appointed a Group digital director with the objective of
developing a Group digital strategy
Executive sponsors: Managing Director, Steam Specialties
Change: No change
Very high
High
Balanced
Low
Very low
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
thisrisk.
1 2 3 4 5 6
Link to strategy:
8. Loss of critical supplier
This risk is concerned with
the impact of the loss of a
critical supplier that could
leadto logistical difficulties
anddelayed deliveries
• Improved supplier risk assessments and actions to create
supply chain alternatives
• Supplier selection processes have been improved with
increased importance placed on product quality, product
delivery, financialstability and supplier sustainability
• Supplier development and supplier management resources
have been strengthened
• As part of our procurement strategy, we are securing more
robust sources of supply
• Dual sourcing strategies for critical suppliers and critical parts
give us greater flexibility in our supply chain
• Continued with global market assessment exercises to
establish correct price points and mitigate price increases
Executive sponsors: Business Supply Heads
Change: The pandemic has highlighted the Group’s awareness
of the importance of its critical suppliers together with the
need to control and mitigate the risk by diversifying supply for
keycomponents.
Very high
High
Balanced
Low
Very low
Our expenditure
with suppliers is not
heavily concentrated
in any one supplier
or group of suppliers.
Therefore, while
the loss of a critical
supplier would
present logistical
difficulties and would
likely lead to delayed
deliveries, the impact
would be limited in
terms of number
of products and
customers affected.
1 2 3 4 5 6
Link to strategy:
Spirax-Sarco Engineering plc Annual Report 2021
91
Strategic Report
Governance helps us to
ensureour shareholders receive
a good return on their investment
and that we act with integrity,
support our colleagues and
customers, treat our suppliers
and local communities properly
and importantly, respect and
protect the environment.
Governance
Spirax-Sarco Engineering plc Annual Report 202192
The Governance
Report describes
the responsibilities
of the Board and
its Committees, the
key activities during
2021 and the focus
for 2022.
We have summarised some of the key
words from the UK Corporate Governance
Code’s (Code) Principles A-E as shown in the
graphic 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 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.
During 2021, the Board continued to ensure
that our Purpose and culture satisfies our
emphasis on sustainability, inclusion, diversity
and wellbeing.
In this section
1. Board leadership and Company Purpose 94
– Chair’s introduction 94
– Board of Directors 96
– Purpose, culture, leadership and tone 99
– Engaging with our stakeholders 101
– Employee Engagement Committee Report 104
2. Division of responsibilities 108
3. Composition, succession and evaluation 113
– Nomination Committee Report 113
Approach to
Governance
Key information
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 on the right.
Company
Purpose
See inside
front cover
Sustainable
thinking
See pages 12 to 23,
31, 35,46 to 68
and 102 to 103
Business
model
See pages 24 to 25
Strategy
See pages 30 to 35
Workforce
practices
See pages 32 to 33,
48 to 51 and
104 to 107
Resource/
capital allocation
See pages 41 to 45
Effective controls
and framework
See pages 85 to 91
and 118 to 130
Culture and
Values
See pages 23 and 99
Stakeholder
engagement
See pages 101 to 103
Leading an effective and entrepreneurial
Board for long-term, sustainable success.
4. Audit, risk and internal control 118
– Audit Committee Report 118
– Risk Management Committee Report 127
5. Remuneration 131
– Remuneration Committee Report 131
– Remuneration at a glance 135
– Annual Report on Remuneration 2021 136
– Remuneration Policy 2020 152
Regulatory disclosures 161
Statement of Directors’ responsibilities 165
Spirax-Sarco Engineering plc Annual Report 2021 93
Governance
1. Board leadership and Company Purpose
Chair’s introduction
Board changes
Richard Gillingwater was appointed as
an Independent Non-Executive Director
on 9th March 2021 and became Senior
Independent Director with effect from 1st
August 2021, succeeding former Senior
Independent Director Trudy Schoolenberg,
who stepped down from the Board after
completing nine years as a Director.
Board highlights
The Board met in-person twice during the
year, with the remaining six meetings held
virtually. We had the opportunity to speak
with colleagues from around the Group
through employee engagement forums
and attendance at the Group’s inaugural
Leadership Conference. This engagement
has informed key decisions, reflecting
colleagues’ views on topics such as hybrid-
working and wellbeing, now incorporated
within the Group’s Inclusion Plan.
Good governance
To continue to enhance the Board’s
effectiveness, we reorganised membership
of our Board Committees, better aligning the
skills of individual Non-Executive Directors
across our different Committees.
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 96 to 101). 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.
Board Effectiveness
During 2021, we undertook a Board
effectiveness review in partnership with
Egon Zehnder. Its goal was to examine
how our highly functioning Board can work
most effectively and how it can work best
with the Group Executive Committee.
Egon Zehnder conducted a comprehensive
process including interviews with each
individual Director and several follow-up
meetings. The review considered the Board’s
strengths by looking at individual capabilities
and contributions, what the Board does
and the way in which the Board members
work together. The key findings were then
presented to the Board and actions agreed.
The conclusions reflected positively on
the diversity of the Board as well as the
Non-Executive Directors’ confidence in
the Executive Directors. It also noted a
consistent record of quality decision making
as well as a broadening of risk awareness.
The review did identify some areas for
consideration, which included the Board
members spending more time with each
other and visiting the Group’s sites when
possible, having more separation in the
reporting by the Group Chief Executive and
Chief Financial Officer and more one-to-one
contact between the Chair and the Non-
Executive Directors.
Spirax-Sarco Engineering has developed
into a very high performing and successful
Company and there is a high degree of
confidence in the organisation’s ability to
grow further and execute successfully.
The review emphasised the
following strengths:
• Strong sense of team identity
• High levels of engagement and a positive
team spirit
• Strong, trusted and respectful relationships
– Very collegiate atmosphere
– Refreshed with new members recently
joining – accommodating, inclusive
and supportive
– Committed to their collective goals
– Resilient – demonstrated its agility,
responsiveness and ability to make
fast decisions
Areas for consideration:
• Sufficient time on considering what
may go wrong or where future threats
may emerge
• An opportunity to allow for more strategic
discussion and debate
Another change resulting from this review
was to concentrate the right skills of our
Non-Executive Directors on the different
committees of the Board – Non-Executive
Directors sit on different Committees whilst
being free to attend all Committees if they
wish. Please see the details in the Board of
Directors section on pages 96 to 98.
“In 2021, we focused on culture,
withthe launch of our Group
Inclusion Plan. New strategies
for Digital and Sustainability as well
as significant investment in our
future growth will accelerate our
performance and support our path
towards achieving leadership in
industrial sustainability.”
Jamie Pike
Chair
Governance
Spirax-Sarco Engineering plc Annual Report 202194
Key Board activities 2021
Sustainability
The Board supported and approved our
‘One Planet’ Sustainability strategy which
was launched Group-wide and externally in
June 2021. With initiatives including steps to
address biodiversity and carbon reduction,
it commits the Group to achieving net zero
greenhouse gas emissions in scopes 1
and 2 by 2030. The Board subsequently
approved our commitment to achieve net
zero in our scope 3 emissions by 2050
and supported investments to deliver on
our net zero targets, through approving the
project to decarbonise Steam Specialties’
manufacturing facility in Cheltenham (UK), as
well as continuing to invest in products and
solutions to help our customers decarbonise
their industrial processes. See pages 55
to 56 of the Sustainability Report for more
details on these commitments.
Inclusion, equity and wellbeing
We developed our first Group Inclusion
Plan, which sets out how we will create
an inclusive and equitable working culture
where all colleagues can be themselves and
achieve their full potential. It supports the 17
United Nations’ Sustainable Development
Goals and applies to the whole Group.
It includes ten Inclusion Commitments to
our colleagues across the world in areas
such as gender-neutral parental leave, paid
leave for caregivers, support for pregnancy
loss, creating workplaces that are safe
spaces for everyone to be themselves as
well as menopause-friendly and becoming
a more gender balanced, ethnically diverse,
faith-aware and disability confident employer.
You can find more information on pages
50 and 52 to 53 of our Sustainability
Report and on pages 115 to 116 of the
Nominations Report.
Digital strategy
The Group Digital strategy was approved
by the Board to enhance and accelerate
performance of our respective Business
strategies, while also preparing the
Group for digital transformation in the
next strategic cycle. We have built on the
significant progress made with digitisation
in Steam Specialties, including the recently
announced acquisition of Cotopaxi and we
are looking to further advance this strategy
in our Watson-Marlow and Electric Thermal
Solutions Businesses.
Fair, balanced
andunderstandable
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 2021
We consider that our performance was
strong in 2021: our excellent financial
performance was ahead of pre-pandemic
performance in 2019 whilst we continued to
make the significant investments in our future
growth, as described.
Board Focus for 2022
• Investment in organic expansion
• Targeted acquisitions
• Implementation of our
Sustainability, Group Inclusion and
Digital strategies
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
Expansion projects
During 2021, the Board has approved and
supervised a significant programme of
expansion across the Group, ensuring they
are in accord with our sustainability approach
and our obligations under section 172 of the
Companies Act. As detailed on page 101
of this Report these important investments
in our Group’s manufacturing capacity and
capabilities include the decision to accelerate
the expansion of Watson-Marlow’s
BioPure facility in Portsmouth (UK), as well
as our largest ever investment in a new
manufacturing facility for Watson-Marlow in
the US, which will enable us to better fulfil our
customers’ requirements in the Americas,
through increased product volumes and
faster delivery times.
Management changes
The Board oversaw the appointment of
Armando Pazos, who succeeded Dominique
Mallet as the President of our Electric
Thermal Solutions Business.
External consultants
All external consultants have no conflict of
interest and no connection with the Group or
individual Directors.
Statement by the Directors
on compliance with the Code
The Code applied to the Group for the
financial year ended 31st December 2021.
The Board considers that it has complied
in full with the provisions of the Code other
than provision 38 (Executive Directors’
pension contributions) where, in line with
the 2020 Remuneration Policy, all Executive
Directors will move to the new level of 10%
of base salary by the end of 2022. We detail
our compliance, on a Code provision-
by-provision basis, in the Corporate
Governance section on our website,
www.spiraxsarcoengineering.com.
Spirax-Sarco Engineering plc Annual Report 2021 95
Governance
1. Board leadership and Company Purpose continued
Board of Directors
At year end 2021
RK
RK
N
Nimesh Patel BSc
Chief Financial Officer
Appointed to the Board
September 2020
Areas of experience
International, senior management, M&A,
financeand accounting, industrial, pensions,
taxand 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
14years in investment banking at both JP
Morgan and as a Managing Director at UBS.
External appointments
Trustee of the charity ReachOut.
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.
External appointments
Non-Executive Director and designate Chair of
XP Power Limited.
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.
Peter France
Independent Non-Executive Director
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.
A
EE
N
Caroline Johnstone BA, CA
Independent Non-Executive Director
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.
A
EE
N
EE
N
R
Angela Archon MSc, BSc
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.
Governance
Spirax-Sarco Engineering plc Annual Report 202196
A
N
R
Richard Gillingwater MA
Independent Non-Executive Director
&Senior Independent Director
Appointed to the Board
March 2021
Areas of experience
International business, investment, finance and
non-executive experience
Background
Richard Gillingwater has held a range of
executive positions within global investment
banks including Kleinwort Benson, Credit
Suisse and Barclays de Zoete Wedd. Richard is
qualified as a solicitor.
External appointments
Chair of Janus Henderson Group plc, Senior
Independent Director of Whitbread plc and
Governor of the Wellcome Trust.
Key
A
Audit Committee
N
Nomination Committee
EE
Employee Engagement Committee
R
Remuneration Committee
RK
Risk Management Committee
Denotes Committee Chair
Executive
Non-Executive
Flag denotes country of citizenship
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.
Jane Kingston BA
Independent Non-Executive Director
Appointed to the Board
September 2016
Areas of experience
Engineering, international, senior management,
operational, people, remuneration
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.
EE
N
R
A
EE
N
Olivia Qiu PhD, BSc
Independent Non-Executive Director
Appointed to the Board
December 2020
Areas of experience
Engineering, international, digital
transformation,innovation
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
(formerlyPhilips Lighting).
Kevin Thompson BSc, FCA
Independent Non-Executive Director
Appointed to the Board
May 2019
Areas of experience
Engineering, international, senior
management,M&A, strategy, finance,
pensions,taxand 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
Trustee of the Great Ormond Street Hospital
Children’s Charity.
A
N
R
Further reading
Read about our Board diversity, composition,
succession and evaluation.
See pages 98 to 99.
Spirax-Sarco Engineering plc Annual Report 2021 97
Governance
Composition and skills
Board overview
International
Engineering
Senior management
M&A
Strategy
Operational
Sales and marketing
Finance
People
Innovation
Investment
Digital transformation
7
9
5
6
6
2
4
1
1
2
4
Core expertise
1
Nationality
1
N. J. Andersonholds dual British and American citizenship.
2
J. Pikeholds dual British and Irish citizenship
British
1
American
1
Irish
2
French
8
2
1
1
Gender
Male
Female
6
4
1. Board leadership and Company Purpose continued
The Board at a glance
Length of service
3
1
5
1
5+ years
3–5 years
Less than a year
1–3 years
Board focus and attendance
20
15
15
15
20
20
How the Board spent its time %
Operations and risk
Strategy
Finance
Governance
Acquisitions
People and
Succession
Board meetings Attendance
Feb Mar Apr May June Aug Oct Dec
Jamie Pike 8/8 100%
Nicholas Anderson
8/8 100%
Trudy Schoolenberg
1
5/5 100%
Richard Gillingwater
2
5/5 100%
Nimesh Patel
8/8 100%
Jane Kingston
8/8 100%
Kevin Thompson
8/8 100%
Caroline Johnstone
8/8 100%
Peter France
8/8 100%
Angela Archon
8/8 100%
Olivia Qiu
8/8 100%
1 Stepped down from the Board on 31st July 2021.
2 Richard Gillingwater was appointed to the Board in March 2021 and attended his first Board meeting
in June.
Governance
Spirax-Sarco Engineering plc Annual Report 202198
1. Board leadership and Company Purpose continued
Purpose, culture, leadership and tone
Our Purpose
Our Purpose is to create sustainable value
for all our stakeholders as we engineer a
more efficient, safer and sustainable future.
The way in which our Purpose serves
each of our stakeholder groups is outlined
on pages 101 to 103. Our Purpose helps
our Group companies to stay relevant in a
fast-changing world, it drives our direction
and priorities and connects us with the
communities of which we are part. It also
provides our colleagues with the clarity
needed to respond quickly and move as
ONE Group.
Culture and Values
To achieve our Purpose, we rely on
our common and established business
model and most importantly, a strong and
supportive culture. Our culture comes from
colleagues living our Values (see page 23)
to provide mission-critical solutions for our
customers’ essential industrial processes.
Our Values guide Board decision making
too. We prioritise safety and through our
engagement with each other and our Group
colleagues we help improve Collaboration
and Respect. We support Excellence
and Customer Focus through an ongoing
programme of investment - our decision
making is supported by site visits and
management presentations. We promote
and support integrity through our transparent
approach, as well as ensuring the Group has
appropriate processes and controls which
underpin strong corporate governance.
Our Group Inclusion Plan, including our
minimum Inclusion Commitments has been
launched to strengthen our ability to fulfil our
Group Purpose. It will create the conditions
to accelerate and celebrate our diversity,
as well as enhance wellbeing. As a more
inclusive Group we aim to unlock more of
our creativity and innovation, drive superior
performance as well as attract and retain
our talent.
The Board monitors and assesses culture
using the following mechanisms: turnover
rates, training data, recruitment data, reward
and promotion decisions, whistle-blowing
cases, grievance as well as ‘speak-up’
data, health and safety data (including
near misses), promptness of payments to
suppliers, attitudes to regulators, internal
audit reports, colleagues survey results,
focus groups and exit interviews, together
with information from the internal audit team
on the impact of policies and processes.
Board composition
As illustrated in the Board biographies on
pages 96 to 97 and the Board overview
diagrams (at year end 2021) 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 January 2021 we have
three such Directors that represent 30% of
our Board
• our minimum target of 33% female
representation on our Board – with effect
from 1st January 2021 we had 50%
female representation on our Board,
which dropped to 45% when Richard
Gillingwater was appointed in March 2021.
At the end of December 2021 we have
40% female representation on the Board
as a result of Trudy Schoolenberg stepping
down as a Director in August.
Long-term
sustainablesuccess
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.
Armando Pazos was appointed as the new
President of our ETS Business effective 1st
December 2021 to build on the foundations
established by Dominique Mallet.
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.
In 2021, they encouraged the Group to
actively pursue its Digital strategy as well as
accelerating investment in a collaboration
project between the Group’s Steam
Specialties and Electric Thermal Solutions
Businesses. The resulting Thermal Solutions
Synergy project (see pages 34 and 81),
brings the complementarity of these
Businesses to the forefront, as they work
together to develop and test solutions for the
decarbonisation of steam generation and
other industrial processes, which will play a
role in the achievement of our own net zero
goals as well as improving our customers’
sustainability (see pages 12 to 15, 35 and
55 to 56).
The emphasis is on growth and on an
entrepreneurial approach with a strong
governance culture.
Spirax-Sarco Engineering plc Annual Report 2021 99
Governance
Governance
Spirax-Sarco Engineering plc Annual Report 2021100
Coming together
as ONE
“Our inaugural Group Leadership Conference
was an important moment to bring our leaders
together after two years of lockdown. It helped
strengthen relationships as we focused on: how to
achieve our sustainability roadmap, where to accelerate
our Digital strategy and why leadership is so important
to our culture built on Values, with inclusion and wellbeing
at its core. We are even more aligned today than ever
before. Coming together as ONE Group, helped us
remember we are an essential business. And we
are an inclusive and sustainable business. Even
more well positioned to achieve our Purpose
to create the more efficient, safer and
sustainable world we all aspire to have.”
Nicholas Anderson
Group Chief Executive
1. Board leadership and Company Purpose continued
Engaging with our stakeholders
Our commitment to
shareholder engagement
The Board recognises our shareholders as
an important stakeholder group. We maintain
an active dialogue with our principal
investors, institutional shareholders, advisers
and the investment community.
During 2021, we undertook the calendar of
events as shown.
By providing regular forums for meeting
and communicating with shareholders,
theiradvisers 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, investor seminars and conferences.
During 2021, Nicholas Anderson, Group
Chief Executive and Nimesh Patel, Chief
Financial Officer, held virtual shareholder
roadshows across a number of key countries
in Europe, Asia and North America. In May
2021, we held a three-hour Investor Seminar
dedicated to providing a more in-depth
understanding of our Watson-Marlow
Business, covering strategy, markets,
products, sectors and drivers of both
demand and growth. This was attended
by investors and analysts who were given
the opportunity to ask questions of the
Watson-Marlow management team as well
as the Group Chief Executive and Chief
Financial Officer. Materials from the seminar
are available on the Group’s website:
www.spiraxsarcoengineering.com
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 101 to 103 constitutes our S172
Statement, as required under the Companies
(Miscellaneous Reporting) Regulations 2018.
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 Group
in a responsible manner and to the highest
standards of business conduct and good
governance. We will contribute to the long-
term success of the Company and continue
to nurture our reputation as a responsible,
successful Group that delivers stakeholder
value, asoutlined in our Company Purpose.
Mindful of its duties and obligations under
Section 172 of the Companies Act 2006, we
have set out below some examples of how
the Board took into account the impact to
the Company’s shareholders, colleagues,
communities and other stakeholders in
making key decisions:
New BioPure facility at
Dunsbury Park, UK
The new site was chosen, due to the
proximity to the existing facility, to minimise
any potential disruption to colleagues
impacted by the change of working
location. The design of the building took
into consideration the impact on the local
community. The site landscaping has been
developed in line with our One Planet
Sustainability strategy in order to achieve a
biodiversity net gain of at least +10%.
Acquisition of Cotopaxi, UK
The acquisition was made primarily to
enhance our Digital strategy. Following the
acquisition we immediately enhanced the
salaries and benefits available to Cotopaxi
colleagues in order to align with our wider
Group policies. We have ensured that
this business, which is a reasonable sized
employer in Skelmersdale, has a long-term
future as part of our Group.
We treat our shareholders 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 2021, seepage 103.
2021 Shareholder engagement
January
• Berenberg IR Forum
• Investor and analyst calls/emails
February
• Investor and analyst calls/emails
March
• FY Results Announcement and
shareholder roadshows (virtual)
• BofA Securities Global Industrial
Conference (virtual)
• Berenberg – UK Corporate
Conference(virtual)
• UBS: Virtual Nordic Investor
Tour(virtual)
• Investor and analyst calls/emails
April
• Investor and analyst calls/emails
May
• AGM and Trading Update
• WM Investor Seminar (virtual)
• Investor and analyst calls/emails
June
• JP Morgan European Capital
Goods Conference
• Investor Roadshow – APAC (virtual)
• Investor and analyst calls/emails
July
• Investor and analyst calls/emails
August
• Half Year Results Announcement
andshareholder roadshows (virtual)
• Investor and analyst calls/email
September
• Morgan Stanley Industrial CEOs
Unplugged Conference
• Investor and analyst calls/emails &
Fireside Chats
October
• Investor Roadshow – US (virtual)
• Investor analyst calls/emails and
Fireside Chat
November
• Trading Update
• Investor site visit to Cheltenham
• Goldman Sachs Industrials
Conference, London
• Numis: North American Investor
Conference (virtual)
• Investor and analyst calls/emails
December
• Berenberg European
Conference,Surrey
• Investor and analyst calls/emails
Spirax-Sarco Engineering plc Annual Report 2021 101
Governance
1. Board leadership and Company Purpose
Engaging with our stakeholders
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
CDP (formerly known as Carbon
Disclosure Project) and the Task
Force on Climate-related Financial
Disclosures (TCFD)
Key issues and how
we have responded
• Our One Planet: Engineering with
Purpose Sustainability strategy
was refreshed following extensive
engagement with more than 600
stakeholders. In One Planet we
commit to:
– Achieving net zero carbon in scopes 1
and 2 by 2030 and scope 3 by 2050
– Reducing energy and water use
– Eliminating solvent based paints
– Achieving ISO 14001 at all our
manufacturing sites by 2025
• The CDP increased our score from
a B to an A-taking us into their
environmental leadership band
• We signed up to two important
initiatives, Race to Zero and Business
Ambition 1.5ºC, to guide our activities
in line with climate science
Read more on pages 12 to 19, 25, 35
and 54 to 65
Our customers
Why it’s important
We generate value for our stakeholders
as we help our customers 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
facilitates effective customer
engagement, allowing us to
deeply understand their needs
and requirements
• Regular ‘Voice of the customer’
(VoC) activities 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
Key issues and how
we have responded
• Through VoC engagement and
understanding the increasing
importance of sustainability to our
customers we have:
– Extended our product screening
to identify more product
categories that can offer quantified
sustainability benefits
– Accelerated our investment in the
synergy solutions development
project between Steam Specialties
and ETS which is developing
innovative heating solutions for the
decarbonisation of steam generation
and other industrial processes
– Initiated a pilot project in the UK to
focus on the elimination of virgin, non-
recyclable and non-biodegradable
packaging that has identified 14
improvement areas and is informing
changes to our customer packaging
Read more on pages 12 to 21, 24 to
25, 30 to 35 and 63 to 66
Our colleagues
Why it’s important
Our success is testament to the
knowledge, skills and dedication
of our colleagues. We focus on the
things that matter most to them such
as their health, safety and wellbeing.
We understand what’s important
through effective engagement directly
with the Board and at all levels of
the Group. We’ve invested in our
Group Communications capabilities
to help unify our colleagues around
our Group Purpose and ensure our
communications are more effective.
How we are engaging
• We communicate through a variety
of mediums including meetings,
conferences, videos, emails
and campaigns
• We have developed a Group
Communications Plan to strengthen
internal communications and reach
colleagues through a wider range
of channels
• Through our global colleague survey
we listened to the views of our
colleagues and developed plans to
address areas where colleagues told
us we could do better
• Our Employee Engagement
Committee ensures that the views
and interests of colleagues are
considered at Board level
Key issues and how
we have responded
• Results from a wellbeing pulse survey
resulted in the creation of a Wellbeing
Toolkit in multiple languages
• Feedback from Board-led focus
groups on hybrid working resulted in
the adoption of a new global Hybrid
Working Policy
• Significant engagement with various
teams informed the details of our
Group Inclusion Plan, Everyone
is Included
Read more on pages 8 to 9, 30 to 35,
48 to 53 and 104 to 107
Governance
Spirax-Sarco Engineering plc Annual Report 2021102
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
• We provide all our colleagues with
three day’s paid volunteering leave
so they can use 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
Key issues and how
we have responded
• Our colleagues recorded over 11,000
volunteering hours during the year
with every Operating Company
undertaking at least one community
engagement project during 2021
• We launched the Spirax-Sarco Group
Engineering Education Fund with
an initial contribution of £1 million.
The goal of the Education Fund is to
support and promote inclusive and
equitable access to education by
beneficiaries in the communities in
which Group Companies operate
• Including the first donation to our
Group Education Fund, during the
year we provided almost £2 million
of financial and in-kind donations,
as well as colleague time to support
local good causes.
Read more on pages 25, 35 and 67
Our shareholders
Why it’s important
• The Board recognises our
shareholders as an important
stakeholder group
• We maintain an active dialogue with
our principal investors, institutional
shareholders, advisers and the
investment community
• We communicate through meetings,
emails, conferences and seminars,
virtually and face-to-face. We issue
results and updates through the
Regulatory News Service and hold
dedicated Investor Seminars on
specific topics from time-to-time
How we are engaging
• The Board receives regular updates
from our Investor Relations team who
engage with shareholders, analysts
and other stakeholders. This team
supports the Group Chief Executive
and Chief Financial Officer to deliver
an ongoing programme of meetings,
presentations, calls and conferences
ensuring allocation of time across
every level of shareholding
Key issues and how
we have responded
• In response to feedback from
investors the Group held an Investor
Seminar in May to provide insight
into the Watson-Marlow Business
including strategy, markets, sectors,
products and progress
• We undertook around 240
investor meetings in 2021 and
every shareholder request
was accommodated
• We facilitated conversations with our
Group Sustainability team to aide
investor understanding of, as well as
input to, our Sustainability strategy
Read more on page 101
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. We are
working with our key suppliers to
overcome supply constraints as a result
of the pandemic and aftermath.
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
Key issues and how
we have responded
• We have reviewed and re-defined
our Minimum Standards for suppliers
and commenced development of
a training plan for suppliers and
purchasing teams to be rolled out
in 2022
• Worked collaboratively with existing
and new suppliers to anticipate
and mitigate the effects of global
shortages of raw materials and
components, increasing the number
of meetings and site visits to help
solve challenging issues such as
freight delays
Read more on pages 25, 34 and 66
Spirax-Sarco Engineering plc Annual Report 2021 103
Governance
Our remit – A voice in the
Board room: “What would
our colleagues think?”
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 and to understand and support
colleague engagement activities across
the Group. We regularly pose the question,
“What would our colleagues think?”
whenever we are making important
decisions. During the year, Board discussions
took account of colleague feedback when
we discussed topics such as:
• Our One Planet Sustainability strategy and
investment, including plans to decarbonise
our manufacturing facility for Steam
Specialties in Cheltenham (UK)
• Redevelopment of our UK Group
Headquarters in Cheltenham and
Innovation centre
• Investments in Watson-Marlow’s
manufacturing capacity in the UK
and USA
Separately, the Board also engaged with
colleagues on how executive remuneration
aligns with wider Company pay policies.
This engagement was led and delivered by
the Chair of the Remuneration Committee
set out on page 133.
Our approach to
colleagueengagement
Our Employee Engagement Committee
was introduced in 2019 to open up a more
regular direct dialogue between the Board,
including the Non-Executive members,
and the workforce, providing insights
and opportunities for two-way discussion
and feedback. It has also added to our
oversight of the culture across the Group.
The Committee enables us to comply
with Provision 5 of the UK Corporate
Governance Code.
I have been Chair since the inception of
the Committee, based on my previous
people leadership roles in PwC and other
businesses. During 2021, we welcomed
some new members to the Committee who
have brought a different perspective; we
now have Committee members based in the
Americas and in Europe.
Members
Our Employee Engagement Committee comprises:
Meetings attended
Attendance
%
Feb June Oct
Caroline Johnstone (Chair) 100%
Peter France
100%
Jane Kingston
100%
Angela Archon
100%
Olivia Qiu
67%
Jamie Pike*
100%
Kevin Thompson*
33%
Trudy Schoolenberg*
33%
1. Board leadership and Company Purpose continued
Employee Engagement Committee Report
“
During 2021, despite ongoing travel restrictions,
we spoke directly to a wide range of colleagues
at all levels of the organisation. Board employee
engagement activities are becoming embedded
as part of the Group’s engagement approach,
are complementary to the role of the Group
Executive Committee and add real value to
Board and executive thinking.”
Caroline Johnstone
Chair of Employee Engagement Committee
40
20
40
How the Committee spent its time %
Current Engagement Practices
and Survey Results
Direct Colleague Engagement Follow-Up
Committee Remit, Planning,
and Approach to Engagement
This breakdown reflects topics addressed
during Committee meetings, and does not
include time spent during engagement events.
* Following a review of Committee membership to improve the functional efficiency of the Board and
Committees, we changed the composition of the Committee. J Pike, K Thompson and T Schoolenberg
stepped down from the Committee after February 2021.
Mr Pike now attends the Committee meetings in his capacity as Chair of the Board.
Governance
Spirax-Sarco Engineering plc Annual Report 2021104
Committee meetings
and operation*
Following the Board Committee
reorganisations in 2021, the Committee now
includes four Non-Executive Directors (NED)
in addition to myself. Our Board Chair, Group
Chief Executive and Group Chief Financial
Officer also attend each Committee meeting,
which enables us to reflect and discuss
employee engagement in its widest sense.
Other members of the Board and Group
Executive Committee (GEC) regularly attend
the Committee. We meet three times a year
and report back to the full Board after each
meeting with key findings and actions arising.
Amanda Janulis, Group Corporate
Counsel, is the secretary to the Committee.
During 2021, the Committee worked
with Amanda Janulis, Jim Devine, Group
Human Resources Director, and Jenni
Forrester, Head of Colleague Experience.
The Committee remit and agenda would
not have developed so well without the
enthusiasm of Amanda, Jim and Jenni and I
thank them for their support.
Chair’s review of 2021
During the year, the Committee had a full
agenda which included:
• Holding a number of focus group sessions
with colleagues in different areas of the
Group. This year, we had a mix of virtual
and in-person meetings
• Members of the Committee and the Board
also had the opportunity to interact with
a number of colleagues through less
formal events in particular. Following a
very successful introduction in 2020, we
extended our programme of ‘coffee talks’
to all members of the Committee and
all NEDs in 2021. This is now a regular
opportunity for us to speak to colleagues
at all levels of the business one-to-one, to
both understand their role and gain their
feedback on the organisation and their
experience working for the Company.
Other examples are detailed below
• We invited leaders from our Electric
Thermal Solutions (ETS) Business and
Gestra Business to attend Committee
meetings during 2021 to discuss
employee engagement activities and
progress across their Businesses
• Finally, the Committee oversaw the
preparation for and reviewed results of
the 2021 Employee Engagement Survey,
which helped us to set Committee
priorities for 2022
Colleague focus groups
We now have a clear programme and
agenda for meeting self-selected groups
of employees across the business, without
management present:
• We have an agreed range of topics on
which to ask employee views, including
whether we are living up to our Values, but
we ensure we leave space to hear what’s
on our colleagues’ minds
• We commit that all comments are
non-attributable and no members
of management or local HR teams
are present
• Following the focus group sessions, we
summarise the key themes and have a
formal debrief with the local and regional
management. This has become a key
meeting, resulting in action (see some
examples below) and is sought after by
the management teams who have found
real insight for their Businesses
• At the next Committee meeting, we
report the key themes for discussion with
Committee members and with the Group
Chief Executive and Chief Financial Officer
• We receive a formal response and actions
agreed by local/regional management at
subsequent meetings
• Any key matters are referred to in Board
discussions and as we reflect on colleague
views when taking key decisions for
the Board
The focus groups are designed to ensure
we get a balanced view across the Group,
in terms of geography, role discipline and
grades to get a good variety of colleagues.
We speak with colleagues in areas where
engagement scores are both higher and
lower to understand what works well, what
could be shared across the Group and
where there is opportunity for improvement.
My experience is that attendees in all
sessions have been very open and engaged
and don’t hold back in sharing what they
value in the Group and where there may be
opportunities to do better. This participation
makes the sessions very energising and also
useful as a business tool.
Focus groups held in 2021:
Leadership development
programme alumni:
those who had previously participated in the
Group leadership programme
Group general managers:
a group of country and Business leaders
from all parts of the world
Senior functional leaders:
mainly based at Steam Specialties
UK in Cheltenham but also included
representatives from ETS who were US-
based, as well as Watson-Marlow leaders
based in Falmouth
Aflex Hose:
members of the employee engagement
forum of Aflex, based in North West England
Steam Business Development:
this was our second focus group with this
area of the Business, with a different group
of employees
We hear many consistent messages
during the discussions, which have been
supported by the staff survey results:
• Safety is always the first priority and
our strongest Value, followed closely by
customer service
• Our people felt that they had been
exceptionally well supported and
protected during the pandemic
• There is enormous pride that everyone has
pulled together and focused on safety and
supporting our customers
• People had genuine appreciation for
and sense of security in being part of
the Group
• Participants shared huge enthusiasm and
interest in our developing programmes
and strategies for sustainability
and digitisation
• People have worked exceptionally hard
in the last two years and appreciated the
focus on wellbeing and also saw this an
area for a watching eye from the Board
The most consistent opportunities for
us seem to relate to making the most
of our highly successful, diversified
business model:
• We need to keep working on
collaboration between Businesses and
functions, to make sure we accelerate
innovation opportunities
• Our people want to know how they
can contribute to our Sustainability and
Digital strategies
• We need to reflect on how we
recognise long service combined with
superior performance
• Our communications and employee
engagement approach has developed
hugely over the past three years – it is
now a good moment to consider how
we communicate and streamline some
of this to make it easier for our people,
particularly those who work in our
manufacturing facilities
Spirax-Sarco Engineering plc Annual Report 2021 105
Governance
Specific comments arose in every
focus group and we set out just a few
examples of actions taken:
• Early in the year, one group felt the
company’s response to COVID-19 had
been impeccable but noted some fatigue,
with the extended lockdown and the
complexities of Brexit. In response, the
Group HR team expedited a planned
colleague wellbeing survey. This resulted in
our developing a Wellbeing Toolkit, which
offers practical advice and signposts
resources on a number of topics such as
digital resilience, stress and isolation
• Participants in the senior management
focus group believed there was growing
collaboration across the Group but they
did note that the opportunity to collaborate
effectively on an ad-hoc basis was missed
during the pandemic. To address this, the
Group launched a Managers’ Toolkit for
hybrid working and explored options for
collaboration, which helped identify the
need to create space and time for more
informal collaboration, something that is
presently being developed
• One group indicated that they would
welcome more education on ESG matters.
In response, ‘carbon training’ has been
made available as part of the Academy
Group Essentials programme to ensure all
colleagues have at least basic knowledge
of sustainability, why it is important and
common terminology
• Another group requested additional
recycling bins on the site and asked for
clarification on what happens to waste
materials such as scrap metal, which
we confirmed by return do get sold on
and recycled
Other employee interactions
with Board members
Women’s network: following successful
sessions in 2020, Olivia Qiu and Angela
Archon met with members of the Women’s
Career & Personal Development Network,
with a particular focus on STEM careers.
As recent joiners, Olivia and Angela offered
their perspectives on our organisation.
Most members of the Board attended the
virtual graduate conference in April and took
part in a question and answer discussion
with small groups of participants.
Board and focus group site visits:
COVID-19 travel restrictions prevented some
site-visits but the Committee continued to
engage with colleagues remotely through
the focus groups. In 2022, we hope to be
able to visit more of our colleagues in person,
starting with a trip to Aflex Hose at their new
facility in the north of England, with USA and
possibly Italy later in the year.
Coffee Talks: as indicated above, all NEDs
are now paired with a different colleague
every quarter and have an opportunity
to introduce themselves, the Board and
understand what life is like working for the
Group. It adds to our picture of the culture
across the Company.
Employee engagement survey
In April 2021, the Group carried out a
biennial employee engagement survey, which
achieved a 91% response rate. It showed an
improvement in core engagement levels and
strong loyalty, while highlighting a desire from
colleagues for more collaboration across
departments and geographies and more
transparency over career opportunities within
the Group. For more information please visit
our Sustainability Report on page 49.
Evaluation of the Committee
We undertook a review of the Committee
alongside the Board and other Committees
in 2021. The feedback was very positive and
I am pleased to report that the executive
team find the feedback and activities of the
Committee very valuable, evidenced by
the keenness to hear feedback from focus
groups and to take actions as appropriate,
some of which are noted in the review of the
year above.
Committee focus
for 2022
Focus topics: the Committee will
continue to monitor actions taken
in response to the 2021 survey
feedback. These will be around
the four Group-wide action areas
which include an increased focus
on being purpose-led, building
inclusive workplaces, enabling
personal growth and enhancing
community engagement. The
Committee will continue to review
and develop the principles behind our
approach to employee engagement.
Focus groups: during 2022 the
Committee has planned a number of
focus groups across Business units
in Asia Pacific, Europe and the US, as
well as an ‘early careers’ focus group
with graduates and apprentices.
