IMI Plc Annual Report & Accounts 2018
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IMI plc Annual Report & Accounts 2018 IMI plc Annual Report and Accounts 2018 Our purpose is to deliver Contents great solutions that tackle Introduction 02-09 the most demanding 02 Chairman’s statement engineering challenges. 04 Group overview We help some of the world’s 05 IMI eco-system leading industrial companies Strategic 10-49 operate their processes Review† We review our 2018 performance and safely, cleanly, efficiently provide an update on our strategy and other key aspects of our business. and cost effectively. 12 Chief Executive’s review 16 Our strategic model We operate through three 18 Strategic growth priorities 28 Operational review divisions – IMI Critical 34 Corporate responsibility Engineering, IMI Precision 44 Measurements and targets Engineering and IMI 46 How we manage risk Hydronic Engineering – Corporate 50-79 and employ around 11,000 Governance We introduce our Board, and people in over 50 countries explain our governance structure and how it operates. around the world. 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 80-164 Statements Our financial statements for the year presented in a user-friendly format. 82 Finance Director’s introduction 84 Primary statements 92 Section 1 - Basis of preparation 93 Section 2 - Results for the year 104 Section 3 - Operating assets and liabilities 110 Section 4 - Capital structure and financing costs 134 Section 5 - Other notes 139 Directors’ Report † The Strategic Report on pages 10 to 49, 85, 86 to 87, 89 and 91 has been approved by the Board of 162 Five year summary Directors and signed on their behalf by Mark Selway, Chief Executive, on 28 February 2019. 164 Shareholder and general information 01 2018 highlights Introduction Introduction 3 Adjusted revenue Up 5%1 Statutory revenue Up 9% £1,907m £1,907m Adjusted profit before tax3 Up 12% Statutory profit before tax Up 18% £251m £213m Strategic Review 2 Segmental operating margin Up 20bps Adjusted operating cash flow Up 2% 14.0% £222m Adjusted basic earnings per share3 Up 12% Total dividend for year Up 3% 73.2p 40.6p Corporate Governance » Results ahead of market expectations » Good growth across all Precision Engineering verticals » Critical Engineering sales growth despite continued New Construction Power weakness » Hydronic Engineering margin recovery delivered Financial Statements » Bimba integration progressing well » Adjusted Basic EPS increased 12% » Further reduction of global pension liabilities » 3% increase in the full year dividend recommended » Roy Twite to succeed Mark Selway as Chief Executive All figures are stated on an adjusted basis excluding the effect of adjusting items in the income statement. For other statutory measures see Consolidated Income Statement on page 84. 1 On an organic basis, after adjusting for the impact of disposals and acquisitions and movements in exchange rates, see Section 2.1.1 on page 93. 2 Operating Cash Flow before adjusting items as described in the commentary to the cash flow statement on page 91. 3 Adjusted measures are defined in Section 2.1.1 on page 93. Turn to page 05 IMI eco-system 02 IMI plc Annual Report and Accounts 2018 Chairman’s statement 2018 – another year of important progress We delivered results ahead of market expectations and continued to execute our strategy effectively. Continuous improvement now Throughout the year the Board has had the firmly established opportunity to spend time with our employees on As we enter the final year of our five year plan it is a number of occasions. In April I participated in our an appropriate time to reflect upon the significant senior management conference. This is an annual progress that has been made to date and the work event over 2-3 days involving 300 of our business that remains to be done. leaders from across the Group and is a valuable opportunity to discuss all aspects of the business Our culture has been transformed. IMI is now a with them. Later in the year we also held our October business that, as a matter of course, strives for Board meeting at Bimba’s University Park facility continuous improvement and recognises the near Chicago. Although Bimba joined the Group only significant opportunities that flow from ever in January, the team there has embraced our increasing operational efficiency and productivity. continuous improvement culture with great This mindset is fundamentally important and, enthusiasm and our Lean processes are already now embedded throughout the Group, it will support becoming apparent throughout the business. the delivery of our overall strategic goal – the Lord Smith of Kelvin The Board also took the opportunity to visit IMI CCI creation of long-term, sustainable value for our Chairman RSM in California. During our visit we toured the site shareholders, employees and other stakeholders. and learned about the continuous improvements