IMI Plc Annual Report and Accounts 2017 IMI Plc Annual Report & Accounts 2017
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IMI plc Annual Report and Accounts 2017 IMI plc Annual Report & Accounts 2017 Engineering GREAT the IMI Way IMI plc Annual Report and Accounts 2017 Our purpose is to deliver Contents great solutions that tackle the Introduction 02-09 most demanding engineering 02 Chairman’s statement 04 Group overview challenges. We help some of 05 IMI eco-system the world’s biggest industrial companies operate their Strategic 10-49 Review† processes safely, cleanly, Our Chief Executive reviews 2017 and outlines our strategy and the progress efficiently and cost effectively. we are making. 12 Chief Executive’s review We operate through three 16 Our strategic model divisions – IMI Critical 18 Strategic growth priorities 28 Operational review Engineering, IMI Precision 34 Corporate responsibility 44 Measurements and targets Engineering and IMI Hydronic 46 How we manage risk Engineering – and employ Corporate approximately 11,000 people Governance 50-85 in over 50 countries around We introduce our Board, and explain our governance structure the world. and how it operates. 52 The Board 54 Letter from the Chairman 55 Corporate Governance Report 60 Audit Committee Report 64 Nominations Committee Report 66 Directors’ Remuneration Report Financial 86-170 Statements Our financial statements for the year presented in a user-friendly format. 88 Finance Director’s introduction 90 Primary statements 98 Section 1 - Basis of preparation 99 Section 2 - Results for the year 110 Section 3 - Operating assets and liabilities 116 Section 4 - Capital structure and financing costs 140 Section 5 - Other notes 146 Directors’ Report † The Strategic Report on pages 10 to 49, 91, 92 to 93, 95 and 97 has been approved by the 168 Five year summary Board of Directors and signed on their behalf by Mark Selway, Chief Executive, on 1 March 2018. 170 Shareholder and general information 01 2017 highlights Introduction Introduction Adjusted revenue* Up 6% Statutory revenue Up 6% £1,751m £1,751m Adjusted profit before tax* Up 8% Statutory profit before tax Up 9% £224m £181m Strategic Review Segmental operating margin* Up 0 bps Adjusted operating cash flow* Down 11% 13.8% £218m Adjusted basic earnings per share* Up 9% Total dividend for year Up 2% 65.3p 39.4p Corporate Governance » Results in-line with market expectations » Continued good progress on strategic initiatives » Good operating cash flow of £218m supported debt reduction » Adjusted Basic EPS increased 9% Financial Statements » Continued de-risking of global pension liabilities » 2% increase in the full year dividend recommended » Announced acquisition of Bimba Manufacturing * These figures are non statutory alternative performance measures. See pages 98 and 99 for explanations and rationale for using these and the associated definitions and reconciliations to statutory measures. Throughout this Report, unless otherwise stated, references to revenue and profit before tax are on an adjusted basis. References to operating profit, unless otherwise stated, relate to adjusted segmental operating profit. Turn to page 05 IMI eco-system 02 IMI plc Annual Report and Accounts 2017 Chairman’s statement Fixed, focused and ready to grow Our focus remains resolute on building both competitive advantage and shareholder value by delivering great products and continuously improving our customer offering. Well positioned for growth US, collaborative working practices, continuous In 2014 our strategic direction was reset. Since improvement and a commitment to doing business then we have reshaped our business to harness the IMI Way were clearly evident. In October, we held the greatest growth opportunities, significantly our Board meeting at Critical Engineering’s IMI Orton improved our operational performance and created plant in Italy where we saw a much improved a pipeline of innovative, market leading products. factory. I was delighted also to have travelled with As a result, both our customer offering and our Roy Twite to visit our new world-class manufacturing ability to compete in the market place have been operation in South Korea; the visit fully re-inforced significantly enhanced. just how successful the local management team has been, particularly at accessing IMI’s global In 2017 momentum increased. As detailed in the capabilities and deploying them in the region. Chief Executive’s review on page 12, and in the The plant is absolutely deserving of IMI Critical operational reviews on pages 28 to 33, each of our Engineering’s accolade as a top performer in the divisions have well-defined plans which are driving application of Lean. Furthermore, its new IT system real ambition in our operational performance. In is delivering dramatic improvements in its financial Lord Smith of Kelvin addition, each has a developing, refreshed product controls and operational efficiencies. These factors, Chairman portfolio which improves competitiveness in our when combined with the passion exhibited in Value existing