Board interaction: all NEDs will
continue to participate in quarterly
‘coffee talks’, described earlier.
Employee Engagement Committee
members will also take part in an
International Women in Engineering
Day event and engage in panel
discussions with Employee Networks
for women, people with disabilities and
LGBTQ+ colleagues.
Actions: the Committee will work
to find more ways to feed back on
actions taken as a result of our focus
groups and engagement activities.
I am looking forward to answering questions
or taking feedback on our Committee
activities at our AGM or any time.
Caroline Johnstone
Chair of Employee
Engagement Committee
1. Board leadership and Company Purpose continued
Employee Engagement Committee Report continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021106
107
Governance
Spirax-Sarco Engineering plc Annual Report 2021
Launching our
colleague focus groups
“I was pleased to take part in a leaders’ focus
group with the Board, to share views on how the
pandemic was impacting employee engagement as
well as sharing the challenges our teams faced in
navigating the uncharted path of hybrid working.
As a result of this ‘voice of the organisation’ exercise,
hybrid working became the subject of a Group-wide
colleague survey. We’ve now implemented a hybrid
working policy that has flexibility and trust at its
core and our teams can really see the value
of the feedback process in action and
know they have been listened to.”
Mai Holm Møllekær
Regional Director,
EMEA Watson-Marlow
2. Division of responsibilities
The Board is responsible
for providing leadership to
the Group. Together with
the Group Executive
Committee and Board
Committees, the structure
of the Board ensures
controls and oversight,
with a balanced approach
to risk that is aligned
with Spirax-Sarco
Engineering’s culture.
The structure assists the
Board with carrying out
its responsibilities and is
designed to ensure that
the Board focuses on
strategy, monitoring the
performance of the Group
and governance as well as
risk and control issues.
The following diagram shows the role
of the Board and its Committees and
senior management:
The Board of Directors
The Board is collectively responsible for the long-term success
of the Company. The business of the Company is managed by
the Board who may exercise all of the powers of the Company.
The Board has a formal schedule of matters reserved for the
Board’s decision-making which is available on the Group’s
website. Although the Board retains overall responsibility, it
delegates certain matters to the Board Committees and the
detailed implementation of matters approved by the Board and
the day-to-day operational aspects of the business to the Group
ExecutiveCommittee.
Board Committees
The Board Committees consist of Non-Executive Directors and each Committee Chair
reports to the Board on matters discussed at Committee meetings and highlights any
significant issues that require Board attention. The terms of reference for each Board
Committee are reviewed annually and are available on the Group Website. The reports
by each Board Committee are given in this Annual Report.
Employee Engagement
Committee
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.
Risk Committee
The Committee oversees the
management and control of significant
operational 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.
Nomination
Committee
The main role of the Nomination
Committee is to recommend changes
to the Board and consider succession
planning for the future.
Audit Committee
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.
Remuneration
Committee
The Committee determines the
philosophy, principles and policy
of Executive Director and senior
manager remuneration having regard
to the latest legislation, corporate
governance, best practices and the
FCA Listing Rules
Governance
Spirax-Sarco Engineering plc Annual Report 2021108
Executive Leadership
There is a clear division of responsibilities between the leadership of the Board and our
Executive leadership. Our Group Chief Executive’s roles and responsibilities include:
management of the Group’s short, medium and long-term performance; stewardship of
capital, technical and human resources; corporate and business strategy; internal risk
management controls and organisational structure.
Non-Executive Directors
• Provide constructive challenge, strategic guidance and offer specialist advice
• Hold a prime role in appointing and removing Executive Directors
• Scrutinise and hold to account the performance of management and individual
Executive Directors against agreed performance objectives
• Responsible for employee engagement
Chair
• 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
Senior Independent Director
• 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
Group General Counsel
• 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
Group Chief Executive
• Responsible for the day-to-day running of the Group’s business and performance
and the implementation of strategy
• Leads the Executive Group
• Represents management on the Board
Spirax-Sarco Engineering plc Annual Report 2021 109
Governance
2. Division of responsibilities continued
The Chair
Independence
Jamie Pike has been a member of our Board
since May 2014. We consider him to have
retained his independent status.
Responsibility
Jamie’s responsibilities are outlined in
the table on page 109. 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.
A balanced Board
During 2021, 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 seven Non-Executive
Directors (excluding the Chair). This ensures
that no one person or group of individuals
dominates the Board’s decision-making.
All 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
Richard Gillingwater has taken over from
Trudy Schoolenberg, who stepped down
from the Board at the end of July 2021,
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. Richard conducted a review of the
performance of the Chair as required by the
Code and the review concluded that the
Chair’s performance was outstanding.
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 96 to 97 and
a summary is provided in the table above.
External listed
companyappointments
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.
Non-Executive
Directormeetings
As per best practice, our Non-Executive
Directors met with the external 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
diagram on pages 108-109 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.
Externally listed Company appointments
At year end
Listed Plc Directorships
No. of other
Non-Executive roles
No. of other
Executive roles
Independent Non-Executive Directors
Jamie Pike (Chair) 1 –
Trudy Schoolenberg 2 –
Jane Kingston 1 –
Kevin Thompson – –
Caroline Johnstone 1 –
Peter France – 1
Angela Archon 1 –
Olivia Qiu –
Richard Gillingwater 3
Full-time Executive Directors
Nicholas Anderson 1 –
Nimesh Patel – –
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.
Board meetings
The Board meetings are as often as is
necessary to discharge its duties. In 2021,
the Board met eight 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.
Governance
Spirax-Sarco Engineering plc Annual Report 2021110
Board attendance 2021
No. of meetings attended/
total no. of meetings held
Attendance
%
Feb Mar Apr May June Aug Oct Dec
Jamie Pike 100%
Nicholas Anderson
100%
Nimesh Patel
100%
Trudy Schoolenberg
1
100%
Jane Kingston
100%
Kevin Thompson
100%
Caroline Johnstone
100%
Peter France
100%
Angela Archon
100%
Olivia Qiu
100%
Richard Gillingwater
2
100%
1 Trudy Schoolenberg stepped down from the Board on 31st July 2021.
2 Richard Gillingwater was appointed to the Board in March 2021 and attended his first Board meeting
in June.
Board activity 2021
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 at the top
of the page, we have set out how the Board
spent its time during 2021.
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 2021,
the Board devoted considerable time to
ensuring that the Group could progress
with increasing 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-19-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 2020 final dividend and the 2021 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 (UK),
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 2022.
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 our new Group headquarters
in Cheltenham and the consolidation of all
four of Thermocoax’s operations in one site
in Normandy (France), to address continued
expansion of our Businesses.
Health and safety as well as 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 continued to engage with
shareholders on governance, remuneration
and trading during the period.
Board focus for 2022
• 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
2022 across all of our Businesses,
including Business Digital strategies
and Group Strategic risks
• Further consolidate our position
through both organic and
inorganic growth
• Focus on sustainability and
climate change
Spirax-Sarco Engineering plc Annual Report 2021 111
Governance
2. Division of responsibilities continued
Key Board activities in 2021,
by meeting
Standing agenda items
• Health and safety as well as
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
February
• COVID-19 update
• Inclusion, equity and wellbeing
• Sustainability update
• Business review – Watson-Marlow
• Management presentations –
Steam Specialties EMEA, Supply
March
• 2020 financial results
• Business review – Electric
Thermal Solutions
• Approval of Group
Sustainability strategy
May
• Business review – Steam Specialties
• New Group Headquarters
• Potential acquisitions
• AGM briefing
June
• Group Strategy and medium-
term plan
• Electric Thermal Solutions
strategy update
• Watson-Marlow strategy update
• Corporate strategy update
• Steam Specialties Business tour
August
• Sustainability update
• Approval of interim dividend
• Business review – Electric
Thermal Solutions
• Senior management presentations
– Asia Pacific (Steam Specialties),
Gestra (Steam Specialties)
• Potential acquisitions
• Audit Committee report
• Report on Employee Engagement
focus groups
• Group litigation report
October
• Business review - Steam Specialties
• Thermal Solutions Synergy Project
• Group Inclusion Plan
• Watson-Marlow EMEA
December
• Approved 2022 Plan
• Draft Annual Report and Circular
to shareholders
• Updated Group Delegation
of Authorities
• Acquisition update
• Risk Management update
Governance
Spirax-Sarco Engineering plc Annual Report 2021112
3. Composition, succession and evaluation
Nomination Committee Report
Members
Our Nomination Committee comprises:
No. of meetings
attended/ total no.
ofmeetings held
Attendance
%
Jamie Pike (Chair)
1
100%
Trudy Schoolenberg
2
100%
Richard Gillingwater
3
100%
Jane Kingston
100%
Kevin Thompson
100%
Caroline Johnstone
100%
Peter France
100%
Angela Archon
100%
Olivia Qiu
100%
1 Jamie Pike was recused from the May meeting as the discussion concerned his own reappointment.
2 Stepped down from the Board on 31st July 2021.
3 Joined the Board on 9th March 2021 and became Senior Independent Director on 1st August 2021.
“Through effective succession planning,
we aim to maintain a strong and
diverse Board and Group Executive
team responsible for the operation of
our Businesses, with a particular focus
on diversity at senior executive levels.”
Jamie Pike
Chair of Nomination Committee
Committee role
andresponsibilities
The main role of the Nomination Committee
is to recommend changes to the Board and
consider succession planning for the future.
The Committee’s responsibilities include:
• making appropriate recommendations
to the Board for the appointment,
reappointment or replacement of Directors
• reviewing 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
• recommending any proposed changes to
the Board
• considering succession planning
arrangements for the Executive Directors
and, more generally, senior executives
40
40
20
How the Committee spent its time %
Non-Executive succession
Diversity and inclusion
Executive succession
Spirax-Sarco Engineering plc Annual Report 2021 113
Governance
3. Composition, succession and evaluation continued
Nomination Committee Report continued
Meetings
The Nomination Committee met five times in
2021. The Group Chief Executive and Chief
Financial Officer were invited to meetings
where appropriate. A summary of the
Committee’s activities throughout the year is
set out below.
Key Nomination Committee
activities in 2021
February
• Considered candidates for role of
Senior Independent Director to
succeed Trudy Schoolenberg
• Reappointment of Peter France
as an Independent Non-Executive
Director for a further three years
May
• Discussed and confirmed the
nomination to the Board of the
reappointment of Jamie Pike as
Chair of the Board for a further
three years
June
• Executive succession planning
October
• Executive succession planning
December
• With the help of leadership advisers
Egon Zehnder, the Nomination
Committee focused on making sure
that the Company is well positioned
with proper succession plans in
place for senior leadership roles
Chair’s review of 2021
Our focus in 2021 was on succession
planning at Executive levels of the Group and
promoting talent across the organisation.
Board changes
Having strengthened the Board in 2020 to
reflect more international experience in line
with evolving societal needs, the Board’s
composition was generally stable during
2021. The only change was the appointment
of Richard Gillingwater as a successor to
Trudy Schoolenberg for the role of Senior
Independent Director.
Four high calibre candidates for the Senior
Independent Director role were considered at
the Committee’s meeting in February 2021.
One of the key competencies that the Board
was looking for with this appointment was a
strong understanding of what investors think
of the Group.
Trudy Schoolenberg and Nicholas Anderson,
acting as a sub-committee of the Nomination
Committee, interviewed the four candidates.
Following a final interview the full Committee
selected Richard Gillingwater for formal
approval by the Board.
Consequently, 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 stepped down from the
Board after serving her nine years as an
Independent Director.
Details of the respective skills and experience
of Richard Gillingwater and all Board
members are set out on pages 96 to 97.
Reappointment of Jamie Pike as
Chair of the Board
At its meeting in May, the Committee
discussed the reappointment of Jamie
Pike as Chair of the Board. The Chair was
recused from this meeting due to the conflict
of interest and the Senior Independent
Director, Trudy Schoolenberg, chaired
the meeting.
The Committee considered that the
reappointment would be compliant
with Provision 19 of the UK Corporate
Governance Code 2018 (‘the Code’),
whichallows for an extension beyond nine
years’ service, as Jamie Pike has been a
Non-Executive Director since 2014, but was
only appointed as Chair in 2018. The Code
also specifies that the Chair should have
considerable leadership, corporateand
commercial skills and experience.
These qualities are important to the mix of
the Board as a whole and assists with a
diverse Board made up of people with a
range of relevant skills and expertise, which
will further the development of the Group.
Following a detailed discussion,
theCommittee confirmed the nomination
to the Board of the reappointment of Jamie
Pike for a further three years effective
13thMay 2021 taking his total tenure to
ten years.
Executive changes
When Dominique Mallet elected to leave
the Group after six years with Thermocoax
and over two years with Electric Thermal
Solutions (ETS), we were delighted to
appoint Armando Pazos as the new
President of ETS on 1st December 2021.
Armando is an experienced industrial leader
who first joined ETS in March 2020 as Vice
President Global Sales for Chromalox.
Governance
Spirax-Sarco Engineering plc Annual Report 2021114
Inclusion, equity and wellbeing
We believe that the Board’s perspective and
approach is greatly enhanced by gender, age
and cultural diversity and we consider overall
Board balance and diversity when appointing
new Directors. We also undertake reviews
each year of the bench strength of all senior
executives and make sure that diversity
is considered in our succession planning
across senior roles.
We are committed to improving inclusion
and diversity across our Group. During 2021,
we participated in the FTSE Women Leaders
Review (Hampton Alexander). In addition to
ending 2021 with 40% female representation
on our Board, our progress includes a
significant increase in senior female leaders
to 33%, up from 27% in 2020 and 18% at
the end of 2018, when we became part of
the FTSE 100 Index. This supports us to
further advance gender balance in our senior
leadership, as we focus on creating the right
inclusive environment in a sustainable way,
to ensure changes are successful for the
long-term.
We have a well established Women’s
network and successful female mentoring
scheme. We have also achieved over 50%
female representation in 2021 for our two-
year global Graduate Programme.
We recognise we have more to do and in
January 2022, we signed up to the United
Nation’s Women’s Empowerment Principles
and will use this framework to refresh
our gender and add new ethnicity goals
in 2022 for our leadership, graduate and
commercial roles.
At the start of 2022 we also joined Women
in Science and the Women’s Engineering
Society to continue to promote Science,
Technology, Engineering and Mathematics
(STEM) careers to attract more women into
the Engineering industry and our Group.
To tackle this at a more fundamental,
grass roots level in 2021, we established
the Spirax-Sarco Engineering Group
Education Fund, with an initial contribution
of £1 million as part of our pledge to donate
£5 million over five years, to help remove
barriers to education and improve diversity
in Engineering.
Detailed figures on our gender balance
can be found on page 50 of our
Sustainability Report.
In 2021, we embedded voluntary diversity
demographic questions in to our global
Employee Engagement Survey for the first
time. Along with much wider research, this
informed the development of our Global
Inclusion Plan. We launched the Plan at our
first Group Leadership Conference which
took place in November 2021 with almost
60 of our Group’s Leaders from our
Businesses and Group functions. At the
conference our leaders also heard about the
challenges of the ‘inclusion journey’ from
Daniel Danso, Global Diversity Manager for
Linklaters LLP. Daniel talked about the global
landscape for inclusion, equity and diversity
and explained some of the leadership skills
needed to sustain our workforce of the
future. He also helped our leaders to think
about how they could prepare themselves
and support their peers throughout our
inclusion journey.
The Group Inclusion Plan is about creating
long-term value for all of our stakeholders
by empowering an inclusive and equitable
working culture where all of our colleagues
can be themselves and achieve their full
potential. It is built on four pillars – (i) Inclusive
Behaviours, (ii) Inclusive Leadership, (iii)
Inclusive Processes and (iv) Inclusive
Partnerships. It has also been designed to
support the United Nations’ Sustainable
Development Goals 3 (Good Health and
Wellbeing), 5 (Gender Equality), 8 (Decent
Work and Economic Growth), 10 (Reduced
Inequalities) and 16 (Peace, Justice and
Strong Institutions).
Within the Global Inclusion Plan, we have
outlined our Group Inclusion Commitments
to ensure that wherever we work in the
world, we will make our difference for
our colleagues:
Ensuring the best start
for new families by
giving every colleague
who becomes a parent
a minimum of 16 weeks
paid parental leave
Helping every colleague
who is acaregiverto
support their loved ones
or take time for self-care
Supporting every
colleague who
experiences pregnancy
loss of any kind
Standing up for
colleagues who
experiencedomestic
violence or abuse
Becoming an increasingly
gender-balanced,
ethnically diverse,
disability confident
and faith-aware employer
Being a safe place for
all lesbian, gay,bi,trans
and queer or questioning
(LGBTQ+) people,
wherever we operate
Creating menopause-
friendly workplaces
Proactively promoting
better wellbeing, balance
and mental health
Enabling our hybrid
workforce to be at
their best wherever
and whenever they
areworking
Empowering our
colleagues to grow their
knowledge, skills and
confidence as active
advocates of inclusion
and wellbeing
Spirax-Sarco Engineering plc Annual Report 2021 115
Governance
3. Composition, succession and evaluation continued
Nomination Committee Report
You can read more about the Plan and our
commitments on page 50. We have put
inclusion, equity and wellbeing at the heart
of the culture we are continuing to build,
including the following initiatives in 2021:
• Unconscious bias online training for all
colleagues in multiple languages, which
was completed by our colleagues
• 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
• Our Global two-year Graduate Programme
supporting our 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
• Ongoing commitment to undertaking
a UK equal pay audit across all our
UK Businesses
• Continuing expansion of our colleague
networks, including our existing Women’s
Network and our new Working Families
Forum, Mental Health First Aiders
Network, Watson-Marlow Disability Forum
and Steam Specialties EMEA LGBTQ+
and Friends Network.
Diversity and Inclusion Policy
Our Board fully complies with the principles
of our Diversity and Inclusion Policy which
can be found on the Group’s website.
During 2022 we will be updating our Diversity
and Inclusion Policy, to better reflect the
progress we have made in 2021. This will
include a repositioning of the Policy to
align with our Group’s focus on Inclusion,
equity and wellbeing. The new Policy
document will reflect all of the principles of
our Group Inclusion Plan, including the ten
Inclusion Commitments. It will also include a
refreshed set of gender goals as well as new
ethnicity goals to be set during 2022 for our
leadership, graduate and commercial roles.
Succession planning/
attractingtalent
Egon Zehnder act as external advisers to
the Nomination Committee, helping the
Committee and the Board to make sure
we are well positioned and have proper
succession in place for all senior-level
appointments across the Group. This on-
going search for the best people includes
both internal and external candidates.
Committee focus for 2022
In 2022, we will focus on Executive
Succession at senior levels and
the implementation of the Group
Inclusion Plan.
Jamie Pike
Chair of Nomination Committee
Further reading
• Our Diversity and Inclusion Policy
and our new Group Inclusion Plan
and Commitments can be found on
our website:
www.spiraxsarcoengineering.com
• Watch our Everyone is Included video:
www.spiraxsarcoengineering.com
Governance
Spirax-Sarco Engineering plc Annual Report 2021116
3. Composition, succession and evaluation continued
Angela Archon’s early reflections
On joining the Board, I had an excellent
onboarding experience. I met individually
(albeit virtually) with the senior leaders across
the Group, each of whom was genuinely
interested in helping me understand their
part of the Business. It was evident that
they were experts in their fields and took
pride in their work and in the Group. I also
had the opportunity to tour one of our
largest manufacturing facilities and, most
enjoyable, to meet with several customers
to understand how the Group partners
with them to improve the efficiency of their
industrial processes.
As I integrated into the Group, I was inspired
by its Values – Customer Focus, Excellence,
Respect, Integrity, Safety and Collaboration
– and the degree to which everyone ‘lives’
these Values by incorporating them into
every aspect of running the business.
I have been impressed by the
Group’s commitment to sustainability.
Many companies talk about its importance
and then bury it under some functional
area. The Group has demonstrated the
importance of sustainability by creating
a new position, reporting directly to the
Group Chief Executive and appointing a
dedicated leader to develop and execute
our Sustainability strategy, which contains
some very aggressive goals. Inclusion,
equity and wellbeing have also been a keen
focus. We are acutely aware that inclusion
is a business imperative and we must have
diverse teams who represent all stakeholders
and provide those varying perspectives.
One of the Group’s key strengths and
differentiators is consultative selling.
The direct sales team of engineers has
deep expertise and they integrate into their
customers’ businesses to provide value-add
solutions, not just discrete products. In this
way, the team truly partners with customers
to enable them to be more successful.
In my role as a Board member and being a
career technologist, I am personally focused
on the Group’s Digital strategy and the
incorporation of technology, data insights
and intelligence into its own processes,
as well as into customer solutions. In the
coming year, I will be looking for the Group
to have more organic growth and to
continue making significant strides on its
sustainability journey.
Olivia Qiu’s early reflections
My first impressions are of a Group with very
strong financial performance, which means
we are able to discuss strategic topics
rather than focus on short-term challenges.
It also has a unique, customer-focused
business model and a customer-centric
culture to deliver it. Each of the Group’s three
Business units has built a strategy around
the customer and how to serve them better.
There’s also a strong management team
throughout the Group.
Getting to know the Group has been a great
experience. In the onboarding programme
I got time with the Board and management
team: discussing topics that were a good
balance between short-term and medium-
term priorities helped me to build a clear
picture of the Group. Taking part in informal
coffee talks and the Group’s Women’s
Network have been very valuable ways
for me to meet people and deepen my
understanding of the organisation. Now,
I’m looking forward to being able to travel,
visit some of the Group’s facilities and meet
customers as well as colleagues in person.
I’ve seen that the Board and management
team give a great deal of attention to
sustainability and have developed a clear
strategy and solid implementation plan for
it – there’s a good roadmap for what needs
to be done and by when. The Group’s
achievement of a A- score with CDP,
putting us in the environmental ‘leadership’
band for the first time shows this is already
translating into results. There is a strong
focus on inclusion, too, with a Board that’s
40% female and features a strong diversity of
culture, skills and backgrounds.
My next priorities are getting more engaged
with the Businesses and colleagues around
the world as the pandemic recedes, so I
can get to know the Group even better.
I’m also looking forward to making use of
my background in digital to help the Group
further develop its Digital strategy.
Spirax-Sarco Engineering plc Annual Report 2021 117
Governance
“The Committee has spent significant
time this year supporting management
in considering topics raised by the BEIS
Proposals including internal controls,
assurance, fraud risks and the reporting
of resilience. Management has made
good progressin these areas.”
Kevin Thompson
Chair of Audit Committee
4. Audit, risk and internal control
Audit Committee Report
Committee role
andresponsibilities
The overall purpose of the Audit Committee
is to oversee and monitor the entire
financial reporting and control process,
to ensure the integrity of the Group’s
published financial information and
assurance over it. 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
20
15
20
15
15
How the Committee spent its time %
Risk management
and internal controls
(including focus on
remote working)
Corporate
Governance and
whistleblowing
(including the
BEIS Proposals)
External Audit
(including Audit
tender) and Auditor
effectiveness
Internal Audit
and fraud
defences
Presentations
by Divisional
Finance
Directors
Results review
and reporting
Financial
resilience
10
5
• 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 and wider stakeholders
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
Members
Our Audit Committee comprises:
No. of meetings
attended/ total no.
ofmeetings held
Attendance
%
Kevin Thompson (Chair) 100%
Trudy Schoolenberg
1
100%
Jane Kingston
2
100%
Caroline Johnstone
100%
Peter France
100%
Angela Archon
2
100%
Olivia Qiu
100%
Richard Gillingwater
3
100%
1 Stepped down from the Committee (and Board) on 31st July 2021.
2 Stepped down on 31st March 2021 following Board-wide review of committee memberships.
3 Joined the Committee (and Board) on 9th March 2021.
Governance
Spirax-Sarco Engineering plc Annual Report 2021118
• 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 and quality
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
• reporting to the Board on how it has
discharged its responsibilities
Meetings
The Committee met six times during 2021
– four of these were annual scheduled
meetings, while two were extraordinary
meetings held (in April and May) to consider
and discuss the Group’s response to the
UK Governments’ Department for Business,
Energy and Industrial Strategy consultation
on its white paper: Restoring trust in audit
and corporate governance (“BEIS Proposals”)
(see pages 120 to 121) and the proposed
External Auditor tender process (see pages
45 and 125 to 126). Relevant members of
the Group’s senior management were also
in attendance at these meetings, including
the Group Chief Executive (in his capacity as
Group Chief Executive and not as a member
of the Committee), the Chief Financial Officer,
the Head of Internal Audit and the Director
of Group Finance. Continuing the practice
started in 2020, the Group’s Business
Finance Directors were each invited to
attend and present to the Committee during
the year.
During 2021, 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.
Given the significant work being undertaken
by the Group on important projects, the
Committee is adding a new, annually
recurring, fifth (scheduled) Audit Committee
meeting in 2022. This meeting will allow
additional time for the Committee to
undertake deep dives into key projects
and adhoc areas of Committee focus
and will create further opportunities for
Committee training.
Key Audit Committee
activities in 2021
March
• Reviewed the Annual
Report including:
– Significant financial reporting
judgements and the application
of accounting policies
– Going Concern basis, Viability
Statement and financial resilience
– Ensuring fair, balanced and
understandable presentation
– Report of the External Auditor
• Reviewed External Auditor
independence and effectiveness
• Reviewed operation of internal
controls and management of
fraud risk
• Received a whistle-blower update
April
• Reviewed the BEIS Proposals and
response to the consultation
May (2 Meetings)
• Confirmation of External
Auditor reappointment
• Consideration of External Auditor
tender plan and process
• Update on planning for the half-year
review including:
– Significant financial
reporting judgements
– Application of accounting policies
• Preparation of Company response
to the BEIS Proposals
• Reviewed operation of internal
controls and management of
fraud risk
• Received an update on the internal
controls framework review
• Received presentations from
Business Finance Directors
August
• Reviewed the half-year results
including a change to disclosure
• Reviewed the interim report of the
External Auditor
• Internal controls improvement
project update
• Reviewed updates following a
February 2021 fraud workshop
• Completed Audit Committee
self-assessments and
performance evaluation
• Received an update on compliance
with mandatory contract practices
October
• External Audit planning for the
full-year (including approval of audit
scope and fees)
• Discussed changes to disclosures
and assurance processes in
response to the BEIS Proposals
• Reviewed an updated External
Audit effectiveness review process
• Received an update on the internal
controls framework review
• Approved the Internal Audit plan
for 2022
• Received an update on defined
benefit pension schemes
• Approved amendments to the
Committee’s Terms of Reference
• Approval of updated Treasury Policy
• Approval of updated Auditor
Engagement Policy
• Received presentation from
Business Finance Director
Spirax-Sarco Engineering plc Annual Report 2021 119
Governance
Committee competence
andgovernance
The Audit Committee operates under Terms
of Reference, which were formally reviewed
and amended in October 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 comprised entirely of
Non-Executive Directors and is considered
by the Board to possess an appropriate
level of independence 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 – expertise the Committee utilises,
together with their independence, to provide
robust challenge to management and the
Internal and External Auditors to ensure
their duties under the Terms of Reference
are fulfilled.
During the year, Trudy Schoolenberg, Jane
Kingston and Angela Archon stepped down
from the Committee – Trudy on leaving
the Board after nine years of service, and
Jane and Angela as part of the Board
Committee review that took place in March
2021 (see pages 95 to 97 for further
details). Richard Gillingwater joined the
Board and Committee, on 9 March 2021.
Richard brings with him many years of strong
financial and non-executive directorship
experience and is a welcome addition to
the Committee. Like all new Committee
members, Richard has undertaken an
induction programme and will continue to
further his knowledge via on-going training,
such as attendance at technical seminars
and the receipt of regular topical updates
from external audit firms.
A more detailed summary of the
qualifications, skills and experience of each
Committee member can be found on pages
96 to 97.
Chair’s review of 2021
I am pleased to present the Audit
Committee’s report for the year ended 31st
December 2021. While the Committee’s
overall aim and core duties remained the
same during 2021, the ongoing effects of
COVID-19 has meant that hybrid working
has become well-established practice for
the Committee. This is also true of the
Internal Audit and External Audit teams,
both of which have shown great flexibility
and diligence to keep up their programme of
scheduled audits and maintain the usual high
standards the Committee expects of them.
As noted above, the Board Committee’s
composition underwent a review in early
2021. Angela Archon and Jane Kingston left
the Committee following this restructuring
and Trudy Schoolenberg left the Committee
on retiring from the Board following nine
years of service. I would like to take this
opportunity to thank them all for their
excellent service to the Committee over
their respective tenures. I would also like
to welcome Richard Gillingwater to the
Committee, following his appointment to the
Board in March 2021.
As well as its usual busy agenda, the
Committee spent significant time this year
supporting management in considering
topics raised by the BEIS Proposals.
This includes work on internal controls (being
a cornerstone project to further strengthen
Group-wide policy and processes), sources
of assurance, identifying fraud risks and the
reporting of resilience. Management has
made good progress in systematically
identifying areas of risk, revising policy
and managing the roll out of improved
control processes supported by effective
communication and training tools.
During 2021, the Committee carried out a
self-assessment exercise. The outcome of
the exercise was considered at the August
Committee meeting, with the vast majority of
the responses and comments being positive
and reflecting that the Committee continues
to perform well. Some areas of focus/
potential improvement were also discussed
and it was agreed that: (i) meetings
should be extended in length to allow
sufficient time to deal with the increasing
Committee agenda and deep dives into
topics of interest including risk reviews (a
meeting has also been added to the annual
schedule for 2022); (ii) whilst self-learning
training opportunities increased during the
pandemic, formal (external) training had
reduced, something the Committee wishes
to address during 2022; and (iii) over the
coming year the Committee will work closely
with Group Sustainability to consider areas
where additional assurance can be sought
over climate-related data and sustainability
reporting. These areas have been reflected in
the Committee’s agenda for 2022.
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. This has been further enhanced
by a review of the current process, risk
appetite and emerging risks in 2021 (see
pages 128 to 130 of the Risk Management
Committee Report).
2021 saw the retirement of the Group
Financial Controller, John Senior.
John enjoyed a long career with the Group
and I would like to thank John, personally
and on behalf of the Committee, for his
great service to the Committee over the
years. I would also like to formally welcome
Phil Scott, the new Director of Group
Finance. Phil has spent his career in FTSE
100 companies and brings a wealth of
experience to the Group.
In addition to its ongoing core responsibilities
of monitoring the integrity of the Group’s
Financial Statements and the effectiveness
of its controls, there were a number of key
areas of focus for the Audit Committee
in 2021:
Adapting to the ongoing
COVID-19 pandemic
During 2020, the pandemic tested the
systems, controls and processes of all
companies. Consequently, throughout 2021
the Committee maintained its attention on
the controls and processes most likely to
be impacted by the ongoing impacts of the
pandemic, including internal controls relating
to fraud and cybersecurity as well as key
judgements. In the view of the Committee,
the Group’s colleagues and processes have
adapted extremely well to cope with the
unprecedented challenges we have all had
to face over the last two years.
The Committee receives regular updates
from management on the underlying
performance of the business, the strength
of the Group’s liquidity and its operational
and financial resilience and believes that the
Group’s control environment and operational
efficiency has not been materially impacted
by the COVID-19 pandemic. The Committee
will continue to monitor the Group’s response
to risks posed by the pandemic into 2022
and possibly beyond.
The BEIS Proposals
As noted previously, in addition to the
Committee’s four scheduled meetings this
year, it held two extraordinary meetings
4. Audit, risk and internal control continued
Audit Committee Report continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021120
(in April and May). The driver for the April
meeting was to consider the BEIS Proposals.
Regulations arising from consultation on
these proposals are expected to have a
significant impact on all larger UK businesses
– with changes to audit committee practices
and by making recommendations for Internal
Controls over Financial Reporting (ICFR);
as well as other topics impacting multiple
governance functions. The Committee and
management are aligned in their support for
the intentions underlying the BEIS Proposals
and are confident that they will deliver
benefits, including maintaining the reputation
of the UK’s capital markets which are
founded upon high quality and trusted audit
and corporate governance. In its response
to the BEIS Proposals, the Board highlighted
its support, together with our view of the
challenges Groups such as ours will face in
implementing the proposals.
The Group has also invested significant
time during the year on a ‘no regrets’ basis,
supported by external advisors, to assess
the potential impacts of the BEIS Proposals
and to identify which controls, governance
and audit frameworks will be most impacted.
This work, led by the Chief Financial Officer,
included undertaking a scoping exercise
in order to identify the Group Operating
Companies most likely to be impacted by
the proposed Internal Control over Financial
Reporting (ICFR) requirements. A sub-
committee of the Audit Committee was
established to work with management and
provide input during the scoping phase.
The output of this exercise was shared with
the Committee and Deloitte in their capacity
as the Group’s External Auditor.
Governance and internal controls
The Board has overall responsibility for
the effectiveness of the Group’s internal
controls and risk management frameworks.
Oversight of the Group’s risk management
procedures and the operation of controls
is undertaken by the Risk Management
Committee and the Group Executive
Committee and further detail on these
processes can be found on page 128 to 130.
The Committee supports the Board and
the Risk Management Committee by
monitoring and assessing the effectiveness
of the Group’s internal controls processes.
In this role, the Committee considers
the effectiveness of all material controls,
including financial, operational and
compliance controls together with risk
management systems. This assessment
is based on internal audit reviews, the
quality of Group-wide training programmes
(including mandatory courses on Health
& Safety, Anti-Bribery & Corruption and
Cybersecurity), alongside regular updates
from management throughout the year
and an annual management paper on
how the Group monitors the effectiveness
of the Group’s internal control processes.
During the year the Committee also received
detailed reports and presentations from
a number of specialist functional areas
within the Group in order to assess the
risks and effectiveness of the associated
control environments, including treasury, tax,
pensions, cybersecurity, financial reporting
and sustainability. Additional detailed
sessions were also held with each of the
three Business Financial Directors to conduct
deep dives into the Businesses’ operations.
The Group has programmes underway to
upgrade the core operational Information
Systems in each of our three Businesses.
Within Steam Specialties, Project OPAL
began in 2019 and rollout continues to
progress well, while projects in both Electric
Thermal Solutions and Watson-Marlow are
currently in the scoping and design phase.
The Committee is conscious of the business
imperative and magnitude of these projects
and therefore continues to closely monitor
progress against a series of identified
critical success factors. The successful
implementation of these platforms will
facilitate standardised operating models
within each of our Businesses and enhance
the level of automation and efficiency of
our internal controls. During 2021, as a
further preparatory step in light of the BEIS
Proposals, the Group commissioned an
external consultant to review the business
processes and associated internal controls
contained within the Project OPAL systems
against potential ICFR requirements.
Beginning in 2021, the Chief Financial
Officer and newly constituted Finance
Leadership Team (comprising the Heads
of the functional teams within Finance
and Business Finance Directors) led a
programme to review the Group’s internal
control and governance environment.
The Group Governance Guidelines (G3)
programme adopted a risk-based approach
to identifying and prioritising areas of focus
to continually strengthen the completeness
and effectiveness of our policy, processes
and documentation. The G3 programme
has also emphasised communication and
engagement workstreams, being vital to
effective change management.
The G3 process leveraged insight from
Internal and External Audit reviews as well
as the Risk & Control Self-Assessments
completed annually by all the Group’s
operating companies, with further input
provided by the Business Finance Directors.
Working teams were then established
comprising diverse teams of finance
professionals drawn from across our
Businesses, regions and differing levels of
management. These teams conducted
reviews on specific areas of potential risk,
proposing improvements to our policy
framework and processes. These proposed
improvements focus on the formality of the
control documentation and the consistency
of the control application across the
Group’s Businesses.
From the review of the effectiveness of the
Group’s internal control and governance
frameworks several areas were identified in
which the Group’s policy and process could
be further strengthened in line with our Value
of pursuing Excellence. A clear set of tools
were developed to support Group Operating
Companies with the implementation of
the necessary changes and included
clearly explained policy, processes and
documentation, a network of ‘champions’
to support implementation, online training
videos and tools as well as a new online
reporting portal to log compliance.
We anticipate that the G3 programme
will continue throughout 2022 in line with
our focus on enhancing our control and
governance framework and as we prepare
for implementation of the BEIS Proposals.
Assurance
In fulfilling its responsibility for 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 Business
Finance Directors.
There are a range of other measures in
place at local, Business and Group level
that provide assurance that risks are being
managed in line with the Group’s appetite
for risk. The key measures include: a strong
corporate culture of doing the right thing,
supported by a strong ‘tone from the top’;
the oversight of financial performance
and operations by the Group Executive
Committee and Business Executive teams;
detailed control and governance processes
and procedures and a dedicated Internal
Audit function, which performs regular audits
of all Group companies and manages an
annual self-assessment process.
During 2021, the Group commenced an
exercise to map our external disclosures
alongside the current level of assurance
obtained over each element. This will help
us to consider if we wish to change the
associated level of assurance in line with
changes in market practice and increased
Spirax-Sarco Engineering plc Annual Report 2021 121
Governance
regulatory requirements; for example, in
relation to reporting around climate change
and sustainability. This work will continue
into 2022 and will form the foundations of an
Audit and Assurance Policy as set out in the
BEIS Proposals.
Financial disclosures
In the year, the Committee reviewed a
number of reporting changes, including
(i) updates to the Group’s presentation of
the Steam Specialties Business within the
Operating Review in the Annual Report,
(ii)the updated financial reporting guidance
around the configuration or customisation
costs in a cloud computing arrangement (IAS
38 Intangible Assets), (iii) considering the use
of Alternative Performance Measures (APMs),
(iv) the examination of TCFD disclosures
and (v) enhancements to the Group’s Going
Concern and Viability Statement disclosures.