During the year we improved our health and safety being made across the business as well as its plans performance in a number of areas. The total number to expand the product offering to gain market share. of LTAs (lost time accidents) reduced more than 20% We were also shown remote inspection technologies and following the launch of a targeted campaign, provided by IMI and increasingly accepted by the Group delivered a reduction in hand injuries customers as a means by which the product in the year of over 40%. approval process can be made even more efficient by reducing unnecessary site visits by engineers. The Chief Executive’s review on page 12 and the operational reviews on pages 28 to 33 provide more Board and Governance details on the recent progress made in each of the During the year two new non-executive directors Group’s three divisions. Whilst some of the markets joined, bringing considerable and relevant we serve did offer some support to our performance experience as well as fresh perspectives to the during the year, elsewhere we did face a number of IMI Board. Thomas Thune Andersen joined the economic and trading challenges. Strengthening our Board on 1 July 2018 and also became a member business, and in particular our market competitiveness, of the Nominations and Remuneration Committees. to make the Group more resilient regardless of market Thomas has extensive knowledge and experience conditions, continues to be a key priority. in some of the key sectors we operate in, including In relation to geopolitical uncertainty, we have oil, energy and critical infrastructure. Katie Jackson developed a number of Brexit related contingency also joined the Board on 1 July 2018 and became plans, including building long lead-time inventories a member of the Nominations and Remuneration to mitigate supply chain interruptions in the event Committees. Katie has deep knowledge of the of increased border controls, or delays in obtaining international Oil & Gas market, and significant clearance to and from the UK. corporate finance and business development experience. Further information about Thomas Our people and culture and Katie, and the other members of the Board, Our people around the world remain key to our is set out on page 52 to 53. success and they have contributed significantly We acknowledge the introduction of the 2018 to the progress we have made during the year. UK Corporate Governance Code and during the On behalf of the Board, I would like to thank all year we took appropriate steps to prepare for of our employees for their continued hard work compliance with the new requirements which and commitment. came into effect from 1 January 2019. 03 Introduction Strategic Review Corporate Governance Lord Smith receives a demonstration of remote inspection technology at IMI CCI RSM, which allows customers to access the facility Financial Statements remotely to inspect equipment during assembly, test and final inspection. In November 2018, we announced the Under Mark’s leadership IMI’s market position Precision Engineering and, since 2011, Divisional appointment of Birgit Nørgaard as non-executive has been significantly enhanced. The Group’s Managing Director of IMI Critical Engineering. director with responsibility for workforce infrastructure has been modernised, its The Board is delighted to appoint Roy as IMI’s engagement. This important role, which is in operational performance radically improved next Chief Executive. He is a strong and line with the revised Code’s recommendations, and its customer offering refreshed. As a result, experienced successor who has been pivotal will build on the various mechanisms we IMI is now a much more robust and sustainable to the Group’s continued success. He has already operate to ensure we continue to business. On behalf of the Board I would like extensive operational experience, deep engage effectively with our people. to thank Mark for his leadership, drive and knowledge of our core markets and commitment. He has made a significant outstanding leadership qualities. We have also revised our corporate governance contribution to the Group, and while fully framework and the business cycles for the Board respecting his decision to return home to retire, Dividend and its committees to reflect the 2018 Code and we are very sorry to see him go. We wish him Reflecting the continued confidence in the appropriate training has been provided to the Board. well in his retirement back in Australia. Group’s prospects, the Board is recommending an increase in the final dividend of 3% to 26.0p Chief Executive succession Roy was appointed following a comprehensive (2017: 25.2p) making a total dividend for the global search process that included both internal Mark Selway will be stepping down as Chief year of 40.6p, an increase of 3% over last and external candidates. Roy joined IMI in 1988 Executive at the Annual General Meeting in May year’s 39.4p.