markets and provides access to new Engineering, place our South Korean plant at growth opportunities. As repositioning continues, the forefront of the global Critical Engineering some of our key markets have also delivered valve market. improvement, leaving the Group increasingly confident of the long-term growth potential. During the year I also visited our IMI Precision Engineering operations in America and Mexico Towards the close of the year, we announced our with Massimo Grassi. I was impressed with the acquisition of Bimba Manufacturing Company. passion for continuous improvement across every Based in Chicago, Illinois, Bimba is a key player part of our operations and am confident that in the US Industrial Automation market, with a the improving Commercial Vehicle and Industrial very strong cylinder product line (which includes Automation markets in the region will accelerate North America’s leading actuator brand), excellent our progress in 2018. technology and an extensive distributor network. Through the acquisition, we will nearly double the Board and Governance size of our US Industrial Automation business and In early December, we announced the sad death our combined businesses will provide an even of Bob Stack. Bob joined IMI as a non-executive stronger platform from which we can further director in 2008 and was the senior independent develop. I am very pleased to welcome Bimba director and chair of the Remuneration Committee. to our Group. Bob has been a wise counsel to IMI and a major contributor to the Board for nine years. He excelled Our people and culture in his roles as senior independent director and Due to the hard work of our employees across chair of the Remuneration Committee. every area of the Group, we now have a Consequently, Carl-Peter Forster, who has competitive growth platform. On behalf of the been a member of our Board since 2012, Board I would like to thank each and every one was appointed senior independent director and of our employees for their commitment to make Birgit Nørgaard, who has also been a member IMI a truly great company. of our Board since 2012, became Chair of the Our core values and behaviours, which are key to Remuneration Committee. the delivery of our strategy, are well embedded in everything we do. During the several site visits I made this year, including to China, Mexico and the 03 Introduction Strategic Review Corporate Governance Lord Smith presents at a town hall meeting to the employees of IMI CCI Korea, Paju during a visit with Roy Twite, Divisional Managing Director in November 2017. Financial Statements During this year Ross McInnes stepped down and Executive members of IMI’s Board was also from our Board to concentrate on his other recognised. Some areas for improvement were activities. We are grateful for the contribution identified and those will be addressed as we Ross made as Chair of the Audit Committee and progress with our plans for 2018. as a member of our Board, and wish him well for the future. Isobel Sharp succeeded Ross as Chair Dividend of the Audit Committee. Isobel joined our Board Reflecting our continued confidence in the and the Audit Committee in September 2015 and Group’s prospects the Board is recommending has extensive audit, accounting and corporate that the final dividend be increased by 2% to governance experience. 25.2p (2016:24.7p). This makes a total dividend for the year of 39.4p, an increase of 1.8% over A search for new non-executive directors last year’s 38.7p. was commenced in 2017 and resulted in the appointment of Thomas Thune Andersen with Looking ahead effect from 1 July 2018. The search for an Since 2014 we have focused diligently on additional non-executive director is continuing. executing our strategy, despite tougher than I’m also pleased to report that, in accordance expected market conditions. While there is still with best practice recommendations, the Board much to do, the market environment in some of undertook an independent review of Board our businesses is improving and the hard work effectiveness which was carried out by Egon and significant progress which continues to be Zehnder in the latter part of 2017. The review achieved across all areas of our business keeps identified the significant progress which has been us firmly on track to deliver a much improved made in building the core skill-sets on the Board, business and enhanced shareholder value. as required by a global engineering business such as ours. Alignment of the non-executive 04 IMI plc Annual Report and Accounts 2017 IMI eco-system inside Group overview IMI plc is a specialist engineering company that designs, manufactures and services highly engineered products that control the precise movement of fluids. Adjusted revenue Adjusted revenue by geography £648m RoW Western 8% UK Europe Adjusted operating profit 3% 13% North America £84m 18% IMI Critical Engineering is a world-leading Emerging Markets provider of critical flow control solutions 58% that enable vital energy and process industries to operate safely, cleanly, reliably and more efficiently.