The disclosures made by management
were considered by the Committee to be
appropriate in each case.
Cybersecurity
The Board and the Audit Committee
continued to receive updates on the
implementation and maintenance of
cybersecurity systems and the work
undertaken to improve the Group’s
risk mitigation systems and processes.
During 2021 the Group has continued to
invest further in this area including achieving
Cyber Essentials certification. The Group
continues to review external developments
and also looks to learn from external advisers
and third-party cybersecurity cases.
Taxation & Treasury
The Group Taxation Strategy (reviewed
during the year) 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 relationships
with the relevant tax authorities.
During 2021 the Group established a Tax
Committee and a Treasury Committee
to enhance governance in these areas.
Both Committees comprise the Group
Chief Financial Officer, the Director of Group
Finance and a member of Group Legal
alongside the Group Treasurer or Group
Head of Tax. Each meeting is also attended
by one of the three Business Finance
Directors in order to maintain a close link
between the Committees and the Group’s
Businesses. Both Committees formally
report to the Audit Committee on an annual
basis with the minutes of all meetings being
made available to both the Board and
Audit Committee.
The Group’s Treasury Policy was reviewed
during the year and an updated Policy was
approved in October 2021 by the Audit
Committee and Board. The Treasury Policy
covers the Group’s approach to: funding;
maintaining adequate liquidity; managing
interest rate and foreign exchange risk
and managing banking relationships and
counterparty credit risk. During the year
the Group Tax and Treasury teams have
delivered a number of internal training
sessions designed to support and enhance
knowledge of key Tax and Treasury related
issues within the Group’s Operating
Companies and to further facilitate the
sharing of best practice.
Going Concern, Viability
Statement and financial resilience
While not considered a significant concern
within the Group’s Financial Statements,
during 2021 (against the continued
backdrop of the COVID-19 pandemic)
the Committee remained focused on
monitoring the Group’s financial resilience
and overall liquidity position. The Committee
noted that the Group operated throughout
2021 comfortably within the leverage ratio
covenants contained within its external
financing arrangements.
In line with best practice the Group has
enhanced its Viability Statement reporting to
(i) extend the assessment period from three
years to five years and (ii) provide additional
detail around the underlying scenario
modelling undertaken whilst also linking the
scenarios directly to the Group’s identified
principal risks.
The Committee reviewed the 2021 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 financial resilience of the Group, please
refer to pages 43 to 45.
Whistle-blowing
The Group’s Safecall facility, a confidential
colleague whistle-blowing hotline, continued
to be used across the Group. The facility
is advertised at all sites and allows any
colleague to raise concerns, anonymously
if needed, where they feel activity is being
undertaken which conflicts with the Group
Management Code or Values. Calls raised
are investigated by the Group General
Counsel and / or the Group Head of Internal
Audit with the involvement of other senior
colleagues as required. 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 small number of reported cases
and considered them to be appropriate
and satisfactory.
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 small number of
breaches of the Group Management Code
were identified during 2021. There was
no material financial loss in any of these
instances and prompt action was taken by
the Group Executive Committee and relevant
Business Managing Directors to address
these breaches, including the issuance of
‘lessons learned’ notes to all Businesses of
the Group. The Board will continue to identify
ways to improve Group systems, to fulfil its
responsibility for safeguarding the assets
of the Company and for taking steps for
the detection and prevention of fraud and
other irregularities.
Following the output from the fraud risk
workshop held by management in February
2021, the Committee has worked with
management to build on our fraud risk
assessment and reporting processes during
2021. Actions are underway to improve
fraud risk mitigation measures including:
(i) the rollout of standardised customer
and supplier due diligence processes;
(ii) continuation of Mandatory Contract
Practices implementation across the Group;
(iii) the Group Treasury policy refresh and
(iv) implementation of Data Loss Prevention
tools. Furthermore, the Group has created
a ‘Red Flags Toolkit’ which was launched in
February 2022. This toolkit provides all of the
Group’s General Managers with guidance on
how they might identify wrongdoing within
their Businesses and is accompanied by
senior management communications and
tailored online training.
Significant issues
The Committee is responsible for assessing
whether suitable accounting policies have
been adopted and whether management
has made appropriate judgements and
estimates when applying these policies.
During 2021, the Committee considered
and addressed the significant issues listed
below in relation to the Group’s Financial
Statements and disclosures. The Committee
received regular reports from management
on these significant issues. These reports
were then discussed at the Committee
meetings where the half-year and year-end
reporting was considered, giving Committee
4. Audit, risk and internal control continued
Audit Committee Report continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021122
members the opportunity to directly question
and discuss the reports with management.
The Committee also received a detailed
report on these issues from Deloitte.
(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 2021.
How this was addressed
The Committee receives updates from
management on new significant contracts
and monitors 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 to the
customer. After considering the combined
evidence, the Committee was able to
conclude that revenue recognition was
appropriate during 2021 and at the year end.
(ii) Pensions
The Group operates five main defined benefit
pension schemes (three in the UK, one in
Germany and one in the US). All of these
five main schemes are now closed to future
accrual with the German Scheme being
the last to close in January 2021. 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 208 to 214).
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 used to prepare pension
valuations. Management’s selection of
assumptions was challenged, and key
assumptions were examined against
observable external benchmarks and
market practices. 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
ofcontrols
Internal controls are the safeguards put in
place by the Group to protect its financial
resources against external and potential
internal fraud alongside ensuring the
accuracy of reported financial information.
Management is responsible for ensuring
the internal controls are followed across
the Group. As such, intervention by
management in the handling of financial
information, especially in relation to one-off
or judgemental transactions and making
decisions contrary to the internal control
policy is a significant, if unlikely, risk.
How this was addressed
The Committee discussed the mitigation
of control risks, with a particular focus on
the level of management reviews taking
place within the Businesses, with both
management and the Business Finance
Directors in their regular Committee
presentations. 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 are in place to review
financial information. The audits are objective
reviews on compliance with the Group’s
accounting and internal control policies.
The Group continued to provide additional
resource to its Internal Audit function during
2021 and has invested in the increased use
of data analytics in this area.
As detailed previously, management has
commenced a programme to further review
and enhance 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 and is supportive of the Group’s
continuous improvement journey.
(iv) Acquisitions and goodwill
There is a high level of judgement
surrounding the valuation of goodwill
and acquired intangibles and the risk of
impairment in respect of major acquisitions.
As detailed in Note 15 to the Consolidated
Financial Statements on page 203 the
largest goodwill balance as at 31 December
2021 relates to the Electric Thermal Solutions
cash-generating unit (£241.0m).
How this was addressed
The Committee received detailed reports
from management outlining their valuation of
goodwill for any potential impairments and
the basis for key assumptions used within
their valuation models.
The Committee focused on the key
assumptions around the valuation of goodwill
for the Electric Thermal Solutions Business,
namely:
• the forecast operational performance in
the business plan, in particular, sales and
earnings before interest and tax (EBIT)
growth and EBIT margin forecasts as well
as cash generation assumptions
• the discount rates applied to the
cashflows resulting from the business
plan, specifically the determination of
the input variables used to calculate the
discount rate
• the modelling outcomes when sensitivities
were applied in order to represent
reasonably possible changes to
key assumptions
The Committee concluded it was
comfortable that key assumptions were
reasonable and that the resulting value in
use exceeded the reported carrying values
which led to no impairment being required,
including when sensitivities were applied.
Critical judgements and key
sources of estimation uncertainty
in the Financial Statements
After reviewing the presentations and reports
from management and consulting with the
External 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 122 to 123. 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 External Auditor in relation to
these issues.
Spirax-Sarco Engineering plc Annual Report 2021 123
Governance
Ensuring a fair, balanced and
understandable Annual Report
During 2021, the Committee considered
many components of business performance
to ensure it has a full understanding of
the operations of the Group. Key matters
considered by the Committee include:
• determining the position adopted
in judgement and estimate areas
for pensions
• risk areas set out in the Risk Management
Committee Report
• receipt of regular strategy reports from the
Group Chief Executive and operational
reports from the Business Directors
• reviews of the budget and operational plan
• consideration of accounting judgements
and estimates
Through all the above and its monitoring of
the effectiveness of the Company’s controls,
internal audit and risk management, the
Committee maintains 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 2021 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 alongside.
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 with
an associated audit trail
• consideration of the
appropriateness of alternative
performance measures and
how they are used throughout
the Annual Report in line with
external guidance
• comprehensive reviews undertaken
at different levels in the Group that
aim to ensure consistency and
overall balance
• comprehensive review by the senior
management team
Internal audit
Throughout 2021, the Committee assessed
the effectiveness of the internal audit
function ensuring that its approach was
risk focussed. In addition to reviewing and
approving the internal audit charter, the
Committee reviewed the results of internal
audits undertaken in 2021 and assessed
the robustness of the mechanism 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. Additional resources are planned for
2022 in order to facilitate broader controls
testing and analytics. The function has
a good level of expertise and an active
skills development programme with a
continued focus on building technical and
analytics skills.
During 2021, the Internal Audit team
performed a total of 35 internal audits,
the majority of which continued to be
conducted remotely. The majority of 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
Business Finance Directors are notified to
assist with ensuring they are closed as soon
as possible. The Committee was satisfied
that throughout 2021 management devoted
significant resource to the resolution of any
action items. The Committee receives regular
reports on closure rates and will continue to
monitor outstanding actions. During the year,
open actions reduced by 20% and overdue
actions by 40%, showing positive progress.
4. Audit, risk and internal control
Audit Committee Report continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021124
Since the Internal Audit department was
established in 2017, steady progress had
been made in improving the use of data
analytics. The structured data analytics
programme developed in 2020 has been
further enhanced in 2021 and there is now
data analytics aligned to every standard
internal audit test undertaken (where this
is possible). This has increased the level
of assurance the Internal Audit team have
been able to provide (with testing being
undertaken on a full population rather than a
sample basis) and created some efficiencies
in the audit testing process. Analytics are
used across the internal audit process
including risk assessment, scoping, fieldwork
testing and assessing the effectiveness of
remediation actions implemented.
During 2021, internal audit performance
metrics have been significantly enhanced
and are regularly reported to the Committee.
Metrics include timeliness of audit
completion, stakeholder feedback, audit
coverage, team skills development and
closure of audit actions. These metrics
show continued improvement and good
engagement between Group Operating
Companies and Internal Audit.
Internal Audit also reports thematic issues
identified in their audits to bring broader
benefit to the Group. In the year, this
reporting has highlighted the progress made
in areas such as customer and supplier
contracting (in compliance with Mandatory
Contract Practices requirements), on
cybersecurity/IT controls (receiving central
support via the Cyber Essentials work) and
business continuity.
There are three mechanisms which are
used to provide assurance on the quality
of internal audit activity undertaken by the
Internal Audit team:
• an External Quality Assessment is
undertaken every five years by an
appropriately qualified third party
(see below)
• the view of the Audit Committee
members is sought annually as part of
the Performance review (undertaken in
August 2021)
• the Head of Internal Audit conducting an
annual self-assessment of the quality of
the function
The 2021 self-assessment was conducted
against the standards set by the Institute
of Internal Auditors (such standards being
aligned to the assessment criteria used in
the 2017 External Quality Assessment).
The function scored well across all categories
identifying two areas for improvement: the
sharing of information with other assurance
providers and the need to conduct an
Enterprise Risk Management review (an area
scheduled for Internal Audit in 2022).
Following the last assessment undertaken
in 2017, an external quality assessment of
the Internal Audit function was carried out
in December 2021. The assessment was
undertaken by Protiviti. Overall, the function
was considered to be performing strongly
with all internal activities undertaken rated
as ‘Generally Conforms’ to IIA Standards
(the highest available rating). While there
are established good practices, some
opportunities were identified for further and
ongoing improvement. Examples included
continued development of data analytics
capability, more detailed descriptions of
certain internal audit activity in the Audit
Manual, and re-starting the guest auditor
programme (paused due to COVID-19
related travel restrictions).
External audit process and
audit quality assessment
This is the eighth 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.
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 and as noted below these processes
have been updated during the year.
Actions included:
• a review of the content of the Financial
Reporting Council’s (FRC) 2021 Audit
Quality Inspection Report on Deloitte
• considering evidence gathered first-hand
by the Committee about the performance
of the External 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 2021 for the 2021 audit) with
clear initial judgements on materiality and
(ii) presentations from the audit partner and
his team at the Committee meetings, in
which they clearly and efficiently highlight
key matters arising and any areas on
which they have challenged management
• examining feedback from all audited
companies within the Group, the
respective Group Finance teams,
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)
Ahead of the 2021 financial year end
reporting, the Group (and Committee)
has enhanced its focus on audit quality.
The internal processes used to capture
feedback around external audit effectiveness
has been refined around four thematic
pillars, namely; planning, execution, reporting
and challenge and insight, as well as the
consideration of the audit team itself.
The Committee ensures that it considers
the professional scepticism and challenge
provided by the External Auditor. In addition,
alongside the External Auditor, we are also
participating in the Financial Reporting
Council pilot project in relation to Audit
Quality Indicators.
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
167 to 175 contains a summary of their
audit approach.
Andrew Bond continued as audit partner for
a third year, having taken 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)”.
Spirax-Sarco Engineering plc Annual Report 2021 125
Governance
Safeguarding auditor
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.
The Auditor Engagement Policy was
reviewed and updated during the year, so
as to align with the FRC’s revised Ethical
Standard which became effective in March
2020. A copy of the Auditor Engagement
Policy can be found on the Group’s website,
www.spiraxsarcoengineering.com (under
Governance documents).
To safeguard independence and objectivity,
the policy sets out that the maximum period
of an audit engagement is to be ten years
(calculated from the date of the first financial
year covered by the audit engagement letter).
Further and in line with the Ethical Standard,
the policy details the non-audit services
that the auditor can undertake and which of
those services are subject to the non-audit
services cap.
On non-audit service caps and approvals,
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. Furthermore, (i) 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 and (ii) 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.
During the year, the Group spent £0.2 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 195.
Audit fees for 2021 and 2022
planned tender process
During 2021, the Committee reviewed and
approved the proposed audit fees and
terms of engagement for the 2022 audit
and recommended to the Board that it
proposes to shareholders that Deloitte LLP
be re-appointed as the Group’s External
Auditor for 2022 at the AGM to be held on
11thMay 2022.
Whilst it is not required under EU Audit
Regulations, as it has only been eight
years since the last tender process was
undertaken, in light of the significant
schedule of work to be undertaken over
the forthcoming year (in line with the BEIS
Proposals for continuing improvements
to internal controls and other areas of
assurance which impact future external audit
work), the Audit Committee has decided
to invite audit firms to tender for the audit
of the Group during 2022. The tender
process is underway and is expected to
complete during 2022. Our intention is that
the selected audit firm will be proposed
to shareholders at the 2023 AGM and will
commence work on the half-yearly review
in 2023 and complete the full-year audit
for 2023.
Committee focus
for2022
In addition to on-going monitoring
of risks, internal audit reviews, the
quality of the Financial Statements
and reporting and governance,
the Committee’s focus for 2022
will include:
• completing a tender process for
the appointment of the Group’s
External Auditor
• monitoring and supporting the
Group’s continued work on its
controls framework, processes
and policies
• further deep dives into areas of
Group risk and enhancement of
fraud risk defences
• monitoring and supporting the
Group’s implementation of planned
new Information Systems
• reviewing sources of assurance
and development of an Audit and
Assurance policy
• continuing Committee training
and development
• overseeing the review of the
Group’s non-financial information
reporting (including sustainability
data and reporting)
I am keen to develop stakeholder
engagement over the course of 2022. I will
also be attending the Company’s AGM on
11th May 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 Resilience Statement
See pages 42 to 44
4. Audit, risk and internal control continued
Audit Committee Report continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021126
4. Audit, risk and internal control
Risk Management Committee Report
Members
Our Risk Management Committee comprises:
No. of meetings
attended/total no.
ofmeetings held
Attendance
%
Nicholas Anderson (Chair) 100%
Jim Devine*
66%
Dan Harvey
100%
Dominique Mallet
100%
Andrew Mines
100%
Nimesh Patel
100%
Maurizio Preziosa*
66%
Andy Robson
100%
*Absence on account of business commitments
“As an organisation we are risk
aware, but not risk averse. The Risk
Management Committee oversees and
assesses the risks facing the Group
and evaluates our ability to control
them and mitigate their effects.”
Nicholas Anderson
Chair of Risk Management Committee
Committee role
andresponsibilities
The purpose of the Committee is to
oversee the management and control
of significant risks affecting the Group.
The Committee ensures that the Group
has robust risk management policies and
procedures in place, covering all key areas
of risk, such as 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
to understand the risks facing the Group,
including all workforce-related risks
• determining the Group’s 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
• identifying appropriate risk mitigation
techniques and countermeasures
Meetings
The Committee met three times in 2021.
A summary of the Committee’s activities
throughout the year is set out on page 128.
30
20
15
15
20
How the Committee spent its time %
Principal risks
Internal audit
Bottom-up review
Emerging risks
Internal controls
Spirax-Sarco Engineering plc Annual Report 2021 127
Governance
Chair’s review of 2021
Summary of key focus areas
A particular focus of the Committee this year
has been to assess its risk management
processes with the Board. The review has
revealed further areas for development in the
Group’s risk management framework.
Further in line with the risk management
review, the Committee also deliberated and
approved the undertaking of an enterprise
risk management process to benchmark the
Group’s risk processes against a standard
framework with the support of a third
party consultant.
The Committee also completed its biennial
bottom-up review of risks and updated the
Group risk register accordingly.
A key area of consideration for the
Committee this year has been on the risks
associated with lifting many of the restrictions
imposed during the pandemic and the
longer-term consequences of the COVID-19
pandemic such as the introduction of hybrid
working and the realignment of the Group’s
approach to its supply chain to place itself
in a stronger position if faced with a similar
public health emergency in future.
Anti-Bribery and Corruption (ABC)
The Group has continued to reinforce
the message of zero tolerance for bribery
and corruption within its Businesses.
Our ABC training, which is hosted by the
Steam Academy as part of the Group
Essentials training module is available in
16 key languages and around 6,412 per
sustainability report colleagues (including
Directors) worldwide have now taken part in
the training.
The Group uses an independent, third-
party whistle-blowing hotline to enable
colleagues to anonymously report any
suspected unethical, illegal or otherwise
concerning conduct.
In line with our Gifts, Entertainment and
Hospitality Policy, we also maintain an online
gift register, where colleagues are expected
to record gifts, to ensure our conduct is in
keeping with the highest ethical expectations
and always within the law.
Further updates on whistle-blowing and ABC
can be found in our Sustainability Report on
page 51.
Modern Slavery Statement
The Group’s Modern Slavery Statement
2021 reflects the Group’s Values and
the interplay between those Values and
our commitment to the mission behind
the UK Modern Slavery Act. It explains
how we operate to the highest ethical
standards across our global Businesses.
We respect and protect human rights and
will not tolerate modern slavery or human
trafficking in any of our business operations,
including our supply chain. The Statement
can be found on the Group’s website,
at www.spiraxsarcoengineering.com
sustainability/supply-chain.
Identifying emerging and
principal risks
We have a robust risk management
process in place through which we identify,
evaluate and manage the principal risks
and emerging risks that could impact the
Group’s performance.
During 2021, we reviewed the Group’s
exposure to risk using a bottom-up
approach, where the Group companies
inform the Committee of the risks they
consider affect their businesses to ensure
new or emerging risks are not missed.
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.
In addition, we continued to closely monitor
certain changing emerging risks such
as the rising cost of inflation and took
appropriate mitigating actions through our
price management tools including Effective
Price Increases and Weighted Average
Cost Inflation.
Our principal risks and the results of the
2021 review are set out in the Strategic
Report on pages 85 to 87.
Group Fraud Risk
A fraud risk workshop was held with senior
managers in February 2021, identifying a
number of key fraud risks for the Group,
including payments fraud and financial
misrepresentation. The Committee
deliberated on and approved actions for
2021 and first half of 2022 to address
and further mitigate these risks. A ‘Red
Flag toolkit’ was developed to enable
management to identify wrongdoing
has been a welcome addition to the
mitigating actions.
4. Audit, risk and internal control continued
Risk Management Committee Report continued
Key Risk Management
Committee activities in 2021
May
• Review of the risks identified at
the fraud risk workshop held in
February 2021 and approval of the
proposed actions to address and
further mitigate such risks
• Enterprise risk management
process discussed and approved
August
• Bottom-up risk review and
consideration of responses to
the review
• Review of Enterprise Risk
Management (ERM) process
scheduled for Q1 of 2022
December
• Update on discussions between
the Committee and the Board on
risk management process including
review of Group risks against a list
of generic business risks provided
by Deloitte and discussion of the
concept of Risk Velocity
• Discussion of results of risk scoring
and changes in year-on-year trend
principally resulting in Loss of
Critical Supplier being elevated to
principal risk 8
• Review of and agreement on
preliminary updates to the risk
register arising from the bottom-
up review
Governance
Spirax-Sarco Engineering plc Annual Report 2021128
Climate risk
Climate risk is an emerging risk that we
continue to closely monitor in light of national
and global developments. We recognise
the importance of considering climate risks
and opportunities in our business decisions.
Our climate risk is managed holistically by
the Committee with regular updates to
the Group Executive Committee and the
Board. The risk remains on our risk register
and a part of key strategy discussions
at the Board. We also acknowledge the
role of the Task-Force on Climate-related
Financial Disclosures (TCFD) in supporting
the transition to a low-carbon economy.
Our disclosures, set out on pages page 57 of
the Sustainability Report. demonstrate how
we are managing our climate impact and
how our organisation is evolving in response
to the risks and opportunities arising.
Monitoring effectiveness
(i) Risk management systems
The Committee is responsible for reporting
to the Board the risks facing the Group and
the counter-measures 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.
The Committee is also charged with the on
going monitoring of sufficient and effective
mitigation plans for relevant risks at each
Group Operating Company and Business.
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 risks 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.
(ii) Internal control framework
The Group’s internal controls framework is
structured as follows:
Identify/Prioritise Risks
Set Risk Appetite
Set Operating Principles
Produce and Maintain Detailed
Policies/Procedures
Validate and Test Compliance
with Policies
Report on Policy Compliance
Manage Exceptions
Oversight of the Group’s risk management
frameworks and operation of controls is
undertaken by the Risk Management and
Group Executive Committees. The Risk
Management Committee regularly reviews
the Group’s principal risks, including
emerging risks and defines appropriate risk
appetite. The Group Executive Committee is
responsible for the operation of controls to
mitigate both the principal risks and broader
business risks.
Underpinning the Group’s control
environment is our culture and the ‘Tone
At The Top’ of the organisation, which
sets the principles under which all Group
business is conducted. These principles are
captured in the six Values of the Group that
have been communicated to all colleagues.
These principles are also documented and
reinforced through the Group Management
Code and through annual mandatory
training through the online Group Essentials
programme. Employee engagement surveys
are also undertaken to validate organisational
alignment to our Values.
The Group’s documented policies and
procedures, which are periodically reviewed
and refreshed, set out our clear expectations
of Operating Companies for the operation of
controls. This includes the Group’s Delegation
of Authorities that has been approved by
the Board and cascaded to our Business
Executive teams and Operating Companies.
Reviews over the effectiveness of the
controls environment are performed
through an annual Risk and Control
Self-Assessment process and reviews of
Operating Companies’ activities undertaken
by Group functions, including Internal Audit.
Where appropriate, such as when reviewing
specialist functions, independent reviews
are sought from third parties and various
regulatory and certification audits are also
undertaken across the Group each year.
Findings identified from these processes
and reviews give rise to documented action
items, which are tracked to completion.
Oversight of the financial and operational
performance of our Operating Companies
is provided at regional, Business and Group
levels and includes detailed quarterly financial
reviews, reviews of monthly management
accounts and weekly flash reporting.
Key business decisions are approved by the
Group Executive Committee, which meets
monthly to review financial performance and
receives reports on activity to manage our
principal risks. Senior leaders, Executives
and the Board visit Group operations and
regional and Business leaders also present
directly to the Board. Various Business and
Functional conferences are held during the
year to engage our global teams and help
communicate Group expectations.
An established whistle-blower helpline is
managed by the Group General Counsel and
is advertised at all sites. The helpline allows
colleagues to raise concerns, including
anonymously, if they become aware of any
activity that is inconsistent with our principles.
Concerns are investigated by the Group
General Counsel or another senior manager
as appropriate.
Spirax-Sarco Engineering plc Annual Report 2021 129
Governance
(iii) Internal audit
The Group’s standard policy regarding
internal auditing is that each Operating
Company is audited at least 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. Internal audits
are conducted by our Internal Audit team
led by Dan Harvey, Head of Internal
Audit, who has more than 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
Attended by the Chief Financial Officer,
Group General Counsel, Audit Committee
Chair and senior managers from across the
divisions and Group functions, the fraud risk
workshop held in February 2021 identified six
key fraud risk areas. These were considered
as part of a fraud risk assessment completed
during the first half of 2021. The assessment
was carried out by the Head of Internal Audit
and areas identified for improvement as part
of the Group’s fraud countermeasures were
remediated during the latter part of 2021 and
to be continued in the first half of 2022.
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
• 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 in the
Risk management section of the Strategic
Report which starts on page 85.
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 might affect
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, 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 section
of the Strategic Report which begins on
page 85.
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 five-year period to 31st
December 2026.
The Viability Statement is set out in full in our
Financial review on page 44.
Committee focus
for2022
• Top-down risk review and annual
review of risk register
• Continue in the first half of 2022
with completing the actions arising
from the fraud risk workshop held
in 2021
• Continue to closely monitor the
on going impacts of COVID-19,
particularly on our workforce and
supply chain including the lifting of
any restrictions and the availability of
raw materials and components
• Evaluate and assess the risk
management framework in light of
the Enterprise Risk Management
process review and report to be
produced in 2022
• Assess emerging risks, including
climate change and the rising
costs of inflation, with a focus on
risk appetite in light of existing and
new countermeasures
• Continue with accelerated
sustainability implementation and
digital capabilities and monitor the
impacts of the same on our risks
and risk management process
• Consider the concept of Risk
Velocity and its potential benefits
and drawbacks in including it in our
risk management framework
Nicholas Anderson
Chair of Risk Management Committee
Further reading:
Risk management and principal risks
See pages 85 to 91
4. Audit, risk and internal control continued
Risk Management Committee Report continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021130
5. Remuneration
Remuneration Committee Report
Members
Our Remuneration Committee comprises:
No. of meetings
attended/total no.
ofmeetings held
Attendance
%
Jane Kingston (Chair) 100%
Trudy Schoolenberg
1
100%
Richard Gillingwater
2
100%
Kevin Thompson
100%
Angela Archon
100%
Caroline Johnstone
3
100%
Peter France
3
100%
Olivia Qiu
3
100%
1 G.E. Schoolenberg stepped down on 31st July 2021.
2 R. Gillingwater appointed on 9th March 2021.
3 Following a review of Committee membership to improve the functional efficiency of the Board and
committees, we changed the composition of the Committee. As a result, C. Johnstone, P. France and
O.Qiu stepped down from the Committee on 31st March 2021.
“Remuneration in 2021 reflected astrong
return to growth, whilst navigating
COVID-19 related challenges.
We were pleased to engage
with our colleagues across the
Group as well as shareholders
onremuneration topics.”
Jane Kingston
Chair of Remuneration Committee
How the Committee spent its time %
Bonus achievement
and target setting
Executive succession
Gender pay gap and
wider workforce pay
Shareholder
consultation
Remuneration
Policy
PSP achievement
and target setting
Market updates
20
15
15
10
10
5
25
November
• CEO’s proposed 2022/2023
remuneration arrangements
• Shareholder consultation letter
and process
December
• Executive remuneration
landscape update
• Pay and benefits landscape
• Forecast performance against AIP
and LTIP
• 2022 LTIP targets
• 2022 remuneration recommendations
• Review of Chair of Board fees
• Shareholder consultation update
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 practice and the Financial Conduct
Authority (FCA) Listing Rules. The Committee
takes account of workforce remuneration
and related policies and the alignment of
incentives and rewards with our Group
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 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.
Key Remuneration
Committee activities 2021
February and March
• Statement of Committee Chair
• Annual Report on
Remuneration 2020
• Annual bonus – 2020
outcome/2021 targets
• 2021 personal strategic objectives
• LTIP – 2018 outcome/2021 targets
• 2020 cash generation explained
• 2020 gender pay gap overview
• Reimbursement of COVID-19 senior
leaders voluntary cost contribution
• Market update
Spirax-Sarco Engineering plc Annual Report 2021 131
Governance
5. Remuneration continued
Remuneration Committee Report continued
Statement by the
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 2021. In common with many
others, the impacts of COVID-19 on our
Group presented continuing challenges, as
successive waves affected almost all of the
geographies in which we operate at one time
or another. Once again due to the dedication
of our colleagues and innovation in digital
communication, all of our Businesses
continued to operate as planned. Indeed,
markets recovered quickly and robustly
and sales grew significantly and in spite of
supply chain challenges our priorities turned
towards accelerating capacity expansion to
meet demand.
Once again, 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
manufacturing 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 the year.
The financial performance of the Group was
impressive. 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 dividend payments to shareholders.
Throughout 2021, the Committee monitored
remuneration and employment decisions
taken across the Group. We considered all
decisions on Executive Director and senior
management pay during 2021 in this context
and assessed the impact of our decisions on
our stakeholders, including shareholders and
the wider communities where we operate.
This Report has been prepared in
accordance with Provisions 40 and 41
of the UK Corporate Govenance Code
and sets out the performance criteria for
2022. The key points are also set out in the
table above.
2021 performance-based
rewards
The Group’s performance in 2021 was
strong. Group revenues grew organically by
16.7% when compared with 2020 in spite of
supply chain and capacity constraints, with
Group operating profit increased by 31.2%.
Trading margin of 25.3% was 280bps ahead
of 2020 organically, the highest the Group
has recorded. In determining outcomes,
the Committee carefully considered the
impact of COVID-19 on our colleagues
and all other stakeholders together with the
strong financial 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
targets. These outcomes are fully detailed
in the pages that follow with the highlights
noted below.
Annual Incentive Plan (AIP)
Operating profit targets set in January 2021
were exceeded at Group level and in the
Watson-Marlow and Steam Specialties
Businesses. Executives and senior managers
achieved the maximum payout for these
elements accounting for between 60% and
70% of the opportunity (ranges remain the
same as pre-COVID-19 plans).
The Group’s cash generation target (20% of
the opportunity) was exceeded with a 100%
pay-out. We were satisfied that not only were
our strategic projects protected, but the list
was expanded by including new investments
such as the Watson-Marlow manufacturing
site in the USA.
Finally, strong progress has been made
against personal strategic objectives (10% of
the opportunity).
Performance Share Plan (PSP)
January 2019 – December 2021
During the three-year performance period
ending 31st December 2021 earnings
per share grew by 35.6% over the vesting
period resulting in a 100% vesting for this
element. The Group also delivered a total
shareholder return (TSR) of 154.8% over
this period (as determined under our PSP),
placing us second in the ranking of our
TSR comparator group and thus qualifying
participants for 100% vesting of this element
of the 2019 PSP.
Our remuneration principles are to maintain a competitive remuneration package that promotes the long-term success of the business,
avoids excessive or inappropriate risk taking and aligns management’s interests with those of shareholders.
Below is how remuneration is aligned with the principles of the Code.
Clarity - Our remuneration framework is structured to support the financial and strategic objectives of the Company, aligning the interests
of our Executive Directors with those of our shareholders. We are committed to transparent communication with all our stakeholders,
including our shareholders.
Predictability – The long-term PSP has a range of reward and performance outcomes to align with our business model.
Simplicity - We operate a simple but effective remuneration framework which is applied on a consistent basis for all employees.
The annual bonus rewards performance against key performance indicators, while the LTIP provides long-term sustainable alignment with
our shareholders. There is clear line of sight for management and shareholders.
Risk – Our incentives are structured to align with the Company’s risk management framework. Having no release of PSP awards
until five years from the date of award creates long-term alignment, as do our in- and post-employment shareholding requirements.
The annual bonus and PSP also incorporate malus and clawback provisions, and there is overarching Committee discretion to adjust
formulaic outcomes.
Proportionality – There is clear alignment between the performance of the Company, the business strategy, and the reward paid
to Executive Directors. We endeavour to ensure that our target total compensation levels are set competitively compared to other
companies of similar size and complexity to ensure we can attract and retain the executives needed to deliver the business strategy.
Alignment to culture - When considering performance, the Committee takes account of the Group values. The Committee receives
regular updates on pay conditions across the Group, and colleagues provide feedback to the Board via the Remuneration Committee
and the Employee Engagement Committee.
Focus on remuneration
Governance
Spirax-Sarco Engineering plc Annual Report 2021132
The Group’s resilient performance has
delivered results in line with external
expectations and our challenging internal
goals. The Committee is especially pleased
that progress has been made on the Group’s
key strategic projects for future growth.
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 of not being paid.
Maximum pay-out under the AIP and PSP is
only possible as a result of out-performance
of demanding goals. The Committee has
made a robust and full assessment of
both financial and non-financial measures
and payments under the AIP to Executive
Directors range from 125% – 147% of salary
and I am pleased to confirm 100% vesting of
the 2019 PSP award.
The Committee is satisfied that the total
remuneration received by Executive
Directors for 2021 appropriately reflects the
Group’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 2021 (given as a single
figure for each Director on page 136) reflects
progress made during 2021, as well as over
the past three years.
Plans and targets for 2022
The maximum AIP opportunity will remain
unchanged at 150% and 125% of base
salary for the Group Chief Executive Officer
(CEO) and Group Chief Financial Officer
(CFO) respectively, the maximum LTIP
opportunity will be 250% (for the 2022
award only) for the CEO and will remain
unchanged at 175% of base salary for the
CFO. AIP measures, weightings and ranges
are unchanged and will continue to be
operating profit (70%), cash generation (20%)
and personal strategic objectives (10%).
The AIP targets and achievement will be
published retrospectively.
Reflecting the central importance of the
Group-wide One Planet Sustainability
strategy to all of our forward-looking
plans, the measures for the 2022 PSP will
change to include a sustainability measure
accounting for 20% of the 2022 PSP
opportunity. The Committee decided that
both the TSR and EPS measure weightings
should be reduced by 10% (now will be
30% and 50% respectively) to allow for a
20% weighting for the additional measure.
During our shareholder consultation we had
positive feedback on this development.
The EPS performance range for the 2022
PSP grant will remain at IP+2% for threshold
vesting to IP+8% for maximum vesting.
However, two changes will be made
compared to previous years.
These are outlined in more detail on
page 150.
2022 salary review
The Committee considers salary review
arrangements planned across the Group and
receives an update on broader remuneration
arrangements as context for its decisions
at the more senior levels. In January 2021
a 2.0% salary increase was awarded to the
Executive Directors. For 2022 the country
norm for the UK is 2.7%, which is the level of
increase applied to the base salaries of the
CEO and CFO. The Committee considered
an increase was appropriate in the light of
2021 Company performance.
The Committee also reviews and approves
any increase to the plc Chair’s fee.
Over the past three years this has been
in line with the UK workforce average
increase. Having reviewed Chair fees
across FTSE 70 to 150 companies
as a relevant comparator group, we
recognised the current fee of £226,810 is
significantly below this group. An increase
of 32% to £300,000 was approved by
the Committee to position the fee closer
to the market median. The Committee
considered a one off readjustment was more
appropriate than a staged approach to this
necessary correction.
Workforce engagement
onremuneration
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.
Whilst we continue to develop our Group-
wide engagement and inclusivity framework
including via the Employee Engagement
Committee, in the last year we held
two focus groups to discuss Executive
and Employee Reward arrangements.
Colleagues drawn from different Businesses,
geographies, functions and jobs came
together to hear more about how our
Executives and senior managers are
rewarded to learn more about the role of the
plc board and Remuneration Committee.
We discussed the wider framework for pay
and benefits across the group. We gained
some valuable insights including the
importance of continuing to develop our
understanding of gender and ethnicity data
on pay, and the importance of holding
more regular surgeries to help colleagues
understand benefits options open to them
and give better insight into grading systems
and the need to think creatively about long
term retention tools. We were also pleased
to have feedback on how our reward
frameworks could better reflect our values
and to receive feedback on our emerging
group reward principles.
We will continue the reward focus groups for
input and feedback as we prepare for our
2023 Policy update.
Shareholder consultation
On behalf of the Committee, Jamie Pike
and I have had the opportunity to speak
with a number of our key shareholders in
the last few months as we consulted on
how we intend to operate our Remuneration
Policy during 2022 and 2023. Since we last
consulted in 2019 (a remuneration review
and then the 2020 Policy) there have been a
number of changes. In the past three years
we have integrated Gestra, Chromalox and
Thermocoax, generated strong organic
growth and the Group now employs more
than 8,700 people in 68 countries. In this
time, our market capitalisation has trebled
to a high of £12 billion ranking us 45 in the
FTSE (three years ago we were on the cusp
of the FTSE 100). Our business strategy is
now centred around what we can do for
our customer base under the One Planet
strategy. It is against this context that we
have been debating a remuneration issue
that we feel it is in all stakeholders’ interests
to resolve.
In 2019 shareholders strongly supported
increases in Executive Directors’ pay to bring
packages to a below median but above
lower quartile level. This was a significant
reset and we undertook not to increase
Executive Directors’ salaries again (other
than for annual inflationary increases) until 1st
January 2023, unless there was a significant
change in the scale of the Group. Since then,
three Executive Directors have retired and
the package to recruit externally our new
CFO required a salary 26% higher than his
predecessor with a 25% of salary increase
in annual bonus opportunity. This exercise
brought into sharp focus that our long
Spirax-Sarco Engineering plc Annual Report 2021 133
Governance
5. Remuneration continued
Remuneration Committee Report continued
serving CEO’s package had drifted materially
below market levels and was creating an
inequitable position that challenges our
values and creates unacceptable levels
of risk. In such circumstances, our policy
requires us to act.
Looking at the FTSE 31 to 100 industrial/
manufacturing/engineering companies, at
the end of the year, our CEO’s target pay
was circa 25% below the lower quartile
driven by a 2021 base salary of £614,000
that was 20% below the lower quartile for
these companies. The Committee does not
believe in slavishly following benchmarking
and has never sought to position salaries
at the median level, but we are now very
concerned that we have fallen so far below
the wider market for our very experienced
and high performing CEO.
FTSE 31 to 100 industrial,
manufacturing & engineering
Salary
(£’000)
Total
target
remuneration
(£’000)
Lower quartile 771 2,726
Median 859 3,132
Upper quartile 954 3,408
The current situation is unfair on the current
incumbent, is out of line with the principles
of equity we apply across the group, will in
time make any succession planning for high
calibre candidates difficult and sends the
wrong message about whether we value our
most senior executives.
We have reviewed the market data and
concluded that a fully experienced proven
CEO’s salary should be circa £750,000 in
2023. Ideally we should realign our CEO’s
salary sooner rather than later, but the Board
felt it was important for us to hold to the
commitment we gave our shareholders three
years ago that we would not make any such
change until 2023. However, we don’t feel
we should leave the Company exposed
for another year and so we have been
consulting with our largest shareholders on
the following two proposals:
• To be able to give Nicholas Anderson
an expectation that we intend to uplift
his salary to £750,000 on 1st January
2023 subject to satisfactory business and
personal performance
• In the meantime, during 2022, to grant
him a PSP award at the maximum under
the policy of 250% of base salary. This is
50% of salary higher than his normal
annual grant and is intended to apply as a
one-off only as we will not address salary
until 2023. This award will better align his
interests with those of shareholders’ and
bridge the gap until we can address the
base salary level
Spirax Sarco CEO
Salary
(£’000)
LTIP
grant %
of salary
Total
target
remuneration
(£’000)
2021 614 200% 2,020
2022 630 250% 2,189
2023
(proposed) 750 200% 2,428
We have engaged with our 20 largest
shareholders and proxy agencies and
received feedback and advice from over half
of them, representing 45% of our issued
share capital.
They understood our situation, recognised
a genuine need to address it, indicated
support for our two-step approach and
appreciated the Committee honouring
its commitment not to materially increase
salaries before 2023.
One shareholder questioned whether
we had considered further changes to
variable pay to better address the situation.
The Committee did consider variable pay
but concluded that current variable pay
schemes remain appropriate, and that this
route would require an increase in either LTIP
or bonus of 125% of salary to address the
situation. We concluded this would create
a significantly leveraged package out of line
with the market and other Executives and
leave the salary unaddressed.
Executive pensions
A plan to achieve pension equity across
the Group was accelerated in 2021,
withNicholas Anderson agreeing to reduce
his pension allowance from circa 24%
of salary to the UK new joiner’s rate of
10% of salary by the end of 2022. This is
a year earlier than had been envisaged.
Nimesh Patel, CFO, was appointed in 2020
with a 10% pension allowance.
Looking forward
The Executive Directors, our Group
Executive Committee, along with all of our
colleagues across the world have worked
tirelessly to meet stronger than anticipated
market demand for our products and
services across most sectors and to increase
capacity accordingly. 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. The Group Executive
Committee made a commitment to its
One Planet Sustainability strategy we are
already reflecting that in our Executive and
senior manager reward framework which will
continue to develop.
Committee focus
for 2022
• Implementing changes to the CEO’s
remuneration arrangements
• Continuing to reflect sustainability,
diversity, inclusion, and equity in
reward arrangements
• Develop further colleague
engagement on
remuneration issues
• Prepare for the 2023 Policy update
Jane Kingston
Chair of Remuneration Committee
9th March 2022
Governance
Spirax-Sarco Engineering plc Annual Report 2021134
Remuneration at a glance 2021
Remuneration key performance indicator
2021
actual
2021
threshold
2021
target
2021
maximum Remuneration measure
Group operating profit (£m) 340.3 268.5 282.6 296.8 Annual Incentive Plan
Group cash generation (£m) 278.5
1
216.6 228.0 239.4 Annual Incentive Plan
2019–2021 EPS (%) 35.6 8.0 N/A 29.0 Performance Share Plan
2019–2021 relative TSR (percentile TSR) 2nd 50th N/A 25th Performance Share Plan
1 This figure includes £0.8m of transactional FX (£277.7m+£0.8m).
Executive Directors’ remuneration and shareholdings
The Executive team has consistently delivered top 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 year’s remuneration outcome is
reflective of the value delivered by the Company.
2021
2020 779
1,628 300903
792
271 1,167 300 830
£3,325
£2,220
£2,570
£1,367
1 N.B. Patel joined the Company on 27th July 2020.
Fixed Annual Bonus LTIP Shareholding policy Actual shareholding
N.B. Patel
1
Chief Financial Officer
from 11th September 202
0
N
.J. Anderson
G
roup Chief Executive
Executive Director Single total remuneration figure (£000) Shareholding policy vs actual shareholding (% of salary)
2021
2020 317
1,391612
565
2021
2020
1,314
2021
2020 200
200106
75 975
Overview of the Executive Directors’ Remuneration Policy
Base salary Benefits Pension Annual bonus award
Performance Share Plan
(PSP)
To enable the Group
to attract, retain and
motivate high-performing
Executive Directors
of the calibre required
to meet the Group’s
strategicobjectives.
To provide market
competitive benefits, and
to enable the Executive
Directors to undertake their
roles through ensuring their
wellbeing and security.
To offer appropriate levels
of pension and to attract
and retain individuals with
the personal attributes,
skills and experience
required to deliver
Groupstrategy.
To incentivise and reward
performance against selected
KPIs which are directly
linked to Business strategy,
whileensuring a significant
proportion of Executive
Director remuneration
is directly linked to
Companyperformance.
To incentivise and reward
Executive Directors for
delivering against long-term
Group performance, to
align Executive Directors’
interests to those of
shareholders and to retain
key Executive talent.
Changes at a glance 2021
Executive Directors 2021 Base salary
Change from
2020
Nicholas Anderson £614,000 2.0%
Nimesh Patel £489,600 2.0%
Non-Executive Directors 2021 Fee
Change from
2020*
Jamie Pike £226,810 2.0%
Trudy Schoolenberg
1
£64,330 2.0%
Jane Kingston £64,330 2.0%
Kevin Thompson £64,330 2.0%
Caroline Johnstone £64,330 2.0%
Richard Gillingwater
2
£64,330 N/A
Peter France £54,330 2.0%
Angela Archon £54,330 2.0%
Olivia Qiu £54,330 2.0%
1 G.E. Schoolenberg stepped down on 31st July 2021.
2 R. Gillingwater appointed 9th March 2021.
* The 2.0% increase applies to base fee. Committee Chair and Senior
Independent Director fees of £10,000 each were unchanged.
Spirax-Sarco Engineering plc Annual Report 2021
135
Governance
5. Remuneration continued
Annual Report on Remuneration 2021
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 2021 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. 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 pages 31 to 35.
1.0 Annual Report on Remuneration 2021
This section sets out the Directors’ remuneration for the financial year ended 31st December 2021.
1.1 Single total figure of remuneration (audited)
Executive Directors
N.J. Anderson N.B. Patel
2020 2021 2020
1
2021
Salary £602,000 £614,000 £209,231 £489,600
Pension £150,500 £150,500 £20,923 £48,960
Benefits
2
£26,871 £27,401 £86,707 £26,894
Total fixed pay £779,371 £791,901 £316,861 £565,454
Annual bonus £270,900 £902,580 £75,000 £612,000
PSP
3
£1,166,935 £1,628,456 £975,159 £1,390,578
ESOP
4
£2,558 £2,362 N/A £2,362
Total variable pay £1,440,393 £2,533,398 £1,050,159 £2,004,940
Single total figure £2,219,764 £3,325,299 £1,367,020 £2,570,394
Chair and Non-Executive Directors
J. Pike G.E. Schoolenberg J.S. Kingston K.J. Thompson
2020 2021 2020 2021
5
2020 2021 2020 2021
Fees £222,360 £226,810 £63,260 £37,536 £63,260 £64,330 £63,260 £64,330
Single totalfigure £222,360 £226,810 £63,260 £37,536 £63,260 £64,330 £63,260 £64,330
C.A. Johnstone P. France A. Archon O. Qiu R. Gillingwater
2020 2021 2020 2021 2020
6
2021 2020
6
2021 2020 2021
7
Fees £63,260 £64,330 £53,260 £54,330 £4,438 £54,330 £4,438 £54,330 N/A £48,466
Single
totalfigure £63,260 £64,330 £53,260 £54,330 £4,438 £54,330 £4,438 £54,330 N/A £48,466
The 2020 column relates to the vesting of the 2018 PSP award valued at 10780.0p. (See footnote 5 on page 123 of the Annual Report 2020 for further details.)
1 N.B. Patel joined the Company on 27th July 2020 and was appointed to the Board on 11th September 2020.
2 The 2021 benefits are set out in the table on page 137.
3 The 2021 column relates to the vesting of the 2019 PSP award on 7th March 2022. (See pages 141 to 142 and 145 for further details on the vesting of these PSP
awards and the interests of Executive Directors in the PSP and page 139 for N.B. Patel’s recruitment awards.)
Executive Directors
Date of grant
of PSP award Grant share price No. of vested shares Vesting share price
Amount attributable to
growth in share price
N.J. Anderson 15.05.19 8161.3p 14,335 11360.0p £458,534
N.B. Patel 27.07.20 7842.0p 12,241 11360.0p £430,638
The 2020 column relates to the vesting of the 2018 PSP award valued at 10780.0p. (See footnote 5 on page 123 of the Annual Report 2020 for further details.)
4 Matching shares awarded during the year based on the mid-market price of the shares on the date of award; 14765.0p for 2021 and 11120.0p for 2020. (See page 145
for further details on the 2021 award and page 133 of the Annual Report 2020 for further details on the 2020 award.)
5 G.E. Schoolenberg stepped down on 31st July 2021.
6 A. Archon and O. Qiu were appointed on 1st December 2020.
7 R. Gillingwater was appointed to the Board on 9th March 2021 and appointed Senior Independent Director on 1st August 2021.
Salary/fees
The following table sets out the 2021 base salary with effect from 1st January 2021 for each Executive Director, compared to 2020.
Executive Directors 2020 2021 Increase
N.J. Anderson £602,000 £614,000 2.0%
N.B. Patel £480,000 £489,600 2.0%
Governance
Spirax-Sarco Engineering plc Annual Report 2021136
The 2021 base salaries increased by 2.0% 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.
The following table sets out the Policy fees for the Chair and Non-Executive Directors for 2021. Actual fees received, based on role and date
of appointment, are set out in the Single Total Figure of Remuneration table on page 136. 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 Basic fees Additional fees 2021 Total fees
J. Pike £226,810 N/A £226,810
G.E. Schoolenberg
1,3
£54,330 £10,000 £64,330
J.S. Kingston
2
£54,330 £10,000 £64,330
K.J. Thompson
2
£54,330 £10,000 £64,330
C.A. Johnstone
2
£54,330 £10,000 £64,330
R. Gillingwater
3
£54,330 £10,000 £64,330
P. France £54,330 N/A £54,330
A. Archon £54,330 N/A £54,330
O. Qiu £54,330 N/A £54,330
1 G.E. Schoolenberg stepped down on 31st July 2021.
2 J.S. Kingston, K.J. Thompson and C.A. Johnstone each received £10,000 in respect of their role as Remuneration Committee Chair, Audit Committee Chair and
Employee Engagement Committee Chair respectively.
3 R. Gillingwater appointed to the Board on 9th March 2021 and as Senior Independent Director on 1st August 2021. In respect of their duties as Senior Independent
Director, G.E. Schoolenberg received £5,833 prorated to 31st July 2021 and R. Gillingwater received £4,167 prorated from 1st August 2021.
The Chair and Non-Executive Director fees were reviewed at the end of 2020 and were increased by 2.0%, 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 N.J. Anderson N.B. Patel
Company car and associated running costs or cash alternative allowance £26,996 £17,055
Private health insurance £405 £405
Mobility-related benefit – relocation allowance – £9,434
Pension
Full details of the pension benefits are set out at section 1.2 on pages 142.
Annual bonus
Executive Directors participate in the annual bonus plan, which rewards them for financial and non-financial performance of the Group.
Targets are reviewed annually to ensure continuing alignment with strategy and are agreed at the start of the year. Resulting awards are
determined following the end of the financial year by the Committee, based on performance against these targets.
For the Group Chief Executive, achievement of target performance results in a bonus of 90% of salary, increasing to 150% of salary for
maximum performance. For the Chief Financial Officer, achievement of target performance results in a bonus of 75% of salary, increasing to
125% 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.
No further performance conditions apply during this period. This is, in effect, a bonus deferral mechanism.
The majority of each Executive Director’s bonus opportunity (90%) is based on the achievement of stretching financial performance
targets in areas that directly align with our areas of strategic focus. The remaining 10% is based on the achievement of individual strategic
objectives, tailored to each Director’s areas of responsibility. Performance standards are agreed and communicated at the start of the year.
Financial measures have an established threshold, target and maximum with a sliding scale between each. Individual strategic measures are
subject to three possible achievement levels: fully achieved, partially achieved and not achieved.
Spirax-Sarco Engineering plc Annual Report 2021 137
Governance
5. Remuneration continued
Annual Report on Remuneration 2021 continued
The table below sets out the performance measures that each of the Executive Directors’ bonus awards were subject to.
Achieved (% of bonus)
2021 Measures (% of bonus) N.J. Anderson N.B. Patel
Group operating profit (70%) 70% 70%
Group cash generation (20%) 20% 20%
Personal strategic objectives (10%) 8% 10%
The performance measured is 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 as these were not
included within the targets when set by the Committee.
2021 was a strong year for the Group, the annual bonus payments for Executive Directors ranged between 125% and 147% of salary.
The table below summarises the achieved performance in 2021 in respect of each of the measures used in the determination of annual bonus,
together with an indication of actual performance relative to target.
2021 Measures
Actual
performance
1
Achieved
(% of target) Threshold Target Maximum
Group operating profit £340.3m 120.4% £268.5m £282.6m £296.8m
Group cash generation £278.5m
2
122.1% £216.6m £228.0m £239.4m
1 To comply with the annual bonus plan rules these metrics use, as a base, the actual adjusted operating profit of £340.3 million for segmental operating profit performance.
2 This figure includes £0.8m of transactional FX (£277.7m+£0.8m).
Personal strategic objective assessment
The Executive Directors were each obliged to complete a self-assessed appraisal on their performance against each personal strategic
objective. The Group Chief Executive reviewed this self-assessment with the Chief Financial Officer 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
2022 meeting, the Committee reviewed the recommendations and approved a final decision.
The personal strategic objectives for 2021 are detailed on pages 138 to 140.
Personal strategic
objective 2021 Description Achievement
Nicholas Anderson
Health, Safety and
Sustainability (HS&S)
• Achieved
Improve the Group’s Health, Safety
& Sustainability performance: ensure
improved Health & Safety performance
across the Group’s Finance function,
strengthening EH&S awareness and
culture. Support the implementation of
the Group’s Sustainability programme.
The Group’s EHS performance continued improving in Q4 2021 with the
lowest number of LTAs per quarter on record (2) and both lagging and leading
indicators making progress on the Q4 2020 and the 2020 year end position.
Very pleasingly, the number of LTAs fell by 55% to 15 in 2021, compared to 33
in 2020, 39 in 2019 and 52 in 2018. Importantly, the Group had zero LTA in five
months of 2021. Steam Specialties, Watson-Marlow and ETS had zero LTAs in
8, 7 and 9 months respectively. The Group accident rates (per 100,000 work
hours) fell by 57% in 2021 to 0.10 for LTA (0.23 in 2020) and by 24% to 2.22
for All Accidents (2.62 in 2020).
Strategy
implementation
• Achieved
Refresh the Steam Specialties’
Business Strategy and initiate
implementation in H2 2021
The Steam Specialties strategy review kicked off in early January with full
engagement of the Steam Executive (SEC) and senior leadership teams.
The approach was to build upon the successes achieved through the
Customer first strategy (2014-2020), while accelerating initiatives related to
Digital, Sustainability and Inclusion & Diversity. The refreshed strategy was
presented to the Board and launched globally in June through a week-long
series of virtual meetings. Implementation progressed at pace during H2,
establishing the execution teams and targets for all eight Strategic Initiatives.
Governance
Spirax-Sarco Engineering plc Annual Report 2021138
Personal strategic
objective 2021 Description Achievement
Strategy
implementation
• Achieved
Refresh the Group’s Sustainability
Strategy and initiate implementation
inH2 2021
The Group’s Sustainability Strategy review was initiated in October 2020,
following the creation of a Group Sustainability function in Q3 2020, with the
Group Executive Committee (GEC) acting as the Steering Committee. In
March 2021, the GEC approved the new Group Sustainability Strategy and
Sustainability goals, which include achieving Net Zero carbon emissions for
scope 1 & 2 by 2030 (10 years earlier than originally committed) and Net Zero
carbon emissions for scope 3 by 2050, as well as specific targets for the next
five years to 2025. The Strategy was approved by the Board at the May 11th
meeting and launched globally in early June through a series of videos and
virtual meetings. Initial resources required for pursuing those 2025 goals were
approved (24 new positions), with c.70% of positions filled by year end. CDP,
the leading global reporting system on Climate Change published their latest
report in December 2021, with our Group’s score improving from B to A-,
which for the first time places us in the “Leadership” band.
Strategy
implementation
• Not achieved
Ensure an effective implementation
of the Watson Marlow and ETS
Business Strategies launched in Q4
2020. Improve Chromalox financial
performance by H2 2021
Good strategy implementation activities deployed globally by both Watson-
Marlow and ETS leadership teams during 2021, with the refreshed strategic
direction clearly reflected in local initiatives. Despite positive evidence of
underlying performance improvements across multiple Chromalox operations
they have not yet managed to reduce their overdue order book or increase
their shipment levels, denying the benefits of positive operational gearing from
higher sales. The overall Chromalox trading profit margin did not improve in
2021, so this objective was not achieved.
Employee
engagement
• Achieved
Progress the Group’s Inclusion,
Diversity and Employee
Engagementplans
Significant progress made during 2021 developing the Group’s Inclusion,
Diversity & Wellbeing (ID&W) plan, which was finalised in Q3 and successfully
pre-launched at the Group Leadership Conference in November 2021. During
2021, initiatives included running ID&W sessions and Race Equity discussions
at multiple leadership forums across the Group, publicly announcing our
support for the “Change the Race Ratio” campaign, initiating work to launch
a UK ethnicity pay gap report in 2022, establishing a Working Families Forum
on MS Teams, supporting the Group Women’s Network and WMFTG’s
Global Disability Network. In December 2021, 33% of senior leadership
positions are occupied by women, up from 21% of senior female leaders in
December 2019. During Q2 2021 we completed the Group’s third bi-annual
Employee Engagement survey with a record 91% response rate and increased
engagement scores compared to the 2019 and 2017 survey our Group
scores are consistently above the respective country benchmarks (medians)
with a few Operating Companies achieving upper quartile performance, which
becomes our global objective for the 2023 survey.
Spirax-Sarco Engineering plc Annual Report 2021 139
Governance
5. Remuneration continued
Annual Report on Remuneration 2021 continued
Personal strategic
objective 2021 Description Achievement
Nimesh Patel
Health & Safety (H&S)
• Achieved
Actively support the improvement of the
Group’s Health & Safety performance,
strengthening the H&S awareness and
culture.
Participation through GEC in review and discussion around our Group safety
performance. Introduction of Safety and Wellbeing “moments” at the beginning
of Finance Leadership Team meetings and Global Finance Forums. “Visible Felt
Leadership” on safety during site visits to operations by engaging our people
and asking safety-based questions
Sustainability
• Achieved
Actively support the development
and implementation of the Group’s
Sustainability Strategy, including
an acceleration of Community
Engagement projects.
Participation through GEC in the formulation of the One Planet strategy.
Sponsorship of the Net Zero initiative, including developing a roadmap to
meet our Scope 1 and 2 targets and advancing our project to decarbonise
manufacturing facilities. Defining our Scope 3 framework, including engaging
with the Science Based Targets Initiative. Working with Head of Sustainability,
Group Communications and Group IR to assess and prioritise external
sustainability reporting frameworks and improve our data collation and integrity
Information Technology
and Systems
• Achieved
Advance the Group’s global Cyber
security infrastructure, processes
and responsiveness. Support the
development of global ERPs, CRM &
BI across our three Businesses and the
implementation of our Digital Strategy.
Completion of Cyber Essentials and further improvements to network
access integrity and monitoring for malicious activity. Recruitment of new
Head of Cyber Security. Development of roadmap for further Cyber Security
improvements, targeting adoption of ISO27001 framework. Working with our
Businesses to develop proposals for new ERP, CRM and BI (including impact
of revised guidance for IAS38)
Talent management
• Achieved
Strengthen the talent assessment and
development processes within the
Group Finance organisation and ensure
necessary appointments into key roles.
Appointments into key roles, including: Director of Group Finance, Group
Heads of Investor Relations and Corporate Communications and ETS FD;
strengthening our talent bench. Completion of talent assessment down
to GEC – 2 level including deep-dives with the Finance Leadership Team.
Introduction of “Manager-Once-Removed” meetings to focus on development
plans and support career progression for all members of the global finance
team. Championed signing-up to “Change the Race Ratio” and acted as an
ambassador through social media
Continuous
improvement
of controls
• Achieved
Review and improvement of
governance and control structures,
including embedding changes in
the policy framework and control
processes. Development of Fraud
prevention frameworks. Preparation for
implementation of UK equivalent of US
Sarbanes-Oxley controls over financial
reporting.
Reviewed Group control environment, identifying key gaps to be addressed;
leading to design and launch of revised policy, processes, training and a
documentation portal. Conducted a fraud risk workshop and review of
a prevention measures resulting in updates to our “red-flag toolkit” and
training. Completed an exercise to scope the implementation of UK SOx
across the Group, conducted seven pilot reviews to identify the challenges to
implementation and developed a resource plan. Revised Treasury Policy and
delegation of Authority rolled-out. Analysis and preperation of response to
BEIS proposals on behalf of the BoD.
The personal strategic objective achievement levels are set out below.
Performance targets
Fully achieved Partly achieved Not achieved
% of bonus
achieved
N.J. Anderson 4 0 1 8%
N.B. Patel 5 0 0 10%
The Committee is of the view that these outcomes accurately reflect the performance of the Company. As a result, no discretion was exercised
by the Committee.
As a result of this performance in 2021, the following bonuses were achieved:
Executive Directors Bonus achieved
Bonus
(% of salary)
N.J. Anderson £902,580 147%
N.B. Patel £612,000 125%
Governance
Spirax-Sarco Engineering plc Annual Report 2021140
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.
2019
2020
2021
2018
2017
2016
00
Actual bonus as a percentage of maximum opportunity
Adjusted Group operating profit (£m)
Actual bonus as a % of CEO
maximum opportunity
Adjusted Group operating profit (£m)
235.5
180.6
277.3
274.9
340.3
264.9
25 50 75 100
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/or 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 Weight Threshold requirement Maximum requirement
EPS growth 60% Global IP +2% pa
1
Global IP +8% pa
Relative TSR 40% Median TSR 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 for 2019, 2020 and 2021.
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. Adjustments are made to reflect businesses acquired and sold.
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 Engineering 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 is
approximately 50 companies.
PSP awards vesting over 2019-2021
In 2019 the Executive Directors received share awards under the PSP, with vesting subject to EPS growth and relative TSR performance.
The diagrams on page 142 set out details of the performance measures and targets that applied, along with the actual performance during the
period 1st January 2019 to 31st December 2021.
Relative TSR performance (40% of PSP award)
Over the three-year period to 31st December 2021, the Company delivered a TSR of 154.8%. This ranked in the top decile TSR of the
comparator group significantly above the level required for full vesting. The comparator group, comprising 48 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.
Spirax-Sarco Engineering plc Annual Report 2021 141
Governance
5. Remuneration continued
Annual Report on Remuneration 2021 continued
Target TSR Vesting
Threshold Median TSR 31.8% 18.0%
Maximum Upper quartile TSR or above 80.8% 100.0%
Actual 154.8% 100.0%
Shares subject to TSR vesting
TSR performance ranking*
100%
75%
50%
25%
0%
Bottom Lower
quartile
Median Upper
quartile
Top
Actual performance
* 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 2021, the Company delivered adjusted EPS growth of 35.6%. This equated to compound annual
growth of approximately 10.7% 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 was adjusted following the acquisitions
of Gestra and Chromalox (see page 141).
Shares subject to EPS vesting
Point-to-point EPS growth
100%
75%
50%
25%
0%
0% 10% 20% 30% 40%
50%
Actual performance
Performance (over 3 years) Vesting
Threshold 8.0% 18%
Maximum 29.0% 100.0%
Actual 35.6% 100.0%
As a result of the strong Company performance, as measured by relative TSR and EPS growth, 100% of the shares awarded under the 2019
PSP vested for Nicholas Anderson and Nimesh Patel. The Committee considers that this result reflects holistic performance and a very positive
return for shareholders, therefore no discretion was exercised.
Executive Directors Award
1
Vested Lapsed
Value on
vesting
2
N.J. Anderson 14,335 14,335 – £1,628,456
N.B. Patel 12,241 12,241 – £1,390,578
1 As set out on page 143, N.B. Patel received a recruitment PSP award upon joining 27th July 2020, to replace existing arrangements with his former employer.
Usual performance conditions applied.
2 Based on share price at date of vesting; 7th March 2022 (11360.0p).
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, Nicholas Anderson’s pension has been frozen from 2020 and at the
year ended 31st December 2021, he received £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 reviewed the impact of this decision on the blended workforce average in the UK and remains
committed that serving Executive Directors will achieve this rate which is 10% of salary by the close of 2022, and the maximum rate for all the
Executive Directors will now be the new joiners’ rate of 10% of salary.
Under the 2020 Policy, the maximum pension contribution for new Executive Directors is the same as what 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 2021, amounted to £48,960.
Governance
Spirax-Sarco Engineering plc Annual Report 2021142
1.3 Scheme interests awarded during the financial year (audited)
Spirax Sarco Performance Share Plan (PSP)
The 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 Chief Financial Officer) of base salary, using the share price at date of award. Awards were made on
5th May 2021.
For awards made in 2021, 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 141.
Executive Directors PSP award Face value
1
Last day of the
performance
period
Vesting at
threshold
performance
N.J. Anderson 10,433 shares £1,227,964 31.12.23 18%
N.B. Patel 7,279 shares £856,738 31.12.23 18%
1 Based on share price at award (11770.0p).
Recruitment 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 141. 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 Type of award Award Face value
Last day of the
performance
period
Vesting at
threshold
performance
N.B. Patel
1
Nil cost option 3,835 shares £300,741 N/A N/A
N.B. Patel
2
PSP 12,241 shares £959,939 31.12.20 25%
N.B. Patel PSP 12,241 shares £959,939 31.12.21 18%
1 Award will lapse if N.B. Patel is a bad leaver within two years of date of appointment.
2 See page 130 of the Annual Report 2020 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.
During the year ended 31st December 2021, Nicholas Anderson and Nimesh Patel each purchased 16 partnership shares and were each
awarded 16 matching shares. Further information is set out in the table on page 145.
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 2021, 75.09% of eligible UK employees purchased partnership shares and were awarded
matching shares under the ESOP.
1.4 Payments to past Directors (audited)
There were no payments made to past Directors during the year ending 31st December 2021. However the 2019 LTIP award held by Neil Daws
vests in the same proportion as other LTIP award holders at 100% resulting in vesting of 5,283 shares with a value of £600,149 based on the
share price at the date of vesting; 7th March 2022 (11360.0p). These shares have a two-year holding period (net of sale to pay taxes).
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 2021.
Spirax-Sarco Engineering plc Annual Report 2021 143
Governance
5. Remuneration continued
Annual Report on Remuneration 2021 continued
1.6 Statement of Directors’ shareholding and share interests (audited)
Progress towards share ownership guideline
The Executive Directors’ share ownership guidelines are 300% of base salary for the Group Chief Executive and 200% of base salary for other
Executive Directors.
The share ownership guidelines have been met by the Group Chief Executive. The Chief Financial Officer, who joined the Company on 27th
July 2020, is making good progress towards his target of 200% of base salary by July 2025. The value of the shareholding is taken at 31st
December 2021 as a percentage of 2021 base salary. The share price on 31st December 2021 was 16050.0p.
0
100 200 300 400 500 600 700 800 900 1000 1100 1200 1300
1400
N.J. Anderso
n
N.B. Patel
1,313.9%
Share ownership (% of salary)
106.1%
200%
CFO July
2025 target
CEO May
2025 target
300%
Outstanding share interests
The following table summarises the total interests of the Directors in shares of the Company as at 31st December 2021 or, as in Trudy
Schoolenberg’s case, date of leaving. These cover beneficial and conditional interests. No Director had any dealing in the shares of the
Company between 31st December 2021 and 9th March 2022.
Beneficial
1
PSP awards
2
Nil-cost
options
3
ESOP
shares
4
Total 31.12.21 (or
date of leaving
ifearlier)
Total
09.03.22
J. Pike 9,946 N/A N/A N/A 9,946 9,946
N.J. Anderson 49,496 40,253 0 769 90,518 90,518
N.B. Patel 3,204 30,231 7,105 32 40,572 40,572
R. Gillingwater
5
600 N/A N/A N/A 600 600
G.E. Schoolenberg
6
2,754 N/A N/A N/A 2,754 –
J.S. Kingston 3,900 N/A N/A N/A 3,900 3,900
K.J. Thompson 3,800 N/A N/A N/A 3,800 3,800
C.A. Johnstone 447 N/A N/A N/A 447 447
P. France 980 N/A N/A N/A 980 980
A. Archon 0 N/A N/A N/A 0 0
O. Qiu 0 N/A N/A N/A 0 0
1 Shares include any owned by connected persons.
2 Subject to the performance measures as set out on pages 141 to 142.
3 Explained in the table on page 143 and in note 1 under the PSP table on page 145.
4 Not subject to performance measures.
5 R. Gillingwater was appointed to the Board on 9th March 2021.
6 G.E. Schoolenberg stepped down on 31st July 2021.
Governance
Spirax-Sarco Engineering plc Annual Report 2021144
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/
27.07.20
1
15.05.19/
27.07.20
2
13.03.20/
27.07.20
3
Balance
01.01.21
Vested
05.03.21
1
Lapsed
05.03.21
1
Awarded
05.05.21
4
Balance
31.12.21
N.J. Anderson 14,649 14,335 15,485 44,469 10,825 3,824 10,433 40,253
N.B. Patel 12,241 12,241 10,711 35,193 9,046 3,195 7,279 30,231
1 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 and 27th July 2020 to N.J. Anderson and N.B. Patel respectively. During the performance period 1st January
2018 to 31st December 2020, the TSR and EPS performance of the Company resulted in 100.0% and 56.4% vesting respectively, amounting to a total of 73.9% of the
PSP awards vesting. The shares vested on 5th March 2021 and the mid-market price of the shares on this date was 10780.0p. N.J. Anderson’s award vested in the form
of whole shares; 63.85% of N.B. Patel’s award vested in the form of whole shares and 36.15% vested in the form of a nil cost option exercisable from March 2023. A two-
year post-vesting holding period applies to N.J. Anderson’s award. The two-year post-vesting holding period does not apply to N.B. Patel’s recruitment PSP award.
Further detail on this recruitment PSP award is set out on page 143.
2 The average mid-market price of the shares from 9th May to 14th May 2019 was 8161.3p and the mid-market price of the shares on 1st April 2020 was 7842.0p.
These were applied in determining the number of shares subject to the PSP awards granted on 15th May 2019 and 27th July 2020 to N.J. Anderson and N.B.
Patel respectively. The period over which performance measures are calculated is 1st January 2019 to 31st December 2021. Details of the performance measures
attached to these PSP awards are set out on pages 141 to 142 and details of the vesting of this award are set out on page 142. A two-year post-vesting holding period
applies to N.J. Anderson’s award. The two-year post-vesting holding period does not apply to N.B. Patel’s recruitment PSP award. Further detail on this recruitment PSP
award is set out on page 143.
3 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 and 27th July 2020 to N.J. Anderson and N.B. Patel respectively. The period over which performance
measures are calculated is 1st January 2020 to 31st December 2022. 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.
4 The mid-market price of the shares on 4th May 2021 was 11770.0p. This was applied in determining the number of shares subject to the PSP awards granted on 5th
May 2021. The period over which performance measures are calculated is 1st January 2021 to 31st December 2023. Details of the performance measures attached to
these PSP awards are set out on pages 141 to 142. A two-year post-vesting holding period applies to these awards.
Spirax-Sarco Engineering plc Employee Share Ownership Plan (ESOP)
The interests of eligible Executive Directors are set out below.
Balance
01.01.21
Partnership
shares
purchased
1
Matching
shares
awarded
1
Dividend
shares
2
Balance
31.12.21
Period of
qualifying
conditions
3
N.J. Anderson 737 16 16 0 769 3 years
N.B. Patel 0 16 16 0 32 3 years
1 Partnership shares were purchased, at a price of 11045.0 p, and matching shares were awarded on 1st October 2021. The mid-market price of the shares on that date
was 14765.0p.
2 No dividend shares were received during 2021.
3 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 2021.
1.7 Directors’ service agreements and letters of appointment
Chair and Non-Executive Directors
The Chair and Non-Executive Directors have letters of appointment with the Company for a period of three years, subject to annual re-election
at the AGM. Appointments may be terminated by the Company or individual with one month’s notice. The appointment letters for the Chair and
Non-Executive Directors provide that no compensation is payable on termination, other than accrued fees and expenses.
Directors’ terms of service
The table on page 146. 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.
Spirax-Sarco Engineering plc Annual Report 2021 145
Governance
5. Remuneration continued
Annual Report on Remuneration 2021 continued
Executive Directors
Original
appointment date
Current agreement/appointment/
re-appointment letter
1
Expiry
date
Notice
period
N.J. Anderson 15.03.12 13.12.13 N/A 12 months
N.B. Patel 27.07.20 01.04.20 N/A 12 months
Chair and Non-Executive Directors
J. Pike 01.05.14 12.05.21 11.05.24 1 month
A. Archon 01.12.20 30.10.20 30.11.23 1 month
P. France 06.03.18 04.03.21 05.03.24 1 month
R. Gillingwater 09.03.21 01.03.21 08.03.24 1 month
C.A. Johnstone 05.03.19 04.03.22 04.03.25 1 month
J.S. Kingston 01.09.16 05.08.19 31.08.22 1 month
O. Qiu 01.12.20 27.10.20 30.11.23 1 month
K.J. Thompson 15.05.19 15.05.19 14.05.22 1 month
1 All letters of appointment and service agreements are available for inspection at the Group’s headquarters in Cheltenham, UK.
1.8 External Directorships
Nicholas Anderson served as a Non-Executive Director at BAE Systems plc during 2021, for which he received and retained total fees of
£85,000.
1.9 TSR performance graph
This graph demonstrates the growth in value of a £100 investment in the Company compared to the FTSE 350 Industrial Goods and Services
Supersector from December 2011 to December 2021. 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 as this is the Index within which Spirax Sarco is currently placed, and it shows a similar level of out-performance.
0
200
400
600
800
1000
1200
Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2018 Dec 2020 Dec 2021Dec 2019Dec 2017
Source:
DataStream
Value (£)
FTSE 100
FTSE 350
Industrial Goods
and Services
Supersector
£1,011.40
£308.90
£194.00
Spirax-Sarco
Engineering plc
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.
Executive Directors
Single figure of
annual remuneration
Annual variable pay
as % of maximum
Vested PSP awards value
as % of maximum
2021 £3,325,299 98.00% 100.00%
2020 £2,219,764 30.00% 73.90%
2019 £2,788,251 82.60% 100.00%
2018 £2,323,478 92.48% 100.00%
2017 £2,172,620 100.00% 100.00%
2016 £1,610,891 99.20% 40.00%
2015 £1,191,137 61.39% 80.33%
2014 (N.J. Anderson appointed Group Chief Executive in January 2014) £1,000,115 55.76% 33.06%
2013 £1,593,150 95.24% 29.93%
2012 £1,402,668 31.69% 74.60%
Governance
Spirax-Sarco Engineering plc Annual Report 2021146
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
25th percentile
pay ratio
50th median
pay ratio
75th percentile
pay ratio
2021 111:1 83:1 62:1
2020 76:1 66:1 45:1
2019 110:1 74:1 46:1
Single figure total remuneration CEO
25th
(lower quartile)
50th
(median)
75th
(upper quartile)
Salary £614,000 £26,643 £35,804 £40,667
Benefits £27,401 £405 £405 £6,780
Bonus £902,580 – – £1,200
PSP £1,628,456 – – –
Pension £150,500 £1,757 £2,328 £4,067
ESOP £2,362 £1,034 £1,477 £1,329
Total pay £3,325,299 £29,839 £40,014 £54,043
Year-on-year commentary
Our median CEO to Employee Pay Ratio in 2020 decreased due to CEO pay being impacted by the trading environment of 2020. 2020 presented
a year when the Group had not met its planned profit targets and EPS growth had performed to a lesser extent, therefore incentives were lower.
Group performance recovered in 2021 and this is reflected in the higher pay ratio figure.
Pay Policy
The reward policies and practices for our workforce as a whole follow those set for the Executive Directors, as detailed on page 136.
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 2022.
1.10 Percentage change in remuneration of the Directors
The following table provides a summary of the 2021 and 2020 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.
2021 change 2020 change
Base
salary/fee Benefits Bonus
Base
salary/fee Benefits Bonus
General UK employee population 2.0% 2.0% 120.7% 2.9% 2.9% -32.1%
N.J. Anderson 2.0% 2.0% 233.2% 2.9% 2.9% -62.6%
N.B. Patel
1
2.0% 2.0% 240.0% N/A N/A N/A
J. Pike 2.0% N/A N/A 2.9% N/A N/A
G.E. Schoolenberg
2
2.0% N/A N/A 2.9% N/A N/A
J.S. Kingston 2.0% N/A N/A 2.9% N/A N/A
K.J. Thompson 2.0% N/A N/A 2.9% N/A N/A
C.A. Johnstone 2.0% N/A N/A 2.9% N/A N/A
P. France 2.0% N/A N/A 2.9% N/A N/A
A. Archon
3
2.0% N/A N/A N/A N/A N/A
O. Qiu
3
2.0% N/A N/A N/A N/A N/A
R. Gillingwater
4
N/A N/A N/A N/A N/A N/A
1 N.B. Patel joined the Company on 27th July 2020. Percentage of bonus increase has been calculated using the full year bonus figure for consistency purposes.
Actual bonus for 2020 was pro-rated for five months’ service.
2 G.E. Schoolenberg stepped down on 31st July 2020.
3 A. Archon and O. Qiu were appointed on 1st December 2020.
4 R. Gillingwater was appointed on 9th March 2021.
Spirax-Sarco Engineering plc Annual Report 2021
147
Governance
5. Remuneration continued
Annual Report on Remuneration 2021 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.
2021 2020 Change
Total pay spend £481.2m £433.7m 10.94%
Group average headcount 8,202 7,891 3.94%
Adjusted profit before tax £333.9m £261.5m 27.70%
Dividends payable £100.2m £87.0m 15.2%
1.12 Operation of Policy for 2022
Rationale for changes to the CEO’s remuneration in 2022 and 2023
Further to recent shareholder consultation, the Committee has decided to adjust the CEO’s pay arrangements in two steps in 2022 and in 2023
as described earlier on pages 133 to 134. Since the last reset in 2019 (details on pages 133 to 134) the Group has integrated new acquisitions
and continued to deliver very strong organic growth. Significantly in this time the Group’s market capitalisation has trebled to a high of £12 billion
moving us from a ranking of circa 100 to 45 in the FTSE. External CFO recruitment in 2020 bought into sharp relief that our CEO’s package
had drifted materially below market levels with a target pay some 26% below lower quartile market data. The Committee views this as an unfair
position that challenges our values and as per our current Policy would require us to act.
As explained in the Statement by the Committee Chair on pages 132 to 134 the Committee has been reviewing the CEO’s remuneration and
proposes to make an LTIP grant in 2022 of 250% of base salary, which is 50% of base salary higher than in recent years. In doing so, the
Committee is cognisant that the EPS and TSR targets being set for the 2022 award are likely to be more stretching than those set in 2021 for
the following reasons:
(1) Continuing to achieve double digit EPS growth in successive years becomes harder as a business grows in size;
(2) Corporate tax rates are increasing both in the UK and globally; and
(3) Achieving an upper quartile TSR level also becomes harder having done so in previous three-year performance periods.
Benchmarking and market data
The Committee does not believe in slavishly following benchmarking but does believe that comparative market data and references are helpful.
To this end the Committee has been informed by the FTSE 31 to 100 industrial/engineering/manufacturing companies as a relevant data set.
FTSE 31 to 100 industrial,
manufacturing & engineering
Spirax Sarco CEO
Salary
(£’000)
Total target
remuneration
(£’000)
Salary
(£’000)
LTIP
grant % of
salary
Total target
remuneration
(£’000)
Lower quartile 771 2,726 2021 614 200% 2,020
Median 859 3,132 2022 630 250% 2,189
Upper quartile 954 3,408 2023 (proposed) 750 200% 2,428
This shows the CEO’s total target pay is 26% below the lower quartile driven by his 2021 salary of £614,000 that was 20% below the lower
quartile of these constituent companies.
Shareholder consultation
As a result since Q4 2021 we have been consulting with our 20 largest shareholders and proxy agencies for advice and support to take
two steps:
• Give an expectation to our CEO that his base salary will be increased to £750,000 with effect from January 2023 subject to satisfactory
business and personal performance. Ideally we should do this sooner, but in 2019 the Committee made a commitment not to increase
Executives base pay by more than the workforce norm before 2023 (given the range of changes made at that time). We feel it is important to
honour; and
• In the meantime, likely to be Q2 2022, our CEO should be granted the maximum LTIP award allowed under our current policy of 250%
(his normal award being 200%) as a one off in 2022 given the delay to the base salary adjustment.
As noted in the Statement by the Committee Chair (pages 133 to 134) we have had constructive feedback from many of our top 20
shareholders who have indicated they have understood the rationale, recognised a genuine need to address the issue and appreciated the
Committee honouring its 2019 commitment.
Governance
Spirax-Sarco Engineering plc Annual Report 2021148
The table below summarises how we will implement each element of remuneration under the Policy in 2022.
Element of remuneration How we will implement the Policy in 2022
Salary The Executive Directors will receive salary increases of 2.7% in line with the wider UK workforce
increase. The salaries effective 1st January 2022 are therefore:
• Group Chief Executive: £630,500
• Chief Financial Officer: £502,800
Pension Pension contributions for the Executive Directors will be:
• Group Chief Executive: 23.9% of salary (frozen at 2021 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 of 10% of salary.
Annual bonus 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 2021:
Performance measure Weighting (% of bonus)
Group operating profit 70%
Cash generation 20%
Personal strategic objectives 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.
Spirax-Sarco Engineering plc Annual Report 2021 149
Governance
Element of remuneration How we will implement the Policy in 2022
Performance Share Plan awards The 2022 PSP award levels are expected to be:
• Group Chief Executive: 250% of base salary. This is higher than the normal annual grant and reflects
consultation with shareholders regarding compensation
• Chief Financial Officer: 175% of base salary
The performance conditions will include 20% weighting on sustainability measure:
Performance measure Weight
Threshold requirement
(18%vests)
Maximum requirement
(100%vests)
EPS growth 50% Global IP +2% pa Global IP +8% pa
Relative TSR 30% Median TSR Upper quartile TSR
Green House Gas
intensity emissions
2024 v 2021 20% 24% reduction 31% reduction
The sustainability measure has been chosen to align as strongly as possible with our One Planet
Sustainability strategy objectives. The Remuneration Committee felt that this measure would have the
greatest impact if the associated targets can be achieved. The stretch has been built into the target
range to incentivise management to achieve our goals faster. Performance will be measured relative
to £m of sales at 2021 prices to ensure that efficiency savings are not distorted by inflation. As an
underpin and consistent with 2030 net zero scope 1 and 2 emission targets, the Committee requires
an absolute reduction of emissions over the next three years. Performance will be assessed externally
and independently and fully disclosed in future Remuneration Reports.
The EPS performance range for the 2022 PSP grant will remain at IP+2% for threshold vesting to
IP+8% for maximum vesting. However, two changes will be made compared to previous years:
(1) The base year’s EPS for 2021 will be set at the level that was required for maximum vesting of the
2019 LTIP award of 322.5p, rather than the higher actual outcome. This equates to £16 million
of adjusted operating profit and is what the Committee feels is a fair adjustment to recognise that
2021 was an exceptionally high performance with an adjusted operating profit margin of 25.3% (the
Group’s highest ever). This margin expansion was driven by strong revenue growth with the benefit
of operational gearing only partly offset by revenue investments to support future growth over the
course of the Group’s medium term plan. The ramp up in revenue investments lagged growth in
revenue, resulting in a higher adjusted operating profit margin which does not reflect a full year of the
cost of these investments.
(2) A slightly steeper vesting curve will apply from the threshold through to the middle of the range,
recognising that analyst consensus EPS was at the bottom of the range when the Committee set
the target range.
Assuming IP averages 2.6% pa, the resultant 2024 EPS vesting range corresponds to 369.1 to 436.3
pence per share.
The Committee has discretion to adjust the formulaic outcome if it is not representative of the Company
performance delivered.
A two-year post-vesting holding period will apply to the awards.
Non-Executive Director fees Effective from 1st January 2022, the Non-Executive Director basic fee was increased by 10.4%. This
was to reflect the larger companies we are now benchmarking ourselves against and the personal time
commitment relating to the role. The Committee Chair and Senior Independent Director’s fees were
increased to £15,000. The Chair’s fee increased by 32.3%, again reflecting the larger companies we
are benchmarking against and the personal time commitment relating to the role.
5. Remuneration continued
Annual Report on Remuneration 2021 continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021150
1.13 Consideration by the Directors of matters relating to Directors’ remuneration
Operation of the Remuneration Committee in 2021
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 2021, the Committee was chaired by Jane Kingston and the members comprised: Trudy Schoolenberg (up to 31st July 2021, when
Trudy stepped down from the Board), Richard Gillingwater (with effect from 9th March 2021, when Richard was appointed to the Board) Kevin
Thompson and Angela Archon. Caroline Johnstone, Peter France and Olivia Qiu were Committee members up to 31st March 2021 when to
improve the functional efficiency of the Board and Committees, we changed the composition of the Committee.
In 2021, the Committee met four times. All members attended each meeting relative to their Committee membership. 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.
Advisers to the Committee
During 2021, the Committee sought advice and information from Jamie Pike, the Chair; Nicholas Anderson, the Group Chief Executive; Nimesh
Patel, the Chief Financial Officer; 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 2021, on a time and materials basis, Korn Ferry’s fees in respect of these
services totalled £106,959. 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 2021, 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 at the AGM in 2021, shareholders approved the
Annual Report on Remuneration 2020 (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.
Votes for % Votes against % Votes withheld
Remuneration Policy 2020 (2020 AGM) 60,088,522 95.71 2,690,784 4.29 378,510
Annual Report on Remuneration 2020 (2021 AGM) 58,524,531 95.93 2,482,214 4.07 1,076,282
This Annual Report on Remuneration 2021 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 2022
Spirax-Sarco Engineering plc Annual Report 2021 151
Governance
Remuneration Policy 2020
Please note that the Remuneration Policy Report 2020 was published in the Annual Report 2019 and was 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.
Fixed elements of Executive Director remuneration
Purpose and link to strategy Operation Performance measures Maximum potential value
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.
Reviews take into
account Company
andindividual
performance.
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.
Fixed elements of Executive Director remuneration
Purpose and link to strategy Operation Performance measures Maximum potential value
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.
For eligible Executive Directors who joined the UK Company
before 2001 the Company provides a UK defined benefits
pension scheme (DB scheme) or cash alternative allowance.
For UK nationals who joined the UK Company after 2001 the
Company provides a defined contribution pension arrangement
(DC plan) and/or contributions to a private pension and/or a
cash allowance.
Executive Directors who have transferred internally from
overseas may continue to participate in home country pension
arrangements and/or receive a cash allowance.
N/A 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.
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.
5. Remuneration continued
Remuneration Policy 2020
Governance
Spirax-Sarco Engineering plc Annual Report 2021152
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.
Fixed elements of Executive Director remuneration
Common Benefits
To provide market
competitive benefits.
To enable the Executive
Directors to undertake
their roles through
ensuring their wellbeing
and security.
The Company provides common benefits including:
• Company car and associated running costs or cash
alternative allowance;
• private health insurance; telecommunications and
computer equipment;
• life assurance; and
• long-term disability insurance.
N/A The aggregate maximum
cash cost of providing all
common benefits will not
exceed 20% of base salary.
Mobility-related benefits
To ensure that Executive
Directors who have
relocated nationally
or internationally are
compensated for
costs incurred.
The Company will pay all reasonable expenses 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.
N/A Based on individual
circumstances and subject
to written agreement.
Maximum values will not
exceed the normal market
practice of companies of a
similar size and nature at the
time of relocation.
Variable elements of Executive Director remuneration
Purpose and link to strategy Operation Performance measures Maximum potential value
Annual bonus
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.
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.
150% of salary.
No more than 60% of
the bonus opportunity
can be earned for target
performance in any year.
Spirax-Sarco Engineering plc Annual Report 2021 153
Governance
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.
Variable elements of Executive Director remuneration
Performance SharePlan (PSP)
To incentivise and reward
Executive Directors for
delivery against long-term
Group performance.
To align Executive
Directors’ interests to
thoseof 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:
• 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 considerationof
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.
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.
Variable elements of Executive Director remuneration
Purpose and link to strategy Operation
Performance
measures Maximum potential value
Employee Share Ownership Plan (ESOP)
To offer all eligible UK-
based employees the
opportunity to build a
shareholding in a tax-
efficient way.
To align Executive
Director interests to those
of shareholders
Eligible UK Executive Directors are entitled to participate in an
HMRC approved Share Incentive Plan known as the ESOP.
Whilst not currently operated, if in the future employee share
plans are offered outside the UK, 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.
N/A Executive Directors
will be subject to the
same limitations as all
other participants.
5. Remuneration continued
Remuneration Policy 2020 continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021154
Other
Purpose and link to strategy Operation
Performance
measures Maximum potential value
Share ownership guidelines
To provide alignment with
shareholder interests.
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.
N/A N/A
Chair and Non-Executive Directors
Purpose and link to strategy Operation
Performance
measures Maximum potential value
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.
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.
N/A 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.
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.
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.
Spirax-Sarco Engineering plc Annual Report 2021
155
Governance
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.
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.
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.
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.
5. Remuneration continued
Remuneration Policy 2020 continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021156
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 12 months by the Executive Director and 12 months by the Company
Termination 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.
Clawback
ormalus
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.
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.
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.
Spirax-Sarco Engineering plc Annual Report 2021
157
Governance
Notice period 12 months by the Executive Director and 12 months by the Company
Termination 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.
Clawback
ormalus
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.
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.
5. Remuneration continued
Remuneration Policy 2020 continued
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.
Governance
Spirax-Sarco Engineering plc Annual Report 2021158
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
Below threshold On target Maximum
Annual bonus (% of salary) 0% 90% CEO
60% ED
150% CEO
100% ED
PSP
1
(% of salary at award) 0% 36.0% CEO
31.5% 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.
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.
Maximum
Target
Threshold
£0.0m £2.0m£1.0m £4.0m£3.0m
100% 0% 0%
51%
27% 42%
£1.54m
£2.89m
Total, including
share price growth:
£3.49m
£0.78m
14%
Nicholas Anderson (Group Chief Executive)
31%
35%
Total, including
share price growth:
£1.97m
Maximum
Target
Threshold
£0.0m £1.0m£0.5m £2.5m£2.0m£1.5m
100% 0% 0%
59%
32% 43%
£0.87m
£1.58m
£0.51m
14%
Kevin Boyd (Chief Financial Officer)
27%
25%
Maximum
Target
Threshold
£0.0m £1.0m£0.5m
£2.5m
£2.0m£1.5m
100% 0% 0%
59%
32% 43%
£0.84m
£1.54m
£0.50m
14%
27%
Neil Daws (Managing Director, Steam Specialties)
Total, including
share price growth:
£1.87m
25%
Fixed Annual bonus PSP PSP value with 50% share price growth
Spirax-Sarco Engineering plc Annual Report 2021 159
Governance
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 2021 and 2020, the advisory votes on the 2020 and 2019 Annual Reports on
Remuneration received 95.93% and 95.971% in favour respectively. At the AGM in 2017 the Remuneration Policy received 95.06% in favour.
5. Remuneration continued
Remuneration Policy 2020 continued
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.
Governance
Spirax-Sarco Engineering plc Annual Report 2021160
Regulatory disclosures
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.
An overview of our principal activities, by
Business, is given on page 2 and 11 to 37 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 3 of the Annual Report.
“High standards of governance
and compliance remain important
asthe world emerges from COVID-19.”
Andy Robson
Group General Counsel
Risk management and
principal risks
Descriptions of our risk management and
the principal risks facing the Company are on
pages 85 to 91 and 127 to 130.
Constructive use of AGM
The Notice of Meeting convening the
AGM, to be held on Wednesday, 11th May
2022 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
This year we are pleased to be able to
hold a physical meeting and welcome our
shareholders to the AGM in person. We need
to make sure that we take the correct and
proper precautions so that, in light of the
continuing pandemic, everyone attending is
safe. We will therefore adopt the following
COVID-19 controls for personal attendance
at the meeting:
• Proof of all vaccinations including
booster doses
• A recent negative lateral flow or PCR test.
The second change is that we will hold
the meeting at Spirax Sarco Limited,
Runnings Road, Kingsditch Trading Estate,
Cheltenham, Gloucestershire, GL51
9NQ because our Group Headquarters
at Charlton House, Cheltenham, UK is
temporarily closed as we upgrade it for the
future in accordance with our sustainability
and business requirements.
We appreciate your understanding.
For up-to-date information,
please refer to our website:
https://www.spiraxsarcoengineering.com/
investors/shareholder-information/
agm-notices.
While we are always delighted to meet
with our shareholders at our AGMs, all
shareholders are still able to vote by
submitting a Form of Proxy, in line with
the instructions set out in the Circular.
In 2021, 92.60% of the proxy votes received
were lodged electronically through the
CREST system.
The results of the votes will be announced
to the London Stock Exchange and
posted on the Group’s website,
www.spiraxsarcoengineering.com, shortly
after the conclusion of the meeting.
Results
The Group’s results for the year have been
prepared in accordance with the International
Financial Reporting Standards. They are set
out in the Consolidated Income Statement,
which appears on page 177.
Dividend
The Directors are proposing the payment of
a final dividend of 97.5p (2020: 84.5p) which,
together with the interim dividend of 38.5p
(2020: 33.5p), makes a total distribution
for the year of 136.0p (2020: 118.0p).
If approved at the AGM, the final dividend will
be paid on 20th May 2022 to shareholders
on the register at the close of business on
22nd April 2022.
Directors’ interests
The interests of the Directors in the share
capital of Spirax-Sarco Engineering plc as at
31st December 2021 are set out on pages
144 to 145.
Subsequent to the signing and
approval of the Annual Report, the
venue for the AGM has changed to
our Group Headquarters at Charlton
House, Cirencester Road, Cheltenham,
Gloucestershire, GL53 8ER, UK.
Spirax-Sarco Engineering plc Annual Report 2021 161
Governance
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 current Directors will seek re-election at
the AGM.
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
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 96 to 97.
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
their appointment. The Board believes that
the procedures established to deal with
conflicts of interest are operating effectively.
Share capital
As at 28th February 2022 there were no
treasury shares held by the Company.
Details of shares issued during the year are
set out in Note 21 on page 207.
As at 31st December 2021 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 2022
and 31st December 2021. 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.
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 2021
was 73,776,048.
PSP and Employee Benefit
Trust (EBT)
The number of shares held in the EBT at
31st December 2021 was 149,331 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 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.
As at 31.12.21 As at 28.02.22
Substantial shareholdings
Number of
Ordinary shares
% of issued
share capital
Number of
Ordinary shares
% of issued
share capital
BlackRock, Inc. 6,101,821 8.3% 6,282,874 8.5%
The Capital Group Companies, Inc. 5,849,574 7.9% 5,874,628 8.0%
Fiera Capital Corporation 3,985,626 5.4% 4,008,863 5.4%
Sun Life Financial, Inc. 3,674,076 5.0% 3,443,969 4.7%
APG Groep N.V. 4,050,685 5.5% 4,049,518 5.5%
The Vanguard Group, Inc. 2,924,299 4.0% 2,992,169 4.1%
Regulatory disclosures continued
Governance
Spirax-Sarco Engineering plc Annual Report 2021162
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
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, having been appointed on 20th
May 2014.
Deloitte LLP has expressed its willingness to
continue in office as auditor and a resolution
to re-appoint Deloitte LLP will be proposed
at the forthcoming AGM.
Research and development
(R&D)
The Group continues to devote significant
resources to the research and development
and the updating and expansion of its range
of products 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 7 on page 195.
The amount of R&D expenditure capitalised,
and the amount amortised, in the year, are
given in Note 15 on page 201.
Relationships with suppliers
and customers
Our relationship with our customers is
explained throughout the Report, including
page 102 (Our customers). Our relationship
with our suppliers is specifically addressed
on page 103 (Our supply chain) and 103
(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. It 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
during the year and an updated policy was
approved in October 2021 by the Audit
Committee and the Board.
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
fromnormal trading activity.
Political donations
The Group has a policy of not making
political donations and no political donations
were made during the year (2020: nil).
Greenhouse gas emissions
Details of our greenhouse gas emissions can
be found on page 55.
Going concern
Our Going Concern Statement is set out on
page 43.
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 Operating
Review) which provides an overview of
the development and performance of
the Group’s business in the year ended
31st December 2021 and its position at
the end of that year, 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
9thMarch 2022. Pages 161 to 163 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 table set out on the
following page.
Spirax-Sarco Engineering plc Annual Report 2021 163
Governance
Regulatory disclosures continued
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.
Topic Section Location
(1) Interest capitalised Not applicable
(2) Publication of unaudited financial information Not applicable
(4) Details of long-term incentive schemes Remuneration Report, pages 141 to 142
(5) Waiver of emoluments by a Director Not applicable
(6) Waiver of future emoluments by a Director Not applicable
(7) Non pre-emptive issues of equity for cash Not applicable
(8) Item (7) in relation to major subsidiary undertakings Not applicable
(9) Parent participation in a placing by a listed subsidiary Not applicable
(10) Contracts of significance Regulatory Disclosures, page 163
(11) Provision of services by a controlling shareholder Not applicable
(12) Shareholder waivers of dividends Regulatory Disclosures, page 162
(13) Shareholder waivers of future dividends Not applicable
(14) Agreements with controlling shareholders Not applicable
Andy Robson
Group General Counsel and Company Secretary
9th March 2022
Spirax-Sarco Engineering plc
Registered no. 596337
Governance
Spirax-Sarco Engineering plc Annual Report 2021164
Statement of Directors’ responsibilities
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
UK. 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
• make an assessment of the Company’s
ability to continue as a going concern
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Company and enable them to ensure
that its Financial Statements comply with the
Companies Act 2006.
They are also responsible for safeguarding
the assets of the Company and hence for
taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Group’s website,
www.spiraxsarcoengineering.com.
Legislation in the UK governing the
preparation and dissemination of Financial
Statements may differ from legislation in
other jurisdictions.
Cautionary statement
All statements other than statements of
historical fact included in this document,
including those regarding the financial
condition, results, operations and Businesses
of Spirax-Sarco Engineering plc (its
strategy, plans and objectives), are forward-
looking statements.
These forward-looking statements reflect
management’s assumptions made based
on 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
• the Annual Report 2021 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 2022
and is signed on its behalf by:
Nimesh Patel
Chief Financial Officer
9th March 2022
“The Group’s strong financial
positionunderpins our stability
andviability, while supporting
investments to secure our future.”
Nimesh Patel
Chief Financial Officer
Spirax-Sarco Engineering plc Annual Report 2021 165
Governance
166
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021
Financial Statements
In this section
Independent Auditor’s report 167
Consolidated Statement of Financial Position 176
Notes to the Consolidated Financial
Statements 181
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 31 December 2021 and of the Group’s profit for the year
then ended;
• the Group Financial Statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards;
• 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;
• 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 and United
Kingdom adopted international accounting standards. 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. The non-audit services provided to the
Group and Parent Company for the year are disclosed in note 7 to the Financial Statements. We confirm that we have not provided any non-
audit services prohibited by the FRC’s Ethical Standard 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 identified have remained at a similar level of risk to the prior year.
Materiality The materiality that we used for the Group Financial Statements was £15.0m (2020: £11.4m) which represents 4.8%
of statutory profit before tax adjusted for a one-off gain of £2.0m from the closure of the pension scheme in Germany
to future accruals.
Scoping We focused our Group audit scope primarily on the audit work at 24 (2020: 25) components. These components
represent the principal business units and account for 86% (2020: 73%) of Group’s net assets, 75% (2020: 74%) of
Group’s revenue and 73% (2020: 73%) of Group’s profit before tax.
Significant changes in
our approach
There were no significant changes in our approach.
Independent Auditor’s Report
To the members of Spirax-Sarco Engineering plc
Spirax-Sarco Engineering plc Annual Report 2021 167
Financial Statements
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
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, we pinpointed the risk to the potential overstatement of revenue in components where external revenue
recognised in December 2021 is both above the component’s materiality and contributes a higher proportion (10%
or more) of annual external revenue 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 122 to 123.
How the scope
ofouraudit
respondedtothe
key auditmatter
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 at the relevant components consisted of
several procedures including:
• performance of walkthroughs to obtain an understanding of the relevant controls relating to the revenue cycle; and
• review of the product despatch cycle and revenue recognition profile across the year-end period and testing of a
sample of items by assessing whether the performance obligation was met in line with the revenue recognition date
in accordance with the terms of trade with customers.
Key observations From the work performed above we are satisfied that there are no material cut-off errors.
Independent Auditor’s Report continued
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021168
5.2. Defined benefit pension liability valuation
Key audit
matter description
At 31st December 2021 the gross retirement benefit liability recognised in the Consolidated Statement of Financial
Position was £605.5m (2020: £630.3m). 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 rates, mortality assumptions and inflation rates 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 122 to 123.
How the scope
ofouraudit
respondedtothe
key auditmatter
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 95.5% (2020: 94.3%) 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.
We also evaluated management’s expert and reviewed their reports considering compliance with IAS 19 and IFRIC 14.
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
The group holds £411.2m (2020: £422.4m) of goodwill arising from business combinations in prior years. There is
judgement surrounding the valuation of goodwill and the risk of impairment. Key judgements include assumptions
in estimating future revenue and earnings before interest and tax (EBIT) margins to determine whether assets are
impaired, alongside setting an appropriate discount rate.
ETS has historically performed behind management’s forecasts, primarily due to operational matters and the impact
of COVID-19. Therefore we have identified a key audit matter relating to the impairment of goodwill and intangibles for
the ETS CGU, pinpointed to Chromalox’s short- to medium-term (2022-2026) revenue and EBIT margin assumptions
as well as the discount rate. The value of goodwill for the ETS CGU as at the balance sheet date was £241.0m
(2020: £243.7m).
The Audit Committee Report on page 123 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.
How the scope
ofouraudit
respondedtothe
key auditmatter
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, including assumption
setting for future cash flows, discount rates and an overarching review by the CFO of the impairment models;
• assessed the integrity of management’s impairment model through testing of the mechanical accuracy and verifying
the application of the input assumptions;
• to assess the revenue and EBIT growth assumptions, held meetings with finance and commercial management
and visited the Ogden facility to challenge and understand their bridge from 2021 actual results to 2026 forecasts.
In addition, we understood the actions being taken to improve the operational performance of the facility;
• considered external evidence, such as forecast IP and GDP growth, market reports and order intake, to assess
accuracy and reasonableness of management’s forecasts;
• compared the change in model assumptions from 2020 and understood the driver of any variances;
• evaluated historical forecasting accuracy by comparing prior year plans to actual results achieved;
• challenged the discount rate used with input from our internal valuations specialists, utilising their knowledge
and expertise;
• ran sensitivities on the assumptions within the model; and
• completed a stand back review by evaluating the reasonableness of the assumptions in aggregate, by comparing the
EBIT multiple of ETS to the EBIT multiple of the Group and enterprise value to the value in use.
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 key assumptions applied, when taken in aggregate, are within our acceptable range.
Spirax-Sarco Engineering plc Annual Report 2021 169
Financial Statements
Independent Auditor’s Report continued
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:
Group Financial Statements Parent Company Financial Statements
Materiality £15.0m (2020: £11.4m) £5.3m (2020: £5.1m)
Basis for
determining
materiality
We determined materiality on the basis of 5% of forecast
statutory profit before tax adjusted to remove a one-off
gain of £2m in relation to the closure of the German
defined benefit pension schemes to future accruals.
Finalmateriality represents 4.8% of the adjusted statutory
profit before tax. (2020: 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 futureaccruals).
Parent Company materiality is set at 3% of net assets,
which is capped at £5.3m (2020: £5.1m).
Rationale for the
benchmarkapplied
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.
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 £5.3m.
Statutory PBT adjusted for pension gain
Group materiality
Group materiality
£15.0m
Statutory PBT
adjusted for pension
gain £312.5m
Component
materiality range
£4.2m to £5.3m
Audit Committee
reporting threshold
£0.75m
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
Materiality 70% (2020: 70%) of Group materiality 70% (2020: 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.
Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £750,000 (2020: £570,000), 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.
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021170
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 24 (2020: 25) components. 18 (2020: 17) of these were subject to a full audit, whilst the remaining six components (2020: eight 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 86% (2020: 73%) of the Group’s net assets, 75% (2020: 74%) of the Group’s revenue and 73% (2020: 73%) 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 £4.2m to £5.3m (2020: £2.8m to £3.6m). We have tailored our scoping to ensure sufficient coverage not only
at a Consolidated Group level, but also across the three CGUs (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
69
25
6
Full audit scope
Revenue
Specified audit procedures
Review at group level
66
27
7
Full audit scope
Profit before tax
Specified audit procedures
Review at group level
84
14
Full audit scope
Net assets
Specified audit procedures
Review at group level
2
7.2. Our consideration of the control environment
The Group operates a range of IT systems and controls which underpin the financial reporting processes. These can vary by geography and/or
operating company. Given the disaggregated nature of the Group and the ongoing review of internal controls (see below), we continue to adopt
a largely 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.
As outlined in the Audit Committee Report on pages 120 to 121 of the Annual Report, as a further preparatory step in light of the BEIS
proposals, the Group engaged an external consultant to assist reviewing the business processes and associated internal controls within the
Project OPAL systems. In addition to this, the Chief Financial Officer led a programme to review the Group’s internal control and governance
structure (G3). Following on from these the Group has developed a programme of actions to develop the control environment in 2022.
As management develops and completes this programme of work in future years, we expect our audit approach to evolve alongside these
developments in the internal control environment.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements.
The Group has assessed the risk and opportunities relevant to climate change which has been included as an emerging risk across the group.
This risk has also been considered and embedded into the businesses as explained in the Strategic Report on pages 13 to 21.
As a part of our audit procedures, we have obtained management’s risk register and held discussions with those charged with governance
to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the Group’s financial
statements. While management has acknowledged that the transition and physical risks posed by climate change have the potential to impact
the medium to long term success of the business, they have assessed that there is no material impact arising from climate change on the
judgements and estimates made in the financial statements as at 31 December 2021 as explained in note 1 on page 181.
We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and classes
of transaction, and did not identify any additional risks of material misstatement. Our procedures included reading disclosures included in the
Strategic Report to consider whether they are materially consistent with the financial statements and our knowledge obtained in the audit.
Spirax-Sarco Engineering plc Annual Report 2021 171
Financial Statements
7.4. 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.
We reviewed the work performed by component teams and discussed the results with them. 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 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. We were able to perform our
procedures without needing to make substantial changes to our planned approach.
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.
Independent Auditor’s Report continued
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021172
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:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists,
including tax, valuations, pensions, and IT specialists, 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 areas: revenue recognition in relation to cut-off for certain components. 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.
11.2. Audit response to risks identified
As a result of performing the above, we identified revenue recognition in relation to cut-off for certain components 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.
Spirax-Sarco Engineering plc Annual Report 2021 173
Financial Statements
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 that 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 and any material
uncertainties identified set out on page 165;
• 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 page 43;
• the Directors’ statement on fair, balanced and understandable set out on page 95;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 128;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on
pages 129 to 130; and
• the section describing the work of the Audit Committee set out on page 119.
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.
Independent Auditor’s Report continued
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021174
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 11 May 2014 to audit the Financial Statements for the year ending 31 December 2014 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is eight years, covering the years ending 31 December
2014 to 31 December 2021.
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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these Financial Statements
form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK
FCA in accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). We have been engaged to provide assurance on whether the
annual financial report has been prepared using the single electronic format specified in the ESEF RTS and will report separately to the members
on this.
Andrew Bond, FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
9 March 2022
Spirax-Sarco Engineering plc Annual Report 2021 175
Financial Statements
Notes
2021
£m
2020*
£m
Assets
Non-current assets
Property, plant and equipment 13 277.4 261.3
Right-of-use assets 14 62.9 36.3
Goodwill 15 411.2 422.4
Other intangible assets* 15 255.7 276.6
Prepayments 1.3 1.4
Investment in Associate 12 – −
Taxation recoverable 4.9 −
Deferred tax assets 16 46.1 50.9
Current assets
Inventories 17 201.3 180.1
Trade receivables 27 272.3 226.3
Other current assets 18 44.7 31.8
Taxation recoverable 10.8 8.1
Cash and cash equivalents 24 274.6 246.2
Total assets 1,863.2 1,741.4
Equity and liabilities
Current liabilities
Trade and other payables 19 217.0 160.2
Provisions 20 5.2 6.1
Bank overdrafts 24 55.6 22.2
Current portion of long-term borrowings 24 59.6 0.6
Short-term lease liabilities 24 11.2 10.3
Current tax payable 33.1 28.6
Net current assets 422.0 464.5
Non-current liabilities
Long-term borrowings 24 289.9 452.2
Long-term lease liabilities 24 48.9 23.8
Deferred tax liabilities 16 81.8 79.4
Post-retirement benefits 23 44.7 98.6
Provisions 20 1.5 2.0
Long-term payables 4.7 5.1
Total liabilities 853.2 889.1
Net assets 2, 3 1,010.0 852.3
Equity
Share capital 21 19.8 19.8
Share premium account 86.3 84.8
Other reserves 21 (58.2 ) (36.1 )
Retained earnings* 961.1 782.8
Equity shareholders’ funds 1,009.0 851.3
Non-controlling interest 1.0 1.0
Total equity 1,010.0 852.3
Total equity and liabilities 1,863.2 1,741.4
* The prior period comparatives for Other intangible assets and Retained earnings have been restated following the IFRS Interpretations Committee agenda decision on
configuration and customisation costs in cloud computing arrangements (Software as a Service (SaaS)), see Note 1 for further details. Due to the immaterial nature of the
adjustment, no additional Statement of Financial Position as at the beginning of the prior year has been presented.
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 2022 and signed on its behalf by:
N.J. Anderson N.B. Patel Directors
Consolidated Statement of Financial Position
at 31st December 2021
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021176
Notes
Adjusted
2021
£m
Adjustments
2021
£m
Total
2021
£m
Adjusted
2020
£m
Adjustments
2020
£m
Total
2020
£m
Revenue 3 1,344.5 – 1,344.5 1,193.4 – 1,193.4
Operating costs 4 (1,004.2 ) (19.4 ) (1,023.6 ) (923.0 ) (21.4 ) (944.4 )
Operating profit 2, 3 340.3 (19.4 ) 320.9 270.4 (21.4 ) 249.0
Financial expenses (9.8 ) – (9.8 ) (10.1 ) – (10.1 )
Financial income 3.4 – 3.4 1.4 – 1.4
Net financing expense 3, 6 (6.4 ) – (6.4 ) (8.7 ) – (8.7 )
Share of loss of Associate 12 – – – (0.2 ) – (0.2 )
Profit before taxation 7 333.9 (19.4 ) 314.5 261.5 (21.4 ) 240.1
Taxation 9 (83.9 ) 4.3 (79.6 ) (72.0 ) 5.8 (66.2 )
Profit for the period 250.0 (15.1 ) 234.9 189.5 (15.6 ) 173.9
Attributable to:
Equity shareholders 249.7 (15.1 ) 234.6 189.2 (15.6 ) 173.6
Non-controlling interest 0.3 – 0.3 0.3 – 0.3
Profit for the period 250.0 (15.1 ) 234.9 189.5 (15.6 ) 173.9
Earnings per share 2, 10
Basic earnings per share 338.9 p 318.3 p 256.6 p 235.5 p
Diluted earnings per share 338.0 p 317.5 p 255.8 p 234.8 p
Dividends 11
Dividends per share 136.0 p 118.0 p
Dividends paid during the year
(per share) 123.0 p 111.5 p
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 181 to 221 form an integral part of the Financial Statements.
Consolidated Income Statement
for the year ended 31st December 2021
Spirax-Sarco Engineering plc Annual Report 2021 177
Financial Statements
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2021
Consolidated Statement of Changes in Equity
for the year ended 31st December 2021
Notes
2021
£m
2020
£m
Profit for the year 234.9 173.9
Items that will not be reclassified to profit or loss:
Remeasurement gain/(loss) on post-retirement benefits 23 46.3 (40.2 )
Deferred tax on remeasurement (gain)/loss on post-retirement benefits 23 (8.9 ) 8.2
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences and net investment hedges 21 (6.8 ) (24.5 )
Loss on cash flow hedges net of tax 21, 27 (2.8 ) (0.7 )
(9.6 ) (25.2 )
Total comprehensive income for the year 262.7 116.7
Attributable to:
Equity shareholders 262.4 116.4
Non-controlling interest 0.3 0.3
Total comprehensive income for the year 262.7 116.7
Notes
Share
capital
£m
Share
premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Equity
shareholders’
funds
£m
Non–
controlling
interest
£m
Total
equity
£m
Balance at 1st January 2021 (restated)* 19.8 84.8 (36.1 ) 782.8 851.3 1.0 852.3
Profit for the year – – – 234.6 234.6 0.3 234.9
Other comprehensive
(expense)/income:
Foreign exchange translation differences and
net investment hedges 21 – – (6.8 ) – (6.8 ) – (6.8 )
Remeasurement gain on
post–retirement benefits 23 – – – 46.3 46.3 – 46.3
Deferred tax on remeasurement gain
on post–retirement benefits 16, 23 – – – (8.9 ) (8.9 ) – (8.9 )
Cash flow hedges 21, 27 – – (2.8 ) – (2.8 ) – (2.8 )
Total other comprehensive (expense)/
income for the year – – (9.6 ) 37.4 27.8 – 27.8
Total comprehensive (expense)/income
for theyear – – (9.6 ) 272.0 262.4 0.3 262.7
Contributions by and distributions
to owners of the Company:
Dividends paid 11 – – – (90.7 ) (90.7 ) (0.3 ) (91.0 )
Equity settled share plans net of tax – – – (3.0 ) (3.0 ) – (3.0 )
Issue of share capital 21 – 1.5 – – 1.5 – 1.5
Employee Benefit Trust shares 21 – – (12.5 ) – (12.5 ) – (12.5 )
Balance at 31st December 2021 19.8 86.3 (58.2 ) 961.1 1,009.0 1.0 1,010.0
* As a result of the IFRS Interpretation Committee agenda decision released during 2021, the Group have reassessed the accounting treatment in relation to cloud based
software. This has resulted in an adjustment to opening reserves of £3.7 m which represents the net book value at 1st January 2020 of previously capitalised costs which
are now deemed to be operating expenditure. See Note 1 for further details.
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.
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021178
Consolidated Statement of Changes in Equity
for the year ended 31st December 2020
Notes
Share
capital
£m
Share
premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Equity
shareholders’
funds
£m
Non-
controlling
interest
£m
Total
equity
£m
Balance at 1st January 2020 19.8 81.0 (10.6 ) 735.1 825.3 1.0 826.3
Restatement for SaaS arrangements – – – (3.7 ) (3.7 ) – (3.7 )
Balance at 1st January 2020 (restated)* 19.8 81.0 (10.6 ) 731.4 821.6 1.0 822.6
Profit for the year – – – 173.6 173.6 0.3 173.9
Other comprehensive
(expense)/income:
Foreign exchange translation differences and
net investment hedges 21 – – (24.5 ) – (24.5 ) – (24.5 )
Remeasurement loss on
post-retirement benefits 23 – – – (40.2 ) (40.2 ) – (40.2 )
Deferred tax on remeasurement loss
on post-retirement benefits 16, 23 – – – 8.2 8.2 – 8.2
Cash flow hedges 21, 27 – – (0.7 ) – (0.7 ) – (0.7 )
Total other comprehensive expense for
the year – – (25.2 ) (32.0 ) (57.2 ) – (57.2 )
Total comprehensive (expense)/income
for theyear – – (25.2 ) 141.6 116.4 0.3 116.7
Contributions by and distributions
to owners of the Company:
Dividends paid 11 – – – (82.2 ) (82.2 ) (0.3 ) (82.5 )
Equity settled share plans net of tax – – – (8.0 ) (8.0 ) – (8.0 )
Issue of share capital 21 – 3.8 – – 3.8 – 3.8
Employee Benefit Trust shares 21 – – (0.3 ) – (0.3 ) – (0.3 )
Balance at 31st December 2020 19.8 84.8 (36.1 ) 782.8 851.3 1.0 852.3
* As a result of the IFRS Interpretation Committee agenda decision released during 2021, the Group have reassessed the accounting treatment in relation to cloud based
software. This has resulted in an adjustment to opening reserves of £3.7 m which represents the net book value at 1st January 2020 of previously capitalised costs which
are now deemed to be operating expenditure. See Note 1 for further details.
Spirax-Sarco Engineering plc Annual Report 2021
179
Financial Statements
Consolidated Statement of Cash Flows
for the year ended 31st December 2021
Notes
2021
£m
2020
£m
Cash flows from operating activities
Profit before taxation 314.5 240.1
Depreciation, amortisation and impairment 3, 4 69.0 75.4
Profit on disposal of fixed assets 7 (0.5 ) (0.3 )
Disposal of subsidiary 26 – 0.4
Reversal of acquisition-related fair value adjustments to inventory 2 – 1.0
Cash payments to the pension schemes greater than the charge to operating profit 23 (7.6 ) (14.7 )
Equity settled share plans 23 9.2 7.0
Net financing expense 6 6.4 8.7
Operating cash flow before changes in working capital andprovisions 391.0 317.6
(Increase)/decrease in trade and other receivables (71.3 ) 15.1
(Increase)/decrease in inventories (26.7 ) 3.8
(Decrease)/increase in provisions (1.0 ) 3.3
Increase/(decrease) in trade and other payables 59.5 (8.7 )
Cash generated from operations 351.5 331.1
Income taxes paid (78.1 ) (71.9 )
Net cash from operating activities 273.4 259.2
Cash flows from investing activities
Purchase of property, plant and equipment 13 (52.8 ) (42.0 )
Proceeds from sale of property, plant and equipment 2.0 2.2
Purchase of software and other intangibles 15 (8.1 ) (4.9 )
Development expenditure capitalised 15 (3.2 ) (2.7 )
Disposal of subsidiary – (0.3 )
Acquisition of businesses net of cash acquired 26 – (4.8 )
Interest received 3.4 1.4
Net cash used in investing activities (58.7 ) (51.1 )
Cash flows from financing activities
Proceeds from issue of share capital 21 1.5 2.0
Employee Benefit Trust share purchase (26.1 ) (14.5 )
Repaid borrowings 24 (77.5 ) (175.0 )
New borrowings 24 – 138.3
Interest paid including interest on lease liabilities (8.5 ) (8.6 )
Repayment of lease liabilities 24 (11.7 ) (12.2 )
Dividends paid (including minorities) (91.0 ) (82.5 )
Net cash used in financing activities (213.3 ) (152.5 )
Net change in cash and cash equivalents 1.4 55.6
Net cash and cash equivalents at beginning of period 24 224.0 168.3
Exchange movement 24 (6.4 ) 0.1
Net cash and cash equivalents at end of period 24 219.0 224.0
Borrowings 24 (349.5 ) (452.8 )
Net debt at end of period 24 (130.5 ) (228.8 )
Lease liabilities 24 (60.1 ) (34.1 )
Net debt and lease liabilities at end of period 24 (190.6 ) (262.9 )
Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021180
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 United Kingdom (UK).
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 inthe period
in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods ifthe 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 and inflation 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 inNote 23.
The impact the COVID-19 outbreak has had on our business in 2021 and the actions we are taking to mitigate its impact are discussed in the
Chair’s Statement starting on page 8. 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.
New standards and interpretations applied in the currentyear
During the current year, the Group has applied the following amendment to IFRS Standards and Interpretations issued by the International
Accounting Standards Board (IASB) effective for annual periods that begin on or after 1st January 2021. Adoption has not had a material impact
on the disclosures or on the amounts reported in these Financial Statements:
• Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39 and IFRS 7, IFRS 4 and IFRS 16).
Spirax-Sarco Engineering plc Annual Report 2021 181
Financial Statements
Financial Statements
1 Accounting policies continued
In April 2021 the IFRS Interpretations Committee published its agenda decision regarding configuration and customisation costs in Cloud
Computing Arrangements (Software as a Service, (SaaS)) under IAS 38. The primary theme from this agenda decision was that unless the
underlying software meets the criteria for recognising a separate asset (i.e., the Group obtains control of the software) then it is expected that
the costs associated with the configuration and customisation of this software will be recognised as an expense rather than capitalised as an
intangible asset.
During the year the Group performed a review of previously capitalised configuration and customisation costs, resulting in a £3.7m adjustment
to opening reserves and intangible assets in the prior year. As a result of this change in accounting policy, the comparator period in the
Statement of Financial Position and Statement of Changes in Equity have been restated. Due to the immaterial nature of the adjustment, no
additional Statement of Financial Position as at the beginning of the prior year has been presented.
The Economy in Argentina remains subject to high inflation. At 31st December 2021 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:
• Amendments to IFRS 3: Reference to the Conceptual Framework;
• 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 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies;
• Amendments to IAS 8: Definition of Accounting Estimates;
• Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction;
• 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.
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 1stJanuary 2004, the date of transition toIFRS, are not presented as a separate component
of equity.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021182
Financial Statements
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 1.5-4.0%
Leasehold buildings (short and long-term) Over life of lease
Plant and machinery 10-12.5%
Office furniture and fittings 10%
Office equipment 12.5-33.3%
Motor vehicles 20%
Tooling and patterns 10%
The depreciation rates are reassessed annually.
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.
Spirax-Sarco Engineering plc Annual Report 2021 183
Financial Statements
Financial Statements
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). Annual impairment tests are performed on goodwill 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 goodwill for the relevant cash-generating unit.
(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.
Where computer software is cloud based and the Group does not have control of the software, the configuration and customisation costs
are expensed over either:
• The period the services are received, where costs are distinct from the underlying software.
• The period of the SaaS arrangement, where costs are not distinct from the underlying software.
(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 20%
ERP systems and software 12-33%
Brand names and trademarks 5-33%
Manufacturing designs and core technology 6-50%
Non-compete undertakings 20-50%
Customer relationships 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 basedonnormal 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.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021184
Financial Statements
1 Accounting policies continued
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.
Going concern
The statement on the going concern assumption is set out on page 43.
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.
Spirax-Sarco Engineering plc Annual Report 2021 185
Financial Statements
Financial Statements
1 Accounting policies continued
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.
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 2021 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 2021 were £3.2m (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 2021 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.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021186
Financial Statements
1 Accounting policies continued
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.
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
ofapurchase 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 transfers ownership
ofthe 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.
Adjusting items
Please see Note 2 for the accounting policy regarding Adjusting items.
Spirax-Sarco Engineering plc Annual Report 2021 187
Financial Statements
Financial Statements
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 2021 on pages 136 to 151 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.
A reconciliation between operating profit as reported under IFRS and adjusted operating profit is given below.
2021
£m
2020
£m
Operating profit as reported under IFRS 320.9 249.0
Amortisation of acquisition-related intangible assets 21.4 26.6
Reversal of acquisition-related fair value adjustments to inventory − 1.0
Restructuring costs − 4.3
Post-retirement benefit plan in Germany being closed to future accrual (2.0) −
Post-retirement benefit plans in the UK and Canada being closed to future accrual − (10.5)
Adjusted operating profit 340.3 270.4
The related tax effects of the above are included as adjustments in taxation as disclosed in Note 9.
Adjusted earnings per share
2021 2020
Profit for the period attributable to equity holders as reported under IFRS (£m) 234.6 173.6
Items excluded from adjusted operating profit disclosed above (£m) 19.4 21.4
Tax effects on adjusted items (£m) (4.3) (5.8)
Adjusted profit for the period attributable to equity holders (£m) 249.7 189.2
Weighted average shares (million) 73.7 73.7
Basic adjusted earnings per share 338.9p 256.6p
Diluted weighted average shares (million) 73.9 73.9
Diluted adjusted earnings per share 338.0p 255.8p
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.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021188
Financial Statements
2 Alternative performance measures continued
Adjusted cash flow
A reconciliation showing the items that bridge between net cash from operating activities as reported under IFRS to an adjusted basis is given
below. 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.
2021
£m
2020
£m
Net cash from operating activities as reported under IFRS 273.4 259.2
Restructuring costs − 4.3
Net capital expenditure excluding acquired intangibles from acquisitions (62.1) (47.4)
Tax paid 78.1 71.9
Repayments of principal under lease liabilities (11.7) (12.2)
Adjusted cash from operations 277.7 275.8
Adjusted cash conversion in 2021 is 82% (2020: 102%). 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 39.
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
thesuccessful 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,
areconciliation between this and net cash from operating activities as reported under IFRS is shown on page 189.
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. Taxation is
calculated as adjusted operating profit multiplied by the adjusted effective tax rate.
An analysis of the components is as follows:
2021
£m
2020*
£m
Total equity 1,010.0 852.3
Net debt 190.6 262.9
Total invested capital 1,200.6 1,115.2
Average invested capital 1,157.9 1,137.9
Average invested capital (excluding IFRS 16) 1,108.4 1,099.3
Operating profit as reported under IFRS 320.9 249.0
Adjustments (see adjusted operating profit) 19.4 21.4
Adjusted operating profit 340.3 270.4
Taxation (85.5) (74.4)
Adjusted operating profit after tax 254.8 196.0
Adjusted operating profit after tax (excluding IFRS 16) 254.1 195.2
Return in invested capital 22.0% 17.2%
Return in invested capital (excluding IFRS 16) 22.9% 17.8%
* Restated following IFRS Interpretations Committee agenda decision on configuration and customisation costs in cloud computing arrangements (Software as a Service
(SaaS)), see Note 1 for further details.
Spirax-Sarco Engineering plc Annual Report 2021
189
Financial Statements
Financial Statements
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 page41.
An analysis of the components is as follows:
2021
£m
2020*
£m
Property, plant and equipment 277.4 261.3
Right-of-use assets (IFRS 16) 62.9 36.3
Software & development costs* 38.9 33.4
Prepayments 1.3 1.4
Inventories 201.3 180.1
Trade receivables 272.3 226.3
Other current assets 44.7 31.8
Tax recoverable 15.7 8.1
Trade, other payables and current provisions (222.2) (166.3)
Current tax payable (33.1) (28.6)
Capital employed 659.2 583.8
Average capital employed 621.5 589.2
Average capital employed (excluding IFRS 16) 571.9 550.6
Operating profit 320.9 249.0
Adjustments (see adjusted operating profit on page 190) 19.4 21.4
Adjusted operating profit 340.3 270.4
Adjusted operating profit (excluding IFRS 16) 339.2 269.3
Return on capital employed 54.7% 45.9%
Return on capital employed (excluding IFRS 16) 59.3% 48.9%
* Restated following IFRS Interpretations Committee agenda decision on configuration and customisation costs in cloud computing arrangements (Software as a Service
(SaaS)), see Note 1 for further details.
A reconciliation of capital employed to net assets as reported under IFRS and disclosed on the Consolidated Statement of Financial Position is
given below.
2021
£m
2020
£m
Capital employed 659.2 583.8
Goodwill and acquired intangibles 628.0 665.6
Investment in Associate − −
Post-retirement benefits (44.7) (98.6)
Net deferred tax (35.7) (28.5)
Non-current provisions and long-term payables (6.2) (7.1)
Lease liabilities (60.1) (34.1)
Net debt (130.5) (228.8)
Net assets as reported under IFRS 1,010.0 852.3
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021190
Financial Statements
2 Alternative performance measures continued
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 be consistent with how net debt is defined for external debt
covenant purposes, as well as to enable comparability with prior years.
2021
£m
2020
£m
Net debt 130.5 228.8
IFRS 16 lease liabilities 60.1 34.1
Net debt and IFRS 16 lease liabilities 190.6 262.9
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:
2021
£m
2020
£m
Adjusted operating profit 340.3 270.4
Depreciation and amortisation of property, plant and equipment, software and development 36.2 36.7
Earnings before interest, tax, depreciation and amortisation 376.5 307.1
Net debt 130.5 228.8
Net debt to EBITDA 0.3 0.7
The components of net debt are disclosed in Note 24.
Organic measures
As we are a multi-national group of companies, which trade in a large number of foreign currencies and 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.
2020 Exchange Organic
Acquisitions
and disposals 2021 Organic Reported
Revenue 1,193.4 (41.0) 192.1 – 1,344.5 +17% +13%
Adjusted operating profit 270.4 (11.1) 81.0 – 340.3 +31% +26%
Adjusted operating margin 22.7% 25.3% +280 bps +260 bps
A reconciliation of the movement in revenue compared to the pre-pandemic level in 2019 is given below.
2019
£m
Exchange
£m
Organic
£m
Acquisitions
and disposal
£m
2021
£m Organic Reported
Revenue 1,242.4 (67.8) 155.2 14.7 1,344.5 +13% +8%
The term ‘sales’ is used interchangeably with ‘revenue’ when describing the financial performance of the business.
The term ‘real terms’ is defined as the growth in revenue at constant currency excluding the impacts of price inflation.
Drop through is calculated as the organic growth in adjusted operating profit divided by the organic growth in revenue.
The reconciliation for each segment is included in the Strategic Report.
Inflation adjusted sales
For the purpose of calculating the prior year carbon emission intensity ratio, inflation adjusted sales at constant currency reflects the prior year
reported revenue adjusted for the impact of exchange, as shown above, as well as the impact of the global OECD inflation rate for the current
year. The revenue used for the current year ratio is as reported.
Spirax-Sarco Engineering plc Annual Report 2021 191
Financial Statements
Financial Statements
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.
No changes to the structure of operating segments have been made during the current period.
Analysis by operating segment
2021
Revenue
£m
Total
operating
profit
£m
Adjusted
operating
profit
£m
Adjusted
operating
margin
%
Steam Specialties 754.9 186.8 188.7 25.0%
Electric Thermal Solutions 181.3 11.1 24.0 13.2%
Watson-Marlow 408.3 145.4 150.0 36.7%
Corporate expenses (22.4) (22.4)
Total 1,344.5 320.9 340.3 25.3%
Net financing expense (6.4) (6.4)
Share of profit of Associate − −
Profit before tax 314.5 333.9
2020
Revenue
£m
Total
operating
profit
£m
Adjusted
operating
profit
£m
Adjusted
operating
margin
%
Steam Specialties 694.1 157.8 154.3 22.2%
Electric Thermal Solutions 178.0 4.8 24.6 13.8%
Watson-Marlow 321.3 102.2 107.3 33.4%
Corporate expenses (15.8) (15.8)
Total 1,193.4 249.0 270.4 22.7%
Net financing expense (8.7) (8.7)
Share of profit of Associate (0.2) (0.2)
Profit before tax 240.1 261.5
The following table details the split of revenue by geography for the combined Group:
2021
£m
2020
£m
Europe, Middle East and Africa 563.3 507.8
Asia Pacific 334.2 288.5
Americas 447.0 397.1
Total revenue 1,344.5 1,193.4
Revenue generated by Group companies based in the USA is £342.4m (2020: £303.0m), in China is £181.6m (2020: £134.6m), in Germany is
£118.2m (2020: £109.8m), in the UKis £99.6m(2020: £90.2m) and the rest of the world is £602.7m (2020: £555.8m).
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021192
Financial Statements
3 Segmental reporting continued
The total operating profit for the period includes certain items, as analysed below:
2021
Amortisation of
acquisition-related
intangible assets
£m
German pension plan
closed to future accrual
£m
Total
£m
Steam Specialties (3.9) 2.0 (1.9)
Electric Thermal Solutions (12.9) − (12.9)
Watson-Marlow (4.6) − (4.6)
Total (21.4) 2.0 (19.4)
2020
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
Total
£m
Steam Specialties (5.0) − 8.5 − 3.5
Electric Thermal Solutions (14.5) (4.3) − (1.0) (19.8)
Watson-Marlow (7.1) − 2.0 − (5.1)
Total (26.6) (4.3) 10.5 (1.0) (21.4)
Net financing income and expense
2021
Income
£m
2021
Expense
£m
2021
Net
£m
2020
Income
£m
2020
Expense
£m
2020
Net
£m
Steam Specialties 3.0 (2.3) 0.7 1.3 (2.4) (1.1)
Electric Thermal Solutions − (0.2) (0.2) − (0.3) (0.3)
Watson-Marlow 0.1 (0.5) (0.4) − (0.4) (0.4)
Corporate expenses 0.3 (6.8) (6.5) 0.1 (7.0) (6.9)
Total net financing expense 3.4 (9.8) (6.4) 1.4 (10.1) (8.7)
Net assets
2021
Assets
£m
2021
Liabilities
£m
2020*
Assets
£m
2020
Liabilities
£m
Steam Specialties 658.0 (182.1) 637.1 (198.0)
Electric Thermal Solutions 536.9 (33.0) 530.0 (27.5)
Watson-Marlow 331.8 (57.9) 269.1 (46.5)
1,526.7 (273.0) 1,436.2 (272.0)
Liabilities (273.0) (272.0)
Net deferred tax (35.7) (28.5)
Net tax payable (17.4) (20.5)
Net debt including lease liabilities (190.6) (262.9)
Net assets 1,010.0 852.3
* Restated following IFRS Interpretations Committee agenda decision on configuration and customisation costs in cloud computing arrangements (Software as a Service
(SaaS)), see Note 1 for further details.
Non-current assets in the UK were £231.2m (2020: £203.4m), in the USA were £345.6m (2020: £350.8m), in Germany were £154.6m
(2020: £168.9m), in France were £150.5m (2020: £150.9m) and in the rest of the world were £177.6m (2020: £174.9m).
Spirax-Sarco Engineering plc Annual Report 2021 193
Financial Statements
Financial Statements
3 Segmental reporting continued
Capital additions, depreciation, amortisation and impairment
2021
Capital
additions
£m
2021
Depreciation,
amortisation
and impairment
£m
2020
Capital
additions
£m
2020
Depreciation
and
amortisation
£m
Steam Specialties 35.6 33.9 34.5 36.4
Electric Thermal Solutions 16.6 18.3 3.8 20.8
Watson-Marlow 51.0 16.8 19.6 18.2
Group total 103.2 69.0 57.9 75.4
Capital additions include property, plant and equipment of £52.8m (2020 £42.0m), of which £nil (2020: £nil) was from acquisitions inthe period,
and other intangible assets of £11.3m (2020: £7.6m) of which £nil (2020: £nil) relates to acquired intangibles from acquisitions in the period.
Right-of-use asset additions of £39.1m occurred during the 12 month period to 31st December 2021, all of which relates to new leases entered
into during 2021. Capital additions split between the UK and rest of the world are UK £54.2m (2020: £28.2m) and rest of the world £49.0m
(2020: £29.7m).
4 Operating costs
2021
Adjusted
£m
2021
Adjustments
£m
2021
Total
£m
2020
Adjusted
£m
2020
Adjustments
£m
2020
Total
£m
Cost of inventories recognised as an expense 304.7 − 304.7 288.7 1.0 289.7
Staff costs (Note 5) 478.5 − 478.5 430.8 − 430.8
Depreciation, amortisation and impairment 47.6 21.4 69.0 48.8 26.6 75.4
Other operating charges 173.4 (2.0) 171.4 154.7 (6.2) 148.5
Total operating costs 1,004.2 19.4 1,023.6 923.0 21.4 944.4
Total depreciation, amortisation and impairment includes amortisation of acquisition-related intangible assets of £21.4m (2020: £26.6m).
Total other operating charges include restructuring costs of £nil (2020: £4.3m) and Germany pension plan closure to future accrual credit of
£2.0m (2020: UK and Canada pension plans closure to future accrual credit £10.5m). Total cost of inventories recognised as an expense
includes the reversal of acquisition-related fair value adjustments to inventory £nil (2020: £1.0m). Operating costs include exchange difference
losses of £1.3m (2020: benefits of £1.0m).
Total staff costs includes a credit of £2.7m relating to amounts capitalised during the year. Excluding this credit, total staff costs were £481.2m.
5 Staff costs and numbers
The aggregate payroll costs of persons employed by the Group were as follows:
2021
£m
2020
£m
Wages and salaries 390.3 343.5
Social security costs 70.3 68.9
Pension costs 20.6 21.3
Total payroll costs 481.2 433.7
The average number of persons employed by the Group (including Directors) during the year was as follows:
2021 2020
United Kingdom 2,225 2,009
Overseas 5,977 5,882
Group average 8,202 7,891
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021194
Financial Statements
6 Net financing income and expense
2021
£m
2020
£m
Financial expenses:
Bank and other borrowing interest payable (7.4) (7.4)
Interest expense on lease liabilities (1.1) (1.2)
Net interest on pension scheme liabilities (1.3) (1.5)
(9.8) (10.1)
Financial income:
Bank interest receivable 3.4 1.4
Net financing expense (6.4) (8.7)
Net pension scheme financial expense (1.3) (1.5)
Interest expense on lease liabilities (1.1) (1.2)
Net bank interest (4.0) (6.0)
Net financing expense (6.4) (8.7)
7 Profit before taxation
Profit before taxation is shown after charging:
2021
£m
2020
£m
Depreciation of owned tangible fixed assets (28.3) (28.9)
Depreciation of right-of-use assets (11.4) (12.1)
Amortisation of acquired intangibles (21.4) (26.6)
Leases exempt from IFRS 16 (short-term, low value or variable lease payments) (2.6) (2.4)
Exchange difference (losses)/profit (1.3) 1.0
Profit on disposal of property, plant and equipment 0.5 0.3
Research and development (13.0) (10.0)
Auditor’s remuneration
2021
£m
2020
£m
Audit of these Financial Statements 0.3 0.3
Amounts receivable by the Company’s auditor and its Associates in respect of:
Audit of Financial Statements of subsidiaries of the Company 1.7 1.6
Total audit fees 2.0 1.9
Audit-related assurance services 0.2 0.1
Total non-audit fees 0.2 0.1
Total auditor's remuneration 2.2 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 2021 on pages 136 to 151. 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).
2021
£m
2020
£m
Salaries and short-term benefits 3.3 2.7
Post-retirement benefits 0.2 0.3
Share-based payments 2.4 2.1
Total Directors' remuneration 5.9 5.1
Spirax-Sarco Engineering plc Annual Report 2021 195
Financial Statements
Financial Statements
9 Taxation
2021
Adjusted
£m
2021
Adjustments
£m
2021
Total
£m
2020
Adjusted
£m
2020
Adjustments
£m
2020
Total
£m
Analysis of charge in period
UK corporation tax:
Current tax on income for the period 8.7 − 8.7 13.8 − 13.8
Adjustments in respect of prior periods (1.7) − (1.7) (3.1) − (3.1)
7.0 − 7.0 10.7 − 10.7
Foreign tax:
Current tax on income for the period 74.5 − 74.5 60.4 − 60.4
Adjustments in respect of prior periods (1.5) − (1.5) 0.6 − 0.6
73.0 − 73.0 61.0 − 61.0
Total current tax charge 80.0 − 80.0 71.7 − 71.7
Deferred tax – UK 4.0 (0.3) 3.7 3.0 (0.3) 2.7
Deferred tax – Foreign (0.1) (4.0) (4.1) (2.7) (5.5) (8.2)
Tax on profit on ordinary activities 83.9 (4.3) 79.6 72.0 (5.8) 66.2
Reconciliation of effective tax rate
2021
Adjusted
£m
2021
Adjustments
£m
2021
Total
£m
2020
Adjusted
£m
2020
Adjustments
£m
2020
Total
£m
Profit before tax and share of profit
ofAssociate 333.9 (19.4) 314.5 261.7 (21.4) 240.3
Expected tax at blended rate 81.4 (4.1) 77.3 65.7 (5.9) 59.8
Increased withholding tax on
overseas dividends 5.2 − 5.2 4.6 − 4.6
Non-deductible expenditure 2.6 − 2.6 1.7 − 1.7
Over provided in prior years (4.9) − (4.9) (2.6) − (2.6)
Other reconciling items (0.4) (0.2) (0.6) 2.6 0.1 2.7
Total tax in income statement 83.9 (4.3) 79.6 72.0 (5.8) 66.2
Effective tax rate 25.1% 22.2% 25.3% 27.5% 27.1% 27.5%
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 2021 includes a credit of £4.3m 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 (£4.9m credit); and
• Closure of defined benefit German pension scheme to future accrual (£0.6m debit)
Excluding these adjustments the tax on profit and the effective tax rate are £83.9m and 25.1% respectively.
The UK deferred tax assets and liabilities at 31st December 2021 that are expected to reverse before 1st April 2023 have been calculated based
upon the rate of 19% whilst the UK deferred tax assets and liabilities expected to reverse on or after 1st April 2023 have been calculated based
upon the rate of 25%.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021196
Financial Statements
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 Groups, 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 2021 is approximately £8.7m,
including compound interest. During 2021, the Group received, paid and appealed Charging Notices totalling £4.9m, assessed for the period
from 1st January 2017 to 31st December 2018. The Group expects to recover this in the event of a successful appeal and has recognised
a receivable for the full amount at the year-end balance sheet date. The Group has not received a Charging Notice for the period prior to 1st
January 2017, the benefit for this period being £2.8m. Her Majesty’s Revenue & Customs has enquired into the benefit received during 2019,
which the Group estimates to be £1.0m. No provisions have been recognised at the year-end balance sheet date for either the Charging Notice
amounts 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.
The effective tax rate is calculated as a percentage of profit before tax and share of profits of Associates.
10 Earnings per share
2021 2020
Profit attributable to equity shareholders (£m) 234.6 173.6
Weighted average shares (million) 73.7 73.7
Dilution (million) 0.2 0.2
Diluted weighted average shares (million) 73.9 73.9
Basic earnings per share 318.3p 235.5p
Diluted earnings per share 317.5p 234.8p
Basic and diluted earnings per share calculated on an adjusted profit basis are included in Note 2.
The dilution is in respect of the Performance Share Plan.
11 Dividends
2021
£m
2020
£m
Amounts paid in the year:
Final dividend for the year ended 31st December 2020 of 84.5p (2020: 78.0p) per share 62.3 57.5
Interim dividend for the year ended 31st December 2021 of 38.5p (2020: 33.5p) per share 28.4 24.7
Total dividends paid 90.7 82.2
Amounts arising in respect of the year:
Interim dividend for the year ended 31st December 2021 of 38.5p (2020: 33.5p) per share 28.4 24.7
Proposed final dividend for the year ended 31st December 2021 of 97.5p (2020: 84.5p) per share 71.8 62.3
Total dividends arising 100.2 87.0
The proposed dividend is subject to approval in 2022. 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 2021.
Spirax-Sarco Engineering plc Annual Report 2021 197
Financial Statements
Financial Statements
12 Investment in Associate
Associate
2021
£m
Associate
2020
£m
Cost of investment 1.4 1.4
Share of equity (1.4) (1.4)
Total investment in Associate − –
Summarised financial information (100% of the results of the Associate):
Revenue 0.6 2.3
Loss for the period (0.7) (1.4)
Current assets 0.4 0.7
Non-current assets 0.4 0.6
Current and non-current liabilities 1.7 1.9
Details of the Group’s Associate at 31st December 2021 and 31st December 2020 is as follows:
Name of Associate
Country of incorporation
and operation
Proportion of ownership interest and
voting power held
Principal
activity
Econotherm (UK) Ltd UK 16.1% Manufacturing and selling
The Group’s share of Loss of Associate is £0.1m (2020: £0.4m loss). The Group’s share of losses in 2021 exceeded our total investment value
by £0.1m. As a result, in line with IAS 28 paragraph 38, the Group did not recognise a loss 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 £0.3m. The proportion of ownership reduced during 2021, from 26.3% to 16.1%.
13 Property, plant and equipment
2021
Freehold
land and
buildings
£m
Leasehold
land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings,
tools and
equipment
£m
Assets under
construction
£m
Total
£m
Cost:
At 1st January 2021 158.3 38.7 196.0 83.2 9.8 486.0
Exchange adjustments (3.9) 0.7 (3.5) (1.9) − (8.6)
154.4 39.4 192.5 81.3 9.8 477.4
Additions 1.8 0.9 18.2 10.1 21.8 52.8
Transfers 2.1 0.6 2.9 0.1 (9.2) (3.5)
Disposals (0.6) (0.1) (9.4) (2.1) (0.1) (12.3)
At 31st December 2021 157.7 40.8 204.2 89.4 22.3 514.4
Depreciation:
At 1st January 2020 35.1 9.5 123.3 56.8 − 224.7
Exchange adjustments (1.1) 0.1 (2.0) (1.2) − (4.2)
34.0 9.6 121.3 55.6 − 220.5
Charged in year 3.5 1.4 15.2 8.2 − 28.3
Transfers (0.2) − (0.1) (0.2) − (0.5)
Disposals (0.4) (0.1) (9.0) (1.8) − (11.3)
At 31st December 2021 36.9 10.9 127.4 61.8 − 237.0
Net book value:
At 31st December 2021 120.8 29.9 76.8 27.6 22.3 277.4
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021198
Financial Statements
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).
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
Total
£m
Cost:
At 1st January 2020 148.1 38.4 186.7 83.5 – 456.7
Exchange adjustments 0.9 0.3 (0.3) (0.4) – 0.5
149.0 38.7 186.4 83.1 – 457.2
Additions 1.9 0.1 13.5 7.4 19.1 42.0
Transfers 7.7 − 2.9 (2.4) (9.4) (1.2)
Disposals (0.3) (0.1) (6.8) (4.9) 0.1 (12.0)
At 31st December 2020 158.3 38.7 196.0 83.2 9.8 486.0
Depreciation:
At 1st January 2020 31.4 8.1 109.8 56.2 – 205.5
Exchange adjustments 0.3 0.1 0.1 0.1 – 0.6
31.7 8.2 109.9 56.3 – 206.1
Charged in year 3.5 1.4 15.9 8.1 – 28.9
Transfers (0.1) − 2.9 (2.8) – −
Disposals − (0.1) (5.4) (4.8) – (10.3)
At 31st December 2020 35.1 9.5 123.3 56.8 – 224.7
Net book value:
At 31st December 2020 123.2 29.2 72.7 26.4 9.8 261.3
14 Leases
Right-of-use assets
2021
Leased land
andbuildings
£m
Leased plant
and machinery
£m
Leased
fixtures,
fittings, tools
and equipment
£m
Total right-of-
use assets
£m
Cost:
At 1st January 2021 41.6 14.0 2.3 57.9
Exchange adjustments (0.9) (0.6) (0.1) (1.6)
40.7 13.4 2.2 56.3
Additions 34.4 4.5 0.2 39.1
Disposals (1.2) (0.7) − (1.9)
At 31st December 2021 73.9 17.2 2.4 93.5
Depreciation:
At 1st January 2021 13.3 7.0 1.3 21.6
Exchange adjustments (0.2) (0.4) − (0.6)
13.1 6.6 1.3 21.0
Charged in the year 7.0 3.9 0.5 11.4
Disposals (1.1) (0.7) − (1.8)
At 31st December 2021 19.0 9.8 1.8 30.6
Net book value:
At 31st December 2021 54.9 7.4 0.6 62.9
Spirax-Sarco Engineering plc Annual Report 2021 199
Financial Statements
Financial Statements
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 (2020: 4.3 years).
2020
Leased land
andbuildings
£m
Leased plant
and machinery
£m
Leased
fixtures,
fittings, tools
and equipment
£m
Total right-of-
use assets
£m
Cost:
At 1st January 2020 38.6 11.0 2.1 51.7
Exchange adjustments (0.4) 0.3 0.1 –
38.2 11.3 2.2 51.7
Additions 4.6 3.3 0.4 8.3
Disposals (1.2) (0.6) (0.3) (2.1)
At 31st December 2020 41.6 14.0 2.3 57.9
Depreciation:
At 1st January 2020 6.7 3.6 0.6 10.9
Exchange adjustments (0.2) 0.1 – (0.1)
6.5 3.7 0.6 10.8
Charged in the year 7.4 4.0 0.7 12.1
Transfers – (0.2) 0.2 –
Disposals (0.6) (0.5) (0.2) (1.3)
At 31st December 2020 13.3 7.0 1.3 21.6
Net book value:
At 31st December 2020 28.3 7.0 1.0 36.3
The maturity analysis of lease liabilities is presented in Note 27.
Amounts recognised in Consolidated Income Statement
31st
December
2021
£m
31st
December
2020
£m
Depreciation expense on right-of-use assets 11.4 12.1
Interest expense on lease liabilities 1.1 1.2
Expense relating to short-term leases 2.0 1.7
Expense relating to leases of low value assets 0.4 0.5
Expense relating to variable lease payments not included in the measurement of the lease liability 0.2 0.2
Income from subleases right-of-use assets (0.1) (0.1)
Total impact on profit before tax 15.0 15.6
The total cash outflow for leases during 2021 was £15.3m (2020: £15.6m).
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:
• £0.1m relating to variable lease payments not based on an index or rate (2020: £0.3m);
• £1.2m relating to optional extension periods that are not reasonably certain to be exercised as at 31st December 2021 (2020: £0.7m); and
• £37.7m relating to leases that the Group are committed, but have not commenced as at 31st December 2021 (2020: £8.1m).
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021200
Financial Statements
15 Goodwill and other intangible assets
2021
Acquired
intangibles
£m
Development
costs
£m
Computer
software
£m
Total other
intangibles
£m
Goodwill
£m
Cost:
At 1st January 2021 (restated) 368.6 27.1 69.8 465.5 429.8
Exchange and other adjustments (9.4) (0.2) (1.3) (10.9) (11.4)
359.2 26.9 68.5 454.6 418.4
Additions − 3.2 8.1 11.3 −
Transfers from property, plant and equipment − 0.1 3.4 3.5 −
Disposals − − (2.0) (2.0) −
At 31st December 2021 359.2 30.2 78.0 467.4 418.4
Amortisation:
At 1st January 2021 (restated) 125.4 17.6 45.9 188.9 7.4
Exchange adjustments (4.4) (0.1) (0.9) (5.4) (0.2)
121.0 17.5 45.0 183.5 7.2
Amortisation 21.4 2.0 5.9 29.3 −
Transfers from property, plant and equipment − − 0.5 0.5 −
Disposals − − (1.6) (1.6) −
At 31st December 2021 142.4 19.5 49.8 211.7 7.2
Net book value:
At 31st December 2021 216.8 10.7 28.2 255.7 411.2
2020
Acquired
intangibles
£m
Development
costs
£m
Computer
software
£m
Total other
intangibles
£m
Goodwill
£m
Cost:
At 1st January 2020 366.9 23.6 71.5 462.0 425.6
Restatement for SaaS arrangements – – (5.1) (5.1) –
At 1st January 2020 (restated) 366.9 23.6 66.4 456.9 425.6
Exchange and other adjustments 1.7 0.1 0.4 2.2 3.6
368.6 23.7 66.8 459.1 429.2
Additions – 2.7 4.9 7.6 0.6
Transfers from property, plant and equipment – 0.7 0.5 1.2 –
Disposals – – (2.4) (2.4) –
At 31st December 2020 368.6 27.1 69.8 465.5 429.8
Amortisation:
At 1st January 2020 99.2 15.7 43.2 158.1 7.9
Restatement for SaaS arrangements
– – (1.4) (1.4) –
At 1st January 2020 (restated) 99.2 15.7 41.8 156.7 7.9
Exchange adjustments (0.4) 0.1 0.3 – (0.5)
98.8 15.8 42.1 156.7 7.4
Amortisation 26.6 1.8 6.0 34.4 –
Disposals – – (2.2) (2.2) –
At 31st December 2020 125.4 17.6 45.9 188.9 7.4
Net book value:
At 31st December 2020 243.2 9.5 23.9 276.6 422.4
* As a result of the IFRS Interpretation Committee agenda decision released during 2021, the Group have reassessed the accounting treatment in relation to cloud based
software. This has resulted in adjustments to computer software cost and amortisation at 1st January 2020 of £5.1m and £1.4m respectively. This represents the net
book value at 1st January 2020 of previously capitalised costs which are now deemed to be operating expenditure. See Note 1 for further details.
Spirax-Sarco Engineering plc Annual Report 2021
201
Financial Statements
Financial Statements
15 Goodwill and other intangible assets continued
Acquired intangibles
The disclosure by class of acquired intangible assets is shown in the tables below.
2021
Customer
relationships
£m
Brand names
and
trademarks
£m
Manufacturing
designs and
core
technology
£m
Non-compete
undertakings
and other
£m
Total
acquired
intangibles
£m
Cost:
At 1st January 2021 91.4 192.3 61.8 23.1 368.6
Exchange and other adjustments (4.3) (2.1) (1.6) (1.4) (9.4)
87.1 190.2 60.2 21.7 359.2
Acquisitions − − − − −
At 31st December 2021 87.1 190.2 60.2 21.7 359.2
Amortisation and impairment:
At 1st January 2021 37.9 40.4 24.8 22.3 125.4
Exchange adjustments (1.7) (0.6) (0.7) (1.4) (4.4)
36.2 39.8 24.1 20.9 121.0
Amortisation and impairment 6.0 10.1 4.5 0.8 21.4
At 31st December 2021 42.2 49.9 28.6 21.7 142.4
Net book value:
At 31st December 2021 44.9 140.3 31.6 − 216.8
Customer relationships are amortised over their useful economic lives in line with the accounting policies disclosed in Note 1. Within this balance
the individually material balance relates to Thermocoax £27.8m (2020: £32.0m). The remaining amortisation period is 12.3 years.
Brand names and trademark assets are amortised over their useful economic lives in line with the accounting policies disclosed in Note1.
Within this balance individually material balances relate to Chromalox £98.9m (2020: £104.2m) and Gestra £23.6m (2020: £27.5m).
The remaining amortisation periods are 15.5 years and 10.3 years respectively.
Manufacturing designs and core technology are amortised over their useful economic lives in line with the accounting policies disclosed in
Note 1. There are no individually material items within this balance.
Non-compete undertakings are amortised over their useful economic lives in line with the accounting policies disclosed in Note 1.
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
Cost:
At 1st January 2020 89.0 193.8 61.0 23.1 366.9
Exchange and other adjustments 2.4 (1.5) 0.8 − 1.7
91.4 192.3 61.8 23.1 368.6
Acquisitions − − − − −
At 31st December 2020 91.4 192.3 61.8 23.1 368.6
Amortisation and impairment:
At 1st January 2020 30.9 30.6 19.2 18.5 99.2
Exchange adjustments 0.3 (0.7) 0.1 (0.1) (0.4)
31.2 29.9 19.3 18.4 98.8
Amortisation and impairment 6.7 10.5 5.5 3.9 26.6
At 31st December 2020 37.9 40.4 24.8 22.3 125.4
Net book value:
At 31st December 2020 53.5 151.9 37.0 0.8 243.2
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021202
Financial Statements
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.
Goodwill impairment is considered based on 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. The breakdown of the goodwill value at 31st December across
these is shown below:
2021
Goodwill
£m
2020
Goodwill
£m
Steam Specialties 110.6 117.4
Electric Thermal Solutions 241.0 243.7
Watson-Marlow 59.6 61.3
Total goodwill 411.2 422.4
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
ofgreater than 5 years would be required before the newly acquired segment reaches long term expected performance;
• discount rates range from 9.8% to 10.7% (2020: 9.8% to 11.2%);
• short to medium-term growth rates vary between 3.5% and 18.2% depending on detailed forecasts (2020: 3.5% to 13.7%). The short to
medium-term is defined as not more than 9 years; and
• long-term growth rates are set using IMF forecasts and vary between 1.7% and 2.5% (2020: 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 Discount rate
Short to
medium-term
growth rate
Long-term
growth rate
Steam Specialties 10.7% 5.7%–7.9% 2.5%
Electric Thermal Solutions 9.8% 3.5%–14.9% 1.7%
Watson-Marlow 10.2% 4.9%–18.2% 2.0%
These rates have been determined by taking into account the size of business along with specific geographical and industry risk factors.
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% – 4.0% 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 200 bps reduction in the EBIT margin used in the cash flow projections; and
• a range of 1.0% – 4.0% 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 – 200bps 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.
Spirax-Sarco Engineering plc Annual Report 2021 203
Financial Statements
Financial Statements
16 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
2021
Assets
£m
2020
Assets
£m
2021
Liabilities
£m
2020
Liabilities
£m
2021
Net
£m
2020
Net
£m
Accelerated capital allowances 0.5 0.5 (12.8) (9.3) (12.3) (8.8)
Provisions 8.3 9.0 (0.2) (0.2) 8.1 8.8
Losses 5.6 3.9 − − 5.6 3.9
Inventory 6.6 5.9 (1.6) (1.6) 5.0 4.3
Pensions 15.8 23.9 (3.8) (1.2) 12.0 22.7
Acquired intangibles − − (55.0) (61.1) (55.0) (61.1)
Other temporary differences 9.3 7.7 (8.4) (6.0) 0.9 1.7
Tax assets/(liabilities) 46.1 50.9 (81.8) (79.4) (35.7) (28.5)
Movement in deferred tax during the year 2021
1st January
2021
£m
Recognised in
income
£m
Recognised in
OCI
£m
Recognised in
equity
£m
31st December
2021
£m
Accelerated capital allowances (8.8) (3.7) − 0.2 (12.3)
Provisions 8.8 (0.4) 0.1 (0.4) 8.1
Losses 3.9 1.9 − (0.2) 5.6
Inventory 4.3 0.7 0.1 (0.1) 5.0
Pensions 22.7 (1.4) (9.5) 0.2 12.0
Acquired intangibles (61.1) 4.9 − 1.2 (55.0)
Other temporary differences 1.7 (2.1) 1.3 − 0.9
Group total (28.5) (0.1) (8.0) 0.9 (35.7)
Movement in deferred tax during the year 2020
1st January
2020
£m
Recognised in
income
£m
Recognised in
OCI
£m
Recognised in
equity
£m
31st December
2020
£m
Accelerated capital allowances (8.0) (0.9) − 0.1 (8.8)
Provisions 2.1 6.9 0.3 (0.5) 8.8
Losses 2.9 (1.1) 2.1 − 3.9
Inventory 4.8 (0.3) (0.2) − 4.3
Pensions 16.8 (2.5) 8.3 0.1 22.7
Acquired intangibles (67.2) 6.3 − (0.2) (61.1)
Other temporary differences 5.5 (2.9) (0.1) (0.8) 1.7
Group total (43.1) 5.5 10.4 (1.3) (28.5)
At the Balance Sheet date, the Group has deductible temporary differences, unused tax losses and unused tax creditors of £14.4m
(2020: £13.7m) available for offset against future profits. A deferred tax asset has been recognised in respect of £5.6m (2020: £3.9m).
No deferred tax asset has been recognised in respect of the remaining £8.8m (2020: £9.8m) 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.
A deferred tax charge of £9.5m (2020: £8.3m income) recognised in the Consolidated Statement of Comprehensive Income (page 178)
associated with the measurement of defined benefit obligations comprises £8.9m relating to remeasurement gains (2020: £8.2m relating to
remeasurement loss) and £0.6m loss (2020: £0.1m gain) relating to exchange movements.
In the current year, the presentation of ‘Other temporary differences’ has been updated to show deferred tax on ‘Acquired intangibles’
separately. Therefore, for comparability the same change has been reflected for the prior year comparatives where total ‘Other temporary
differences’ of £61.7m have been split into an ‘Acquired intangibles’ deferred tax liability of £67.2m and an ‘Other temporary differences’
deferred tax assets of £5.5m. The movement in the prior year within ‘Other temporary differences’ where £3.4m was recognised in income
is split into income in relation to ‘Acquired intangibles’ of £6.3m and a charge in relation to ‘Other temporary differences’ of £2.9m; £0.1m
recognised in OCI is split into ‘Acquired intangibles’ of £nil and ‘Other temporary differences’ of £0.1m; and £1.0m recognised in equity is split
into ‘Acquired intangibles’ of £0.2m and ‘Other temporary differences’ of £0.8m. This change in presentation has no impact on the overall
deferred tax balance or movements in the prior year and the purpose of this change is to facilitate enhanced presentation within the deferred
tax note.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021204
Financial Statements
17 Inventories
2021
£m
2020
£m
Raw materials, consumables and components 81.6 70.7
Work in progress 26.7 25.2
Finished goods and goods for resale 93.0 84.2
Total inventories 201.3 180.1
The write-down of inventories recognised as an expense during the year in respect of continuing operations was £2.0m (2020: £5.5m).
This comprises a cost of £3.4m (2020: £6.5m) to write-down inventory to net realisable value reduced by £1.4m (2020: £1.0m) for reversal of
previous write-down reassessed as a result of customer demand.
The value of inventories expected to be recovered after more than 12 months is £13.1m (2020: £12.3m).
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
2021
£m
2020
£m
Other receivables 22.6 16.4
Contract assets 3.2 2.8
Prepayments 18.9 12.6
Total other current assets 44.7 31.8
Contract assets relate to revenue recognised that has not yet been invoiced to the customer.
Other receivables comprise various financial assets across the Group including sales tax receivables and other non trade balances.
19 Trade and other payables
2021
£m
2020
£m
Trade payables 67.8 45.6
Contract liabilities 17.1 11.8
Social security 7.3 6.7
Other payables 39.1 32.6
Accruals 85.7 63.5
Total trade and other payables 217.0 160.2
Contract liabilities relate to advance payments received from customers that have not yet been recognised as revenue.
£11.2m of the contract liabilities at 31st December 2020 was recognised as revenue during 2021 (2020: £8.2m).
Other payables comprise various balances across the Group including sales tax payables and amounts related to share-based payments.
Spirax-Sarco Engineering plc Annual Report 2021 205
Financial Statements
Financial Statements
20 Provisions
2021
Product
warranty
£m
Legal,
contractual
and other
£m
Total
£m
At 1st January 2021 2.0 6.1 8.1
Additional provision in the year 0.7 3.1 3.8
Utilised or released during the year (0.6) (4.3) (4.9)
Exchange adjustments – (0.3) (0.3)
At 31st December 2021 2.1 4.6 6.7
2020
Product
warranty
£m
Legal,
contractual
and other
£m
Total
£m
At 1st January 2020 1.5 3.3 4.8
Additional provision in the year 0.8 4.9 5.7
Utilised or released during the year (0.4) (1.9) (2.3)
Exchange adjustments 0.1 (0.2) (0.1)
At 31st December 2020 2.0 6.1 8.1
2021
£m
2020
£m
Current provisions 5.2 6.1
Non-current provisions 1.5 2.0
Total provisions 6.7 8.1
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
ofthe 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
2021 £3.5m (2020: £4.5m) has been included within current and £1.1m within non-current provisions (2020: £1.6m).
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021206
Financial Statements
21 Called up share capital and reserves
2021
£m
2020
£m
Ordinary shares of 26 12/13p (2020: 26 12/13p) each:
Authorised 111,428,571 (2020: 111,428,571) 30.0 30.0
Allotted, called up and fully paid 73,766,048 (2020: 73,766,048) 19.8 19.8
In 2021, 33,856 shares with a nominal value of £9,115 were issued in connection with the Group’s Employee Share Schemes with external
consideration of £1.5m received by the Group.
At 31st December 2021, 134,331 shares were held in an Employee Benefit Trust and available for use in connection with the Group’s Employee
Share Schemes.
106 senior employees of the Group have been granted options on Ordinary shares under the Performance Share Plan (details in Note 23).
Other reserves in the Consolidated Statement of Changes in Equity on pages 178 to 179 are made up as follows:
1st January
2021
£m
Change
in year
£m
31st December
2021
£m
Translation reserve (27.6) (25.6) (53.2)
Net investment hedge reserve (6.1) 18.8 12.7
Cash flow hedges reserve 2.6 (2.8) (0.2)
Capital redemption reserve 1.8 – 1.8
Employee Benefit Trust reserve (6.8) (12.5) (19.3)
Total other reserves (36.1) (22.1) (58.2)
1st January
2020
£m
Change
in year
£m
31st December
2020
£m
Translation reserve (14.7) (12.9) (27.6)
Net investment hedge reserve 5.5 (11.6) (6.1)
Cash flow hedges reserve 3.3 (0.7) 2.6
Capital redemption reserve 1.8 − 1.8
Employee Benefit Trust reserve (6.5) (0.3) (6.8)
Total other reserves (10.6) (25.5) (36.1)
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements offoreign
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.
Spirax-Sarco Engineering plc Annual Report 2021 207
Financial Statements
Financial Statements
22 Capital commitments and contingent liabilities
2021
£m
2020
£m
Capital expenditure contracted for but not provided 40.5 7.3
All capital commitments are related to property, plant and equipment and computer software. The Group has no material contingent liabilities
at 31st December 2021 (no material contingent liabilities existed at 31st December 2020), but does have a non-material contingent liability in
relation to tax estimated at approximately £3.8m (2020: £8.6m). 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 £16.5m (2020: £15.2m). In Germany, following the closure ofthe
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 22% (2020: 49%) 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. 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 41.
During 2021 triennial actuarial valuations were completed for the Spirax-Sarco Employees Pension Fund and the Spirax-Sarco Executives’
Retirement Benefits scheme, as at 31 December 2019, resulting in an experience loss of £3.5m. The final results of the triennial valuation of the
Watson Marlow Fund, as at 5 April 2020, resulted in an experience gain of £3.9m. These are both 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.
Germany defined benefit scheme
The Group operates an unfunded pension scheme in Germany which was closed to future accrual with effect from 1st January 2021 with
active members becoming deferred at this date. This curtailment was recognised as a past service credit of £2.0m in the Consolidated
Income Statement.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021208
Financial Statements
23 Employee benefits continued
Principal risks
The pension schemes create a number of risk exposures. Annual increases 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 41.
Sensitivity analysis to changes in discount rate and inflation are included on page 212.
The financial assumptions used at 31st December were:
Assumptions weighted by value of liabilities % per annum
UK pensions
Overseas pensions
and medical
2021
%
2020
%
2021
%
2020
%
Rate of increase in salaries n/a 2.4 3.1 2.6
Rate of increase in pensions 3.2 2.8 1.8 1.8
Rate of price inflation 3.3 2.9 2.0 1.8
Discount rate 1.8 1.3 2.5 2.0
Medical trend rate n/a n/a 7.5 8.0
During 2020 the UK pensions were closed to future accrual therefore the rate of increase in salaries is no longer applicable.
The mortality assumptions for the material defined benefit schemes at 31st December 2021 and 31st December 2020 were:
Spirax-Sarco Employees
Pension Fund
At 31st December 2021: 100% of SAPS 3, with CMI 2020 projections with a long-term 1.25% pa and an
initial addition parameter of 0.25% and w2020 parameter of 10%.
At 31st December 2020: 100% of SAPS S3, with CMI 2019 projections with a long-term 1.25% pa and
an initial addition parameter of 0.25%.
Spirax-Sarco Executives’
Retirement Benefits Scheme
At 31st December 2021: 84/87% (male/female) of SAPS S3 light normal, CMI 2020 projections with a
long-term trend 1.25% and an initial addition parameter of 0.25% and w2020 parameter of 10%.
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%.
Watson-Marlow Pension Fund At 31st December 2021: 102% of SAPS S2, CMI 2020 projections with a long-term trend of 1.25% pa
and an initial addition parameter of 0.25% and w2020 parameter of 10%.
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%.
US Pension Scheme At 31st December 2021: SOA Pri-2012 Amount-Weighted Blue Collar mortality tables with Mortality
Improvement Scale MP2021.
At 31st December 2020: SOA Pri-2012 Amount-Weighted Blue Collar mortality tables with Mortality
Improvement Scale MP2020.
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.
Spirax-Sarco Engineering plc Annual Report 2021 209
Financial Statements
Financial Statements
23 Employee benefits continued
The amounts recognised in the Consolidated Statement of Financial Position are determined as follows:
UK pensions
Overseas pensions
and medical Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Fair value of schemes’ assets 497.5 474.7 63.2 57.0 560.7 531.7
Present value of funded schemes’ liabilities (507.5) (522.8) (76.1) (79.9) (583.6) (602.7)
Deficit in the funded schemes (10.0) (48.1) (12.9) (22.9) (22.9) (71.0)
Present value of unfunded schemes’ liabilities – – (21.8) (27.6) (21.8) (27.6)
Retirement benefit liability recognised in the
Consolidated Statement of Financial Position (10.0) (48.1) (34.7) (50.5) (44.7) (98.6)
Related deferred tax asset 2.5 9.1 9.5 13.6 12.0 22.7
Net pension liability (7.5) (39.0) (25.2) (36.9) (32.7) (75.9)
Fair value of scheme assets
UK pensions
Overseas pensions
and medical Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Equities 138.4 118.3 36.0 32.6 174.4 150.9
Bonds 287.9 310.3 17.7 16.7 305.6 327.0
Other 71.2 46.1 9.5 7.7 80.7 53.8
Total market value in aggregate 497.5 474.7 63.2 57.0 560.7 531.7
At 31st December 2021, £107.0m (2020: £94.3m) of scheme assets have a quoted market price in an active market of which £50.6m
(2020: £42.6m) relates to UK pensions and £56.4m (2020: £51.7m) relates to overseas pensions and medical.
The actual return on plan assets was an increase of £43.2 million (2020: an increase of £56.4 million).
The movements in the defined benefit obligation recognised in the Consolidated Statement of Financial Position during the year were:
UK pensions
Overseas pensions
and medical Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Defined benefit obligation at beginning ofyear (522.8) (458.2) (107.5) (100.9) (630.3) (559.1)
Current service cost – (3.6) (0.1) (0.7) (0.1) (4.3)
Past service credit – Curtailments – 9.3 2.0 1.2 2.0 10.5
Interest cost (6.7) (8.7) (2.1) (2.7) (8.8) (11.4)
Administration costs – – (0.6) (0.6) (0.6) (0.6)
Contributions by members – (0.1) – – – (0.1)
Remeasurement gain/(loss) 8.7 (88.3) 4.9 (9.8) 13.6 (98.1)
Actual benefit payments 16.5 15.3 4.7 4.8 21.2 20.1
Experience (loss)/gain (3.2) 11.5 0.3 (0.1) (2.9) 11.4
Currency gain/(loss) – – 0.5 1.3 0.5 1.3
Defined benefit obligation at end ofyear (507.5) (522.8) (97.9) (107.5) (605.4) (630.3)
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021210
Financial Statements
23 Employee benefits continued
The movements in the fair value of plan assets during the year were:
UK pensions
Overseas pensions
and medical Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Value of assets at beginning of year 474.7 433.7 57.0 54.1 531.7 487.8
Expected return on assets 6.1 8.2 1.4 1.7 7.5 9.9
Remeasurement gain 28.6 41.6 7.1 4.9 35.7 46.5
Contributions paid by employer 5.3 7.2 1.7 2.8 7.0 10.0
Contributions paid by members – 0.1 – – – 0.1
Actual benefit payments (16.5) (15.3) (4.7) (4.8) (21.2) (20.1)
Administration costs (0.7) (0.8) – – (0.7) (0.8)
Currency gain/(loss) – – 0.7 (1.7) 0.7 (1.7)
Value of assets at end of year 497.5 474.7 63.2 57.0 560.7 531.7
The estimated employer contributions to be made in 2022 are £6.1m.
The history of experience adjustments is as follows:
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
Defined benefit obligation at end of year (605.4) (630.3) (559.1) (526.1) (543.0)
Fair value of schemes’ assets 560.7 531.7 487.8 441.0 457.4
Retirement benefit liability recognised in the Statement
ofFinancial Position (44.7) (98.6) (71.3) (85.1) (85.6)
Experience adjustment on schemes’ liabilities (2.9) 11.4 – (0.6) (8.5)
As a percentage of schemes’ liabilities 0.5% 1.8% 0.0% 0.1% 1.6%
Experience adjustment on schemes’ assets 35.7 46.5 49.0 (27.3) 29.9
As a percentage of schemes’ assets 6.4% 8.7% 10.0% 6.2% 6.5%
The expense recognised in the Group Income Statement was as follows:
UK pensions
Overseas pensions
and medical Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Current service cost – (3.6) (0.1) (0.7) (0.1) (4.3)
Administration costs (0.7) (0.8) (0.6) (0.6) (1.3) (1.4)
Past service credit – Curtailment – 9.2 2.0 1.2 2.0 10.4
Net interest on schemes’ liabilities (0.6) (0.5) (0.7) (1.0) (1.3) (1.5)
Total expense recognised in
IncomeStatement (1.3) 4.3 0.6 (1.1) (0.7) 3.2
The expense is recognised in the following line items in the Consolidated Income Statement:
2021
£m
2020
£m
Operating costs (1.4) (6.1)
Adjustments – closure of DB schemes 2.0 10.8
Net financing expense (1.3) (1.5)
Total expense recognised in Income Statement (0.7) 3.2
The gain or loss recognised in the Statement of Comprehensive Income (OCI) was as follows:
Spirax-Sarco Engineering plc Annual Report 2021 211
Financial Statements
Financial Statements
23 Employee benefits continued
UK pensions
Overseas pensions
and medical Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Remeasurement effects recognised in OCI:
Due to experience on DBO (3.2) 11.5 0.3 (0.1) (2.9) 11.4
Due to demographic assumption changes in DBO (1.4) (8.6) (0.2) 0.5 (1.6) (8.1)
Due to financial assumption changes in DBO 10.1 (79.7) 5.0 (10.3) 15.1 (90.0)
Return on assets 28.6 41.6 7.1 4.9 35.7 46.5
Total remeasurement (loss)/gain recognised in OCI 34.1 (35.2) 12.2 (5.0) 46.3 (40.2)
Deferred tax on remeasurement (loss)/gain and change
in rate recognised in OCI (5.9) 6.7 (3.0) 1.5 (8.9) 8.2
Cumulative loss recognised in OCI at
beginning of year (67.8) (39.3) (30.3) (26.8) (98.1) (66.1)
Cumulative loss recognised in OCI at end
of year (39.6) (67.8) (21.1) (30.3) (60.7) (98.1)
Sensitivity analysis
The effect on the defined benefit obligation at 31st December 2021 of an increase or decrease in key assumptions is as follows:
UK pensions
£m
Overseas
pensions and
medical
£m
Total
£m
(Decrease)/increase in pension deficit:
Discount rate assumption being 0.25% higher (22.1) (3.2) (25.3)
Discount rate assumption being 0.25% lower 23.2 3.3 26.5
Inflation assumption being 0.25% higher 18.3 0.5 18.8
Inflation assumption being 0.25% lower (17.7) (0.5) (18.2)
Inflation assumption being 1.0% higher 75.3 n/a n/a
Inflation assumption being 1.0% lower (66.0) n/a n/a
Mortality assumption life expectancy at age 65 being one year higher 22.4 3.3 25.7
The average age of active participants in the UK schemes at 31st December 2021 was 53 years (2020: 53 years) and in the overseas schemes
47 years (2020: 48 years).
Cash payments to the pension scheme greater or less than the expense to operating profit
2021
£m
2020
£m
Defined benefit arrangements 0.6 4.7
Defined contribution arrangements (16.5) (15.2)
Total expense recognised in operating costs (15.9) (10.5)
Defined benefit arrangements 7.0 10.0
Defined contribution arrangements 16.5 15.2
Total contributions paid by employer 23.5 25.2
Cash payments to the pension scheme greater than the expense to operating profit 7.6 14.7
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 2021 on pages 136 to 151. The charge to the Income Statement in respect of share-based payments is made up as follows:
2021
£m
2020
£m
Performance Share Plan 7.9 5.8
Employee Share Ownership Plan 1.3 1.2
Total expense recognised in Income Statement 9.2 7.0
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021212
Financial Statements
23 Employee benefits continued
Share option scheme
The Group historically operated 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)
Outstanding at
start of year
Granted during
year
Exercised during
year
Lapsed during
year
Outstanding at
end of year
2011 grant (1,873.0p) 15,000 – 15,000 – –
15,000 – 15,000 – –
Weighted average exercise price £18.73 £18.73 –
Weighted average contractual life remaining 0.2 –
Performance conditions in respect of all exercisable shares have been met. The number of shares exercisable at 31st December 2021 is nil
(2020: 15,000). The average share price during the period was £136.72 (2020: £100.93).
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 350
Industrial Goods and Services Supersector 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. 18% 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 18% 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. 18% 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.
2017
Grant
2018
Grant
2019
Grant
2020
Grant
2021
Grant
Grant date 26th May 4th April 15th May 12th March 5th May
Mid market share price at grant date 5,273.0p 5,560.0p 8,161.0p 7,775.0p 11,770.0p
Number of employees 128 134 133 104 106
Shares under scheme 137,001 145,041 112,159 140,934 89,806
Vesting period 3 years 3 years 3 years 3 years 3 years
Probability of vesting 73.1% 73.5% 74.1% 74.3% 73.9%
Fair value 3,854.5p 4,084.4p 6,048.9p 5,779.2p 8,698.0p
Spirax-Sarco Engineering plc Annual Report 2021 213
Financial Statements
Financial Statements
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.
2017
Grant
2018
Grant
2019
Grant
2020
Grant
2021
Grant
Grant date 1st October 1st October 1st October 1st October 1st October
Exercise price 5,496.7p 7,240.0p 7,835.0p 11,102.0p 15,043.3p
Number of employees 1,229 1,294 1,318 1,373 1,400
Shares under scheme 22,411 16,687 16,820 12,480 9,429
Vesting period 3 years 3 years 3 years 3 years 3 years
Expected volatility 21% 19% 21% 25% 26.5%
Risk free interest rate 0.4% 0.8% 0.5% 0.1% 0.2%
Expected dividend yield 2.3% 2.0% 1.8% 1.5% 1.0%
Fair value 5,799.0p 7,623.7p 8,305.1p 11,956.9p 16,382.2p
The accumulation period for the 2021 ESOP ends in September 2022, therefore some figures are projections.
24 Analysis of changes in net debt, including changes in liabilities arising from financing
activities
2021
At 1st
January
2021
£m
Cash flow
£m
Acquired
debt*
£m
Exchange
movement
£m
At 31st
December
2021
£m
Current portion of long-term borrowings (0.6) (59.6)
Non-current portion of long-term borrowings (452.2) (289.9)
Total borrowings (452.8) (349.5)
Comprising:
Borrowings (452.8) 77.5 – 25.8 (349.5)
Changes in liabilities arising from financing (452.8) 77.5 – 25.8 (349.5)
Cash at bank 246.2 35.7 – (7.3) 274.6
Bank overdrafts (22.2) (34.3) – 0.9 (55.6)
Net cash and cash equivalents 224.0 1.4 – (6.4) 219.0
Net debt (228.8) 78.9 – 19.4 (130.5)
Lease liabilities (34.1) 11.7 (39.1) 1.4 (60.1)
Net debt and lease liabilities (262.9) 90.6 (39.1) 20.8 (190.6)
* 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.
The cash flow for borrowings of £77.5m relate to repayments of €90million (£77.5m) on the €160million term loan.
At 31st December 2021, total lease liabilities consist of £11.2m (2020: £10.3m) short-term and £48.9m (2020: £23.8m) long-term.
See Note 27 for further information on net debt and lease liabilities.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021214
Financial Statements
24 Analysis of changes in net debt, including changes in liabilities arising from
financing activities continued
2020
At 1st
January
2020
£m
Cash flow
£m
Acquired
debt*
£m
Exchange
movement
£m
At 31st
December
2020
£m
Current portion of long-term borrowings (34.3) (0.6)
Non-current portion of long-term borrowings (429.2) (452.2)
Short-term borrowings – –
Total borrowings (463.5) (452.8)
Comprising:
Borrowings (463.5) 36.7 – (26.0) (452.8)
Changes in liabilities arising from financing (463.5) 36.7 – (26.0) (452.8)
Cash at bank 330.6 (84.4) – – 246.2
Bank overdrafts (162.3) 140.0 – 0.1 (22.2)
Net cash and cash equivalents 168.3 55.6 – 0.1 224.0
Net debt (295.2) 92.3 – (25.9) (228.8)
Lease liabilities (38.9) 12.2 (7.1) (0.3) (34.1)
Net debt and lease liabilities (334.1) 104.5 (7.1) (26.2) (262.9)
25 Related party transactions
Transactions with Directors are disclosed separately in Note 8 and are shown in the Annual Report on Remuneration 2021 on pages 136
to 151.
There were no other related party transactions in either 2020 or 2021.
26 Purchase of businesses
2021
In January 2022, the Group acquired 100% of the share capital of a digitally enabled, global energy consulting and optimisation specialist,
Cotopaxi Limited. Cotopaxi is a UK company whose digital solutions experience in steam installations will accelerate Steam Specialties’
objective to connect to its customers’ steam systems and analyse their data. In the year ended 31st December 2020, Cotopaxi reported
revenues of £2.2m with pre-pandemic revenues of £4.8m.
Total consideration on a cash-free, debt-free basis at the acquisition date was £12.8m with no further amounts deferred or contingent on future
performance. Due to the proximity of the acquisition date to the reporting date, finalisation of the fair value of net assets on acquisition and the
associated accounting in line with IFRS 3 has not yet been finalised. Further details will be provided in the 2022 Half Year Results.
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.
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.
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.
Spirax-Sarco Engineering plc Annual Report 2021 215
Financial Statements
Financial Statements
27 Derivatives and other financial instruments continued
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
inconjunction 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 2021 and 2020. The gain on net investment hedges during 2021 included in the Consolidated Statement of Comprehensive
income was £18.8m (2020: £11.6m loss). This is included within other reserves in the Consolidated Statement of Changes in Equity (see
note 21).
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 2021 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:
2021
Carrying
value
£m
2021
Fair
value
£m
2020
Carrying
value
£m
2020
Fair
value
£m
Financial assets:
Cash and cash equivalents 274.6 274.6 246.2 246.2
Trade, other receivables and contract assets 298.1 298.1 245.5 245.5
Total financial assets 572.7 572.7 491.7 491.7
2021
Carrying
value
£m
2021
Fair
value
£m
2020
Carrying
value
£m
2020
Fair
value
£m
Financial liabilities:
Loans 349.5 358.3 452.8 464.1
Lease liabilities 60.1 60.1 34.1 34.1
Bank overdrafts 55.6 55.6 22.2 22.2
Trade payables 67.8 67.8 45.6 45.6
Other payables and contract liabilities 56.2 56.2 44.4 44.4
Long-term payables 4.7 4.7 5.1 5.1
Accruals 85.7 85.7 63.5 63.5
Total financial liabilities 679.6 688.4 667.7 679.0
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021216
Financial Statements
27 Derivatives and other financial instruments continued
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.
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:
2021
Total
£m
Fixed rate
financial
liabilities
£m
Floating rate
financial
liabilities
£m
Financial
liabilities on
which no
interest is paid
£m
Euro 452.8 366.8 45.0 41.0
US dollar 49.8 8.9 4.0 36.9
Sterling 65.1 20.0 – 45.1
Renminbi 51.6 1.8 – 49.8
Other 60.3 14.6 – 45.7
Group total 679.6 412.1 49.0 218.5
2020*
Total
£m
Fixed rate
financial
liabilities
£m
Floating rate
financial
liabilities
£m
Financial
liabilities on
which no
interest is paid
£m
Euro 484.4 459.7 0.9 23.8
US dollar 22.5 11.2 – 11.3
Sterling 24.4 1.9 – 22.5
Renminbi 28.7 7.0 – 21.7
Other 39.1 20.3 1.3 17.5
Group total 599.1 500.1 2.2 96.8
*The 2020 comparator excludes Long-term payables and Accruals.
Terms and debt repayment schedule
The terms and conditions of outstanding loans were as follows:
Currency
Nominal
interest rate
Year
of maturity
2021
Carrying value
£m
2020
Carrying value
£m
Unsecured private placement – €225.0m € 1.1% 2023 189.6 201.8
Unsecured bank facility – €160.0m € 0.7% 2022 58.8 143.1
Unsecured private placement – €120.0m € 2.4% 2026 101.1 107.7
Unsecured bank facility £ 0.0% 2022 4.0 9.2
Unsecured bank facility SEK 0.0% 2022 0.6 6.2
Unsecured bank facility CNY 3.5% 2022 5.8 5.6
Unsecured bank facility € 0.0% 2022 45.0 0.9
Unsecured bank facility € 1.4% 2022 0.1 0.3
Unsecured bank facility PLN 0.0% 2023 0.1 0.2
Total outstanding loans 405.1 475.0
The weighted average interest rate paid during the year was 1.2% (2020: 1.2%).
Spirax-Sarco Engineering plc Annual Report 2021 217
Financial Statements
Financial Statements
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:
2021
Total
£m
Fixed rate
financial
assets
£m
Floating rate
financial
assets
£m
Financial assets
on which no
interest is
earned
£m
Sterling 63.9 0.1 43.3 20.5
Euro 119.2 0.1 23.4 95.7
US dollar 124.2 – 16.0 108.2
Renminbi 91.2 4.0 40.9 46.3
Other 174.2 12.8 17.3 144.1
Group total 572.7 17.0 140.9 414.8
2020
Total
£m
Fixed rate
financial
assets
£m
Floating rate
financial
assets
£m
Financial assets
on which no
interest is
earned
£m
Sterling 66.1 – 24.6 41.5
Euro 112.6 – 8.1 104.5
US dollar 90.2 – 12.7 77.5
Renminbi 62.6 3.8 24.3 34.5
Other 160.2 6.5 20.0 133.7
Group total 491.7 10.3 89.7 391.7
Financial assets on which no interest is earned comprise trade and other receivables and cash at bank.
Floating and fixed rate financial assets comprise cash at bank or cash placed on deposit.
Currency exposures
As explained on page 216, the Group’s objectives in managing the currency exposures arising from its net investment overseas (inotherwords,
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 2021 the currency exposures in respect
of the euro was a net monetary liability of £176.4m (2020: £297.1m net monetary liability) and in respect of the US dollar a net monetary asset of
£121.4m (2020: £17.5m net monetary asset).
At 31st December 2021, the percentage of debt to net assets, excluding debt was 28% (2020: 34%) for the euro, 1% (2020: 1%) for theUS
dollar and 1% (2020: 1%) for the Chinese renminbi.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021218
Financial Statements
27 Derivatives and other financial instruments continued
Maturity of financial liabilities
The Group’s financial liabilities at 31st December mature in the following periods:
2021
Trade,
otherpayables
and contract
liabilities
£m
Overdrafts
£m
Lease
liabilities
£m
Long-term
borrowings
£m
Total
£m
In six months or less, or on demand 201.8 55.6 6.4 67.0 330.8
In more than six months but no more thantwelve 8.0 – 5.8 2.1 15.9
In more than one year but no more thantwo 2.4 – 11.0 193.4 206.8
In more than two years but no more thanthree 1.1 – 6.9 2.4 10.4
In more than three years but no more thanfour 0.6 – 4.7 2.3 7.6
In more than four years but no more thanfive – – 3.6 102.1 105.7
In more than five years 0.5 – 28.3 – 28.8
Total contractual cash flows 214.4 55.6 66.7 369.3 706.0
Statement of Financial Position values 214.4 55.6 60.1 349.5 679.6
2020*
Trade, other
payables
and contract
liabilities
£m
Overdrafts
£m
Lease liabilities
£m
Long-term
borrowings
£m
Total
£m
In six months or less, or on demand 87.3 22.2 6.1 3.1 118.7
In more than six months but no more thantwelve 2.7 − 5.5 3.1 11.3
In more than one year but no more thantwo − − 9.4 148.2 157.6
In more than two years but no more thanthree − − 6.7 206.0 212.7
In more than three years but no more thanfour − − 3.7 2.5 6.2
In more than four years but no more thanfive − − 2.1 2.5 4.6
In more than five years − − 4.2 108.7 112.9
Total contractual cash flows 90.0 22.2 37.7 474.1 624.0
Statement of Financial Position values 90.0 22.2 34.1 452.8 599.1
*The 2020 comparator excludes Long-term payables and Accruals.
The Group did not employ any supply chain or similar forms of financing during 2021 or 2020.
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 2021 the Group had contracts outstanding to
economically hedge or to purchase £45.5m (2020: £37.8m), and €20.3m (2020: €24.5m) with US dollars, £74.3m (2020: £78.2m) with Euros,
£18.9m (2020: £10.0m), and €13.1m (2020: €7.5m) with Chinese renminbi, £7.7m (2020: £10.2m) and €3.1m (2020: €4.5m) with Korean won,
£6.3m (2020: £7.3m) with Singapore dollar and DKK31.6m (2020: £nil) with Euros. The fair values at the end of the reporting period were a
liability of £0.2m (2020: £2.6m 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.
Spirax-Sarco Engineering plc Annual Report 2021 219
Financial Statements
Financial Statements
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.
2021
Less than
6 months
£m
6 to 12
months
£m
More than
12 months
£m
Total
£m
Contracted cash in/(out):
Sterling 61.5 62.1 21.4 145.0
Euro (21.6) (16.8) (8.0) (46.4)
US dollar (24.0) (30.5) (9.7) (64.2)
Other (14.6) (15.4) (3.6) (33.6)
Total contractual cash flows 1.3 (0.6) 0.1 0.8
2020
Less than
6 months
£m
6 to 12 months
£m
More than
12 months
£m
Total
£m
Contracted cash in/(out):
Sterling 39.9 37.7 33.2 110.8
Euro (20.6) (12.5) (10.4) (43.5)
US dollar (17.3) (16.9) (15.5) (49.7)
Other (0.9) (7.3) (6.5) (14.7)
Total contractual cash flows 1.1 1.0 0.8 2.9
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 £2.8m (2020: £0.7m loss) was recognised in other comprehensive income during the period.
No amount (2020: £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 2021 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
allconditions precedent had been met at that date were as follows:
2021
£m
2020
£m
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 350.0 350.0
Expiring in more than three years – −
Total Group undrawn committed facilities 350.0 350.0
During the year the Group’s external financing facilities were updated to reflect the non publication of Inter Bank Offering Rates (IBOR) and now
refer to the relevant new reference rates. The Group no longer has any external financing referencing IBOR.
At 31st December 2021, the Group had available £350.0m (2020: £350.0m) of undrawn committed borrowing facilities in respect of its
£350.0m pound sterling revolving credit facility, of which all conditions precedent had been met. This facility expires on 7th May 2024.
Notes to the Consolidated Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021220
Financial Statements
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 £405.1m (2020: £475.0m). At 31st December 2021, 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 £0.1m (2020: £0.7m).
For the year ended 31st December 2021, 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 £13.5m (2020: £12.5m). 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:
Gross
2021
£m
Impairment
2021
£m
Net
2021
£m
Gross
2020
£m
Impairment
2020
£m
Net
2020
£m
Not past due date 197.6 (1.9) 195.7 167.7 (3.3) 164.4
0–30 days past due date 40.9 (0.2) 40.7 35.9 (0.2) 35.7
31–90 days past due date 22.9 (0.5) 22.4 19.1 (0.8) 18.3
91 days to one year past due date 15.4 (1.9) 13.5 13.1 (5.2) 7.9
More than one year 8.4 (8.4) – 8.3 (8.3) −
Group total 285.2 (12.9) 272.3 244.1 (17.8) 226.3
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 2021.
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:
2021
£m
2020
£m
Balance at 1st January 17.8 14.8
Additional impairment 2.0 8.7
Amounts written off as uncollectable (1.2) (3.8)
Amounts recovered (1.2) (0.9)
Impairment losses reversed (4.3) (0.9)
Exchange differences (0.2) (0.1)
Balance at 31st December 12.9 17.8
Spirax-Sarco Engineering plc Annual Report 2021 221
Financial Statements
Financial Statements
Company Financial
Statements
In this section
Company Statement of Financial Position 223
Company Statement of Changes to Equity 224
Notes to the Company Financial Statements 225
222 Spirax-Sarco Engineering plc Annual Report 2021
Financial Statements
Notes
2021
£m
2020
£m
Assets
Non-current assets
Property, plant and equipment 11 5.8 6.2
Loans to subsidiaries 3, 9 291.0 309.9
Investment in subsidiaries 2 748.8 737.1
Deferred tax assets 6 0.1 –
Post-retirement benefits 7 5.1 5.6
1,050.8 1,058.8
Current assets
Due from subsidiaries 9 0.7 1.5
Other current assets 4 5.4 6.4
Cash and cash equivalents 19.0 9.6
25.1 17.5
Total assets 1,075.9 1,076.3
Equity and liabilities
Current liabilities
Trade and other payables 5 5.4 2.1
Current portion of long-term borrowings 10 0.9 0.9
Short-term borrowings 0.1 6.2
6.4 9.2
Net current assets 18.7 8.3
Non-current liabilities
Long-term borrowings 10 289.8 308.6
Deferred tax liabilities 6 1.3 1.1
Due to subsidiaries 9 10.4 8.2
301.5 317.9
Total liabilities 307.9 327.1
Net assets 768.0 749.2
Equity
Share capital 8 19.8 19.8
Share premium account 86.3 84.8
Other reserves 8 4.5 16.2
Retained earnings 657.4 628.4
Equity shareholders’ funds 768.0 749.2
Total equity 768.0 749.2
Total equity and liabilities 1,075.9 1,076.3
The loss before dividends received was £18.6m (2020: £14.8m). Dividends from subsidiary undertakings of £146.4m (2020: £23.6m) are
excluded from this amount.
These Financial Statements of Spirax-Sarco Engineering plc , company number 00596337 were approved by the Board of Directors and
authorised for issue on 9th March 2022 and signed on its behalf by:
N.J. Anderson N.B. Patel Directors
Company Statement of Financial Position
at 31st December 2021
Spirax-Sarco Engineering plc Annual Report 2021 223
Financial Statements
Share
capital
£m
Share
premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
Balance at 1st January 2021 19.8 84.8 16.2 628.4 749.2
Profit for the year – – – 127.8 127.8
Other comprehensive income:
Transfer between reserves – – – – –
Cash flow hedges net of tax – – (2.8) – (2.8)
Remeasurement loss on post-retirement benefits – – – (0.3) (0.3)
Deferred tax on remeasurement loss on post-retirement
benefits – – – (0.2) (0.2)
Total other comprehensive income for the year – – (2.8) (0.5) (3.3)
Total comprehensive income for the year – – (2.8) 127.3 124.5
Contributions by and distributions to owners of the Company:
Dividends paid – – – (90.7) (90.7)
Equity settled share plans net of tax – – – (7.6) (7.6)
Issue of share capital – 1.5 – – 1.5
Employee Benefit Trust shares – – (12.5) – (12.5)
Investment in subsidiaries in relation to share options granted – – 3.6 – 3.6
Balance at 31st December 2021 19.8 86.3 4.5 657.4 768.0
For the year ended 31st December 2020
Share
capital
£m
Share
premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
Balance at 1st January 2020 19.8 81.0 11.8 715.6 828.2
Profit for the year – – – 8.8 8.8
Other comprehensive income:
Transfer between reserves – – 3.3 (3.3) –
Cash flow hedges net of tax – – (0.7) – (0.7)
Remeasurement loss on post-retirement benefits – – – – –
Deferred tax on remeasurement loss on post-retirement
benefits – – – – –
Total other comprehensive income for the year – – 2.6 (3.3) (0.7)
Total comprehensive income for the year – – 2.6 5.5 8.1
Contributions by and distributions to owners of the Company:
Dividends paid – – – (82.2) (82.2)
Equity settled share plans net of tax – – – (10.5) (10.5)
Issue of share capital – 3.8 – – 3.8
Employee Benefit Trust shares – – (0.3) – (0.3)
Investment in subsidiaries in relation to share options granted – – 2.1 – 2.1
Balance at 31st December 2020 19.8 84.8 16.2 628.4 749.2
Other reserves represent the Company’s share-based payments, capital redemption and Employee Benefit Trust reserves (see Note 8).
The Notes on pages 225 to 231 form an integral part of the Financial Statements.
Company Statement of Changes in Equity
for the year ended 31st December 2021
Spirax-Sarco Engineering plc Annual Report 2021224
Financial Statements
1 Accounting policies
The separate Financial Statements of the Company are presented as required by the Companies Act 2006. The Company meets the definition
of a qualifying entity under FRS 100. Accordingly the Company has adopted FRS 101 (Reduced Disclosure Framework). As permitted
by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based
payments, financial instruments and the presentation of a Cash Flow Statement. Where relevant, equivalent disclosures have been given in the
Consolidated Financial Statements.
Under section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own Income Statement.
As permitted by the audit fee disclosure regulations, disclosure of non-audit fees information is not included in respect of the Company.
The Company’s accounting policies are the same as those set out in Note 1 of the Consolidated Financial Statements, except as noted below.
The Directors have concluded that no critical judgements or key sources of estimation uncertainty have been made in the process of applying
the Company’s accounting policies.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Loans to or from other Group undertakings and all other payables and receivables are initially recorded at fair value, which is generally the
proceeds received. They are then subsequently carried at amortised cost.
2 Investments in subsidiaries
2021
£m
2020
£m
Cost:
At 1st January 737.1 662.0
Share options issued to subsidiary company employees 3.6 2.1
Additions 8.1 73.0
At 31st December 748.8 737.1
Investments are stated at cost less provisions for any impairment in value.
Additions in the year relate to the transfer of ownership of Spirax-Sarco Engineering (China) Limited from Spirax-Sarco Investments Limited to
Spirax-Sarco Engineering plc for £8.1m.
Details relating to subsidiary undertakings are given on pages 233 to 237. Except where stated all classes of shares were 100% owned by
the Group at 31st December 2021. The country of incorporation of the principal Group companies is the same as the country of operation
withthe exception of companies operating in the United Kingdom which are incorporated in Great Britain. All operate in steam, electrical
thermalenergy solutions, fluid path technologies or peristaltic pumping markets except those companies identified as a holding company
onpages 233to 237.
Notes to the Company Financial Statements
Spirax-Sarco Engineering plc Annual Report 2021 225
Financial Statements
3 Loans to subsidiaries
2021
£m
2020
£m
Cost:
At 1st January 309.9 210.1
Advances – 108.0
Interest 4.6 3.8
Repayments (4.6) (23.6)
Exchange adjustment (18.9) 11.6
At 31st December 291.0 309.9
The terms and conditions of loans to subsidiaries at 31st December 2021 were as follows:
Currency
Nominal interest
rate
Year of
maturity
2021
£m
2020
£m
Spirax-Sarco Overseas Limited € 1.10% 2023 189.8 202.1
Spirax-Sarco Overseas Limited € 2.36% 2026 101.2 107.8
Total loans to subsidiaries 291.0 309.9
Due within one year 1.0 1.1
Due after more than one year 290.0 308.8
4 Other current assets
2021
£m
2020
£m
Prepayments and accrued income 5.4 6.4
Total other current assets 5.4 6.4
5 Trade and other payables
2021
£m
2020
£m
Accruals 5.4 2.1
Total trade and other payables 5.4 2.1
Trade and other payables are due within one year.
6 Deferred tax assets and liabilities
Movement in deferred tax during the year 2021
1st January
2021
£m
Recognised
in income
£m
Recognised
in OCI
£m
Recognised
in equity
£m
31st December
2021
£m
Other temporary differences asset – 0.1 – – 0.1
Pensions liability (1.1) – (0.2) – (1.3)
Company total (1.1) 0.1 (0.2) – (1.2)
Movement in deferred tax during the year 2020
1st January
2020
£m
Recognised
in income
£m
Recognised
in OCI
£m
Recognised
in equity
£m
31st December
2020
£m
Other temporary differences asset 0.7 (0.7) – – –
Pensions liability (0.9) (0.2) – – (1.1)
Company total (0.2) (0.9) – – (1.1)
Notes to the Company Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021226
Financial Statements
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 (2020: £0.6m).
At 31st December 2021 the post-retirement mortality assumptions in respect of the Company Defined Benefit Scheme follows 84%/87%
(male/female) of SAPS S3 light, CMI 2020 projections with a long term trend of 1.25% p.a., initial addition of 0.25% and w2020 parameter of
10%. 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., initial addition of 0.25%. These assumptions are
regularly reviewed in light of scheme-specific experience and more widely available statistics.
The financial assumptions used at 31st December were:
Weighted-average
assumptions used to define the
benefit obligations
2021
%
2020
%
Rate of increase in salaries n/a 2.4
Rate of increase in pensions 3.2 2.8
Rate of price inflation 3.3 2.9
Discount rate 1.8 1.3
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:
2021
£m
2020
£m
Equities 11.1 2.6
Bonds 35.4 48.0
Other 13.8 10.2
Total market value in aggregate 60.3 60.8
£nil (2020: £1.3m) of scheme assets have a quoted market price in an active market.
The actual return on plan assets was a gain of £3.1m (2020: £3.9m).
The amounts recognised in the Company Statement of Financial Position are determined as follows:
2021
£m
2020
£m
Fair value of scheme’s assets 60.3 60.8
Present value of funded scheme’s liabilities (55.2) (55.2)
Retirement benefit asset recognised in the Statement of Financial Position 5.1 5.6
Related deferred tax (1.3) (1.1)
Net pension asset 3.8 4.5
Spirax-Sarco Engineering plc Annual Report 2021 227
Financial Statements
7 Employee benefits continued
The movements in the Defined Benefit Obligation (DBO) recognised in the Statement of Financial Position during the year were:
2021
£m
2020
£m
Defined benefit obligation at beginning of year (55.2) (53.9)
Current service cost – –
Interest cost (0.7) (1.2)
Contributions from members – –
Remeasurement (loss)/gain (2.7) (2.6)
Actual benefit payments 3.4 2.5
Experience loss – –
Defined benefit obligation at end of year (55.2) (55.2)
The movements in the fair value of plan assets during the year were:
2021
£m
2020
£m
Value of assets at beginning of year 60.8 59.5
Expected return on assets 0.7 1.2
Remeasurement gain/(loss) 2.4 2.6
Contributions paid by employer – –
Administration costs (0.2) –
Actual benefit payments (3.4) (2.5)
Value of assets at end of year 60.3 60.8
The estimated employer contributions to be made in 2022 are £nil.
The history of experience adjustments is as follows:
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
Defined benefit obligation at end of year (55.2) (55.2) (53.9) (52.7) (55.7)
Fair value of scheme’s assets 60.3 60.8 59.5 56.4 60.0
Retirement benefit recognised in the Statement of
Financial Position 5.1 5.6 5.6 3.7 4.3
Experience adjustment on scheme’s liabilities 3.5 (5.0) – (0.3) (1.2)
As a percentage of scheme’s liabilities 6.3% 9.1% 0.0% 0.1% 2.2%
Experience adjustment on scheme’s assets 2.4 2.6 4.1 (2.4) 2.2
As a percentage of scheme’s assets 4.0% 4.3% 6.9% 4.3% 3.7%
The expense recognised in the Company Income Statement was as follows:
2021
£m
2020
£m
Current service cost (0.2) (0.2)
Net interest on scheme’s assets and liabilities 0.1 0.1
Total expense recognised in Income Statement (0.1) (0.1)
Notes to the Company Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021228
Financial Statements
7 Employee benefits continued
Statement of Comprehensive Income (OCI)
2021
£m
2020
£m
Remeasurement effects recognised in OCI:
Due to experience on DBO (3.5) 5.0
Due to demographic assumption changes in DBO 0.2 (2.3)
Due to financial assumption changes in DBO 0.6 (5.3)
Return on assets 2.4 2.6
Total remeasurement loss recognised in OCI (0.3) –
Deferred tax on remeasurement amount recognised in OCI (0.2) –
Cumulative loss recognised in OCI at beginning of year (10.1) (10.1)
Cumulative loss recognised in OCI at end of year (10.6) (10.1)
Sensitivity analysis
The effect on the defined benefit obligation at 31st December 2021 of an increase or decrease in key assumptions is as follows:
Increase/(decrease) in pension defined benefit obligation £m
Discount rate assumption being 0.25% higher (1.6)
Discount rate assumption being 0.25% lower 1.6
Inflation assumption being 0.25% higher 1.3
Inflation assumption being 0.25% lower (1.3)
Mortality assumption life expectancy at age 65 being one year higher 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 2021 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.
2017
Grant
2018
Grant
2019
Grant
2020
Grant
2021
Grant
Grant date 26th May 4th April 15th May 12th March 5th May
Mid market share price at grant date 5,256.0p 5,560.0p 8,161.0p 7,775.0p 11,770.0p
Number of employees 12 12 12 19 15
Shares under scheme 62,356 60,899 60,626 82,607 45,815
Vesting period 3 years 3 years 3 years 3 years 3 years
Probability of vesting 73.1% 73.5% 74.1% 74.3% 73.9%
Fair value 3,842.1p 4,084.4p 6,048.9p 5,779.2p 8,698.0p
Spirax-Sarco Engineering plc Annual Report 2021 229
Financial Statements
8 Called up share capital and reserves
2021
£m
2020
£m
Ordinary shares of 26
12
/
13
p (2020: 26
12
/
13
p ) each
Authorised 111,428,571 (2020: 111,428,571) 30.0 30.0
Allotted, called up and fully paid 73,766,048 (2020: 73,766,048) 19.8 19.8
33,856 shares with a nominal value of £9,115 were issued in connection with the Group’s Employee Share Schemes for a consideration
of£1.5m received by the Company.
In 2021 the Parent Company purchased 188,000 shares representing 0.25 % of called up share capital with a nominal value of £50,615 for a
consideration of £26,130,357. 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 2021 134,331 shares were held in an Employee Benefit Trust and available for use in connection with the Group’s Employee
Share Schemes.
15 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 224 are made up as follows:
1st January
2021
£m
Change
in year
£m
31st December
2021
£m
Share-based payments reserve 18.6 3.6 22.2
Cash flow hedges reserve 2.6 (2.8) (0.2)
Capital redemption reserve 1.8 – 1.8
Employee Benefit Trust reserve (6.8) (12.5) (19.3)
Total other reserves 16.2 (11.7) 4.5
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
2021
£m
2020
£m
Dividends received from subsidiaries 146.4 23.6
Loans due from subsidiaries at 31st December 291.0 309.9
Amounts due from subsidiaries at 31st December 0.7 1.5
Amounts due to subsidiaries at 31st December 10.4 8.2
Notes to the Company Financial Statements continued
Spirax-Sarco Engineering plc Annual Report 2021230
Financial Statements
10 Financial instruments
The terms and conditions of outstanding loans at 31st December 2021 are as follows:
Currency
Nominal
interest rate
Year of
maturity
Carrying
value
£m
Unsecured private placement – €225.0m € 1.1% 2023 189.6
Unsecured private placement – €120.0m € 2.4% 2026 101.1
Total outstanding loans 290.7
Current portion of long-term borrowings due before 31st December 2022 0.9
Long-term borrowings payable after 31st December 2022 289.8
Total outstanding loans 290.7
11 Other information
Dividends
Dividends paid by the Company are disclosed in Note 11 of the Consolidated Financial Statements.
Property, plant and equipment
The Company holds freehold property with a cost of £9.7m (2020: £9.4m), accumulated depreciation of £3.9m (2020: £3.2m) and a net book
value of£5.8m (2020: £6.2m).
Employees
The total number of employees of the Company at 31st December 2021 was 112 (2020: 85).
Directors’ remuneration
The remuneration of the Directors of the Company is shown in the Annual Report on Remuneration 2021 on pages 136 to 151.
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 2021 (2020: £nil).
Spirax-Sarco Engineering plc Annual Report 2021 231
Financial Statements
Our Global Operations
In this section
Our Global Operations 233
Officers and Advisers 238
Corporate Information
Spirax-Sarco Engineering plc Annual Report 2021232
Our Global Operations
Steam Specialties – EMEA
Country/Territory Company Name Registered Office address
Belgium Spirax Sarco NV Industriepark 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 Spirax Oy Niittytie 25 A 24, 01300 Vantaa, Helsinki, Finland
France Spirax Sarco SAS 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
Hungary Spirax-Sarco Kft 1103 Budapest Koér utca 2/A, Hungary
Italy Spirax Sarco Srl Via Per Cinisello 18, 20834 Nova Milanese, Italy
Italgestra Srl Via Per Cinisello 18, 20834 Nova Milanese, Italy
Kenya Spirax Sarco East Africa Ltd Clifton Park, Mombasa Road, Nairobi, Kenya
Morocco Spirax Sarco Maghreb Secteur 3, Lot 146, Rue Arfoud, Bureaux 5 et 6, commerce 2-12000 Temara, 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 Spirax Sarco AS Vestvollveien 14A, N-2019 Skedsmokorset, Norway
Poland Spirax Sarco Sp Zoo Jutrzenki 98, 02-230, Warszawa, Poland
Gestra Polonia Sp Zoo
ul Ku Ujściu 19, PL 80-172, Gdansk, Poland
Portugal Spirax Sarco Equipamentos Ind Lda Rua Quinta do Pinheiro, No 8 & 8A, 2794-058 Carnaxide, Portugal
Gestra Portugal, Lda Avenida Dr Antunes Guimaraes, Numero 1159, Porto 4100-082, Portugal
Romania Spirax-Sarco SRL 2-4 Traian Street, Cluj-Napoca Municipality, Cluj County, Romania
Russia Spirax-Sarco Engineering LLC* 198188, Russian Federation, St. Petersburg, Vozrozhdeniya Street,
The House 20a, lit.A. Russian Federation
South Africa Spirax Sarco Investments (Pty) Ltd (H) Corner Brine Avenue and Horn Street, Chloorkop Ext 23, Gauteng 1624, South Africa
Spirax Sarco South Africa (Pty) Ltd Corner Brine Avenue and Horn Street, Chloorkop Ext 23, Gauteng 1624, South Africa
Spain Spirax-Sarco SAU C/ Sant Josep, 130 08980 Sant Feliu de Llobregat, Barcelona, Spain
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 Evenemansgatan 40, 169 56 Solna, Sweden
Switzerland Spirax Sarco AG Gustav-Maurer-Strasse 9, 8702 Zollikon, Switzerland
Turkey
Spirax Sarco Valf Sanayi ve Ticaret A.
.
Serifali Mevkii, Edep Sok No 27, 34775 Yukari Dudullu - Ümraniye, Istanbul, Turkey
United Kingdom Spirax-Sarco Ltd* Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER, United Kingdom
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
Spirax-Sarco Engineering plc Annual Report 2021
233
Corporate Information
Our Global Operations continued
Steam Specialties – Americas
Country/Territory Company Name Registered Office address
Argentina Spirax Sarco SA Av. del Libertador 498, 12th Floor, Buenos Aires C1001ABR, Argentina
Brazil Spirax Sarco Ind e Com Ltda Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Spirax-Sarco Servicos de Engenharia Ltda Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Hiter Controls Engenharia Ltda Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Canada Spirax Sarco Canada Ltd 383 Applewood Crescent, Concord, ON L4K 4J3, Canada
Chile Spirax-Sarco Chile Ltda Las Garzas 930, Galpón E, Quilicura, Santiago de Chile, Chile
Inversiones Spirax-Sarco Chile Ltda (H) Las Garzas 930, Galpón D, Quilicura, Santiago de Chile, Chile
Colombia Spirax Sarco Colombia SAS Carretera Panamericana No 3-150, Jamundi, Valle del Cauca, Cali, Colombia
Mexico 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
Steam Specialties – Asia Pacific
Country/Territory Company Name Registered Office address
Australia Spirax Sarco Pty Ltd 14 Forge St., Blacktown, NSW 2148, Australia
China Spirax-Sarco Engineering (China) Ltd No 800 XinJun Ring Road, Pujiang Hi Tech Park, Shanghai, China
Spirax Sarco Trading (Shanghai) Co Ltd No 800 XinJun Ring Road, Pujiang Hi Tech Park, Shanghai, China
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 Plot No. 6, Central Avenue, Mahindra World City, Chengalpattu Taluk,
Kancheepuram District 603004, India
Indonesia PT Spirax Sarco Indonesia Kawasan Infinia Park Blok C-99, Jl. Dr Sahardjo No. 45, Manggarai Tebet, Jakarta
Selatan12850, 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.192, Kabar Aye Pagoda Road, Myanmar Centre - Tower 2, Unit.1218, Bahan Township,
Yangon, Myanmar
New Zealand Spirax Sarco Ltd 6 Nandina Avenue, East Tamaki, Auckland 2013, New Zealand
Philippines Spirax-Sarco Philippines Inc 2308 Natividad Building, Chino Roces Avenue Extension, Makati City, Philippines
Singapore Spirax Sarco Pte Ltd 21 Changi South Avenue 2, #01-01 Singapore 486630, Singapore
Spirax-Sarco APAC Investments Pte Ltd 21 Changi South Avenue 2, #01-01 Singapore 486630, Singapore
Gestra Singapore Pte Ltd 21 Changi South Avenue 2, #01-01 Singapore 486630, Singapore
South Korea Spirax Sarco Korea Ltd Steam People House, 99 Sadangro 30gil, Dongjak-gu, Seoul, Republic of Korea
Taiwan Spirax Sarco Co Ltd 6F-3, No. 12, Lane 270, Sec. 3, Pei Shen Road, Shen Keng District, New Taipei City
22205,Taiwan
Thailand Spirax Sarco (Thailand) Ltd 38 Krungthepkreeta Road, Khlong Song Ton Nun, Lat Krabang, Bangkok 10520, Thailand
Vietnam Spirax Sarco Vietnam Co Ltd 4th Floor, 180 Nguyen Van Troi Street, Ward 8, Phu Nhuan District, Ho Chi Minh City, Vietnam
Spirax-Sarco Engineering plc Annual Report 2021
234
Corporate Information
Electric Thermal Solutions
Country/Territory Company Name Registered Office address
Brazil Chromalox Engenharia Ltda Avenida Manoel Lages do Chão, 268, Bairro Portão, Cotia, São Paulo, 06705-050, Brazil
Canada Canadian Heat Acquisition Corp (H) 7051 68th Ave NW, Edmonton, Alberta, T6B 3E3, Canada
China Chromalox Precision Heat Control (Shanghai)
Co Ltd
88 Taigu Road, Suite A2, 4th Floor – Fenggu Building, Shanghai, 200131, China
Chromalox Precision Heat Control (Suzhou)
CoLtd
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
PrivateLimited
1st Floor, 6 Unicom House, A-3 Commercial Complex, New Delhi, Janakpuri, 110058, India
Mexico ELW Industrial S. de R. L. de C.V. Carretera Nacional, K.M. 8.5, Modulo Industrial de America, Lote #5, Nuevo Laredo,
Tamaulipas, 88277, Mexico
Singapore Chromalox Precision Heat and Control
(Singapore) Pte Ltd
No 11 Woodlands Close, #05-34, Singapore, 737854, Singapore
Thailand Chromalox (Asia Pacific) Ltd 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
Spirax-Sarco Engineering plc Annual Report 2021
235
Corporate Information
Watson-Marlow Fluid Technology Group
Country/Territory Company Name Registered Office address
Australia Watson-Marlow Pty Ltd Unit 15, 19-26 Durian Place, Wetherill Park, NSW 2164, Australia
Austria Watson-Marlow Austria GmbH Rathaus Viertel 3/1 OG/TOP 311, Guntramsdorf A 2353, Wien, Austria
Belgium Watson-Marlow NV Industriepark 5, B-9052 Zwijnaarde, Belgium
Brazil Watson-Marlow Bredel Ind e Com de Bombas
Ltda
Alameda Oceania, 63, Polo Empresarial Tamboré, Santana de Parnaiba, São Paulo,
CEP 06543-308, Brazil
Canada Watson-Marlow Canada Inc 383 Applewood Crescent, Concord, ON L4K 4J3, Canada
Chile Watson-Marlow Bombas Chile Ltda Las Garzas 930, Galpón E, Quilicura, Santiago de Chile, Chile
Colombia Watson-Marlow Colombia SAS Carretera Panamericana No 3-150, Jamundi, Valle del Cauca, Cali, Colombia
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 Watson-Marlow Finland Oy Niittytie 25 A 24, 01300 Vantaa, Helsinki, Finland
France Watson-Marlow SAS 9 Route De Galluis, Zi Les Croix, 78940 La Queue Lez Yvelines, France
Germany Watson-Marlow GmbH Kurt-Alder-Str. 1, 41569 Rommerskirchen, Germany
Hungary Watson-Marlow Kft Lajos ucta 30, Budapest 1023, Hungary
India Watson-Marlow India Private Ltd Mahalaxmi Icon, S. No. 132/2A-3A, Near Sai HP Petrol Pump, Pune-Mumbai Bypass Road,
Tathawade, Pune, Maharashtra, 411 033, India
Ireland Watson-Marlow Ltd Unit 1013, Gateway Business Park, New Mallow Rd., Cork, Ireland
Italy Watson-Marlow Srl Via Padana Superiore 74/D, 25080 Mazzano, Brescia, Italy
Japan Watson-Marlow Co Ltd 4-23-21 Ukima Kita-ku, Tokyo 115-0051, Japan
Malaysia Watson-Marlow SDN BHD 6th Floor, Akademi Etiqa No. 23 Jalan Melaka, 50100 Kuala Lumpur W.P., Malaysia
Mexico Watson-Marlow S de RL de CV Boulevard Alianza 30B, Parque Industrial CPA, Ciénega de Flores Nuevo León,
CP 65550, Mexico
Netherlands Watson-Marlow BV Oslo 9 - 11, 2993LD Barendrecht, Netherlands
Watson-Marlow Bredel BV Sluisstraat 7, 7491 GA, Delden, Netherlands
Watson-Marlow Bredel Holdings BV (H) Sluisstraat 7, 7491 GA, Delden, 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 10th Floor EGI Rufino Plaza, Sen. Gil Puyat Avenue, Corner Taft Avenue, Barangay,
38 Pasay City, Fourth District, Philippines
Poland Watson-Marlow Sp Zoo Al. Jerzego Waszyngtona 146, 04-076 Warszawa, Poland
Russia Watson-Marlow LLC* Room 19, Premises I, Shosse Entuziastov, 34, Moscow, 105118, Russian Federation
Singapore Watson-Marlow Pte Ltd 421 Tagore Industrial Avenue, #01-13, Singapore 787805, Singapore
South Africa Watson-Marlow Bredel SA (Pty) Ltd Unit 6 Cradleview Industrial Park, Cnr Beyers Naude Drive & Johan Street, Laser Park,
South Africa
Spain Watson-Marlow SLU Tuset, 20 3 - 08006, Barcelona, Spain
Sweden W-M Alitea AB Hammarby Fabriksväg 29-31, SE-120 30 Stockholm, Sweden
Switzerland Watson-Marlow AG Gustav-Maurer-Strasse 9, 8702 Zollikon
Taiwan Watson-Marlow Co Ltd No.9 Lane 270 Sec. Beishen Road, Shenkeng District, New Taipei City 222, Taiwan
United Arab
Emirates
Watson Marlow FZCO 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 Bickland Water Road, Falmouth, Cornwall, TR11 4RU, United Kingdom
Watson-Marlow Ltd* 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
Our Global Operations continued
Spirax-Sarco Engineering plc Annual Report 2021236
Corporate Information
Dormant companies
Country/Territory Company Name Registered Office address
Canada Canadian Heat Holding Corp 6600-100 King Street W., 1 First Canadian Place, Toronto, Ontario, M5X 1B6, Canada
France 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 233 to 237 are registered companies.
Key
* Direct subsidiary owned by
Spirax-Sarco Engineering plc
(H) Holding company
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. Also, during 2021, the Spirax Sarco Group Education Fund was established, however under IFRS 10
the Group does not have control of this fund and therefore is not included in the consolidated financial statements.
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 % owned by the Group
Spirax Sarco Egypt 98.867%
Spirax Sarco Energy Solutions LLC, Egypt 98.992%
Spirax Sarco Korea Ltd 97.5%
Spirax-Sarco Philippines Inc 99.998%
Spirax Sarco Services South Africa (Pty) Ltd 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.
Spirax Sarco (Thailand) Ltd 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 Operating as a branch of
Cambodia Spirax Sarco Pte Ltd, Singapore
Denmark Spirax-Sarco Limited, UK
Ghana Spirax-Sarco Limited, UK
Greece Spirax-Sarco Limited, UK
Ireland Spirax-Sarco Limited, UK
Japan Spirax-Sarco Limited, UK
Pakistan Spirax-Sarco Limited, UK
Sri Lanka Spirax-Sarco India Private Ltd, India
United Arab Emirates Spirax-Sarco Limited, UK
Watson-Marlow Fluid Technology Group:
Country Operating as a branch of
Serbia Watson-Marlow Austria GmbH
Switzerland Watson-Marlow Limited, UK
Operating via
Argentina Spirax Sarco SA, Argentina
China Spirax-Sarco Engineering
(China) Ltd
South Korea Spirax Sarco Korea Ltd
Indonesia PT Spirax-Sarco Indonesia
Thailand Spirax Sarco (Thailand) Ltd
Vietnam 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
31stDecember 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.
Spirax-Sarco Engineering plc Annual Report 2021
237
Corporate Information
Officers and Advisers
Secretary and registered office
A.J. Robson
Group General Counsel and Company Secretary
Spirax-Sarco Engineering plc
Tel: 01242 521361
Email: [email protected]co.com
Web: 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 11th May 2022
2021 Half Year Results 11th August 2022
Final dividend**
Ordinary shares quoted ex-dividend 21st April 2022
Record date for final dividend 22nd April 2022
Final dividend payable 20th May 2022
** Subject to shareholder approval at the AGM.
Spirax-Sarco Engineering plc Annual Report 2021238
Corporate Information
Independent auditor’s reasonable assurance report on the compliance
of Spirax-Sarco Engineering plc’s European Single Electronic Format
(ESEF) prepared Annual Financial Report with theEuropean Single
Electronic Format Regulatory Technical Standard (‘ESEF RTS’) as
required by the Financial Conduct Authority (FCA) Disclosure Guidance
and Transparency Rule (DTR) 4.1.14R
To the Members of Spirax-Sarco Engineering plc
Report on compliance with the requirements for iXBRL mark up
(‘tagging’) of consolidated financial statements included in the
ESEF-prepared Annual Financial Report
We have undertaken a reasonable assurance engagement on the
iXBRL mark up of consolidated financial statements for the year
ended 31 December 2021 of Spirax-Sarco Engineering plc (the
“company”) included in the ESEF-prepared Annual Financial Report
prepared by the company.
Opinion
In our opinion, the consolidated financial statements for the year
ended 31 December 2021 of the company included in the ESEF-
prepared Annual Financial Report, are marked up, in all material
respects, in compliance with the ESEF RTS.
The directors’ responsibility for the ESEF-prepared Annual
Financial Report prepared in compliance with the ESEF RTS
The directors are responsible for preparing the ESEF-prepared Annual
Financial Report. This responsibility includes:
• the selection and application of appropriate iXBRL tags using
judgement where necessary;
• ensuring consistency between digitised information and the
consolidated financial statements presented in human-readable
format; and
• the design, implementation and maintenance of internal control
relevant to the application of the ESEF RTS.
Our independence and quality control
We have complied with the independence and other ethical
requirements of 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 apply International Standard on Quality Control 1 and, accordingly,
maintain a comprehensive system of quality control including
documented policies and procedures regarding compliance with
ethical requirements, professional standards and applicable legal and
regulatory requirements.
Our responsibility
Our responsibility is to express an opinion on whether the electronic
mark up of consolidated financial statements complies in all material
respects with the ESEF RTS based on the evidence we have
obtained. We conducted our reasonable assurance engagement in
accordance with International Standard on Assurance Engagements
(UK) 3000, Assurance Engagements Other than Audits or Reviews of
Historical Financial Information (‘ISAE (UK) 3000’) issued by the FRC.
A reasonable assurance engagement in accordance with ISAE (UK)
3000 involves performing procedures to obtain reasonable assurance
about the compliance of the mark up of the consolidated financial
statements with the ESEF RTS. The nature, timing and extent
of procedures selected depend on the practitioner’s judgement,
including the assessment of the risks of material departures from the
requirements set out in the ESEF RTS, whether due to fraud or error.
Our reasonable assurance engagement consisted primarily of:
• obtaining an understanding of the ESEF RTS mark up process,
including internal control over the mark up process relevant to
the engagement;
• reconciling the marked up data with the audited consolidated
financial statements of the company dated 9 March 2022;
• evaluating the appropriateness of the company’s mark up of
the consolidated financial statements using the XBRL mark-
up language;
• evaluating the appropriateness of the company’s use of iXBRL
elements selected from a permitted taxonomy and the creation
of extension elements where no suitable element in the permitted
taxonomy has been identified; and
• evaluating the use of anchoring in relation to the
extension elements.
In this report we do not express an audit opinion, review conclusion
or any other assurance conclusion on the consolidated financial
statements. Our audit opinion relating to the consolidated financial
statements of the company for the year ended 31 December 2021 is
set out in our Independent Auditor’s Report dated 9 March 2022.
Use of our report
Our report is made solely to the company’s members, as a body, in
accordance with ISAE (UK) 3000. Our work has been undertaken so
that we might state to the company those matters we are required
to state to them in this 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 work, this report, or for the conclusions we have formed.
Andrew Bond, FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
28th April 2022
Spirax-Sarco Engineering plc Annual Report 2021 239
Corporate Information
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