### IMI plc Annual Report & Accounts 2022 ## Breakthrough ## Engineering ## for a better ## world. ## 01Introduction Strategic Report Corporate Governance Financial Statements | Introduction | Strategic Report 06 | Corporate Governance 96 | Financial Statements 151 | | --- | --- | --- | --- | | IMI at a glance 02 | Chief Executive’s review 06 | Board of Directors 96 | Independent Auditor’s Report 152 | | Chair’s statement 04 | Our purpose-led strategy 10 | Chair’s Governance letter 98 | Primary statements 162 | | | Key Performance Indicators 12 | Corporate Governance Report 100 | Notes to the consolidated | financial statements 166 Our people strategy 14 Audit Committee Report 114 Subsidiary undertakings 229 Creating value 16 Nominations Committee Report 120 Five year summary 234 Operational reviews 26 Statement from the Chair of the Remuneration Committee 124 Shareholder and general Financial review 32 information 236 Annual Directors’ Stakeholder engagement 38 Remuneration Report 126 s.172 statement 43 Directors’ Report 146 Creating a Better World 46 Statement of directors’ Responsible business 52 responsibilities 149 Empowering people 56 Sustainable solutions 66 Climate action 70 TCFD reporting 80 Non-financial information statement 84 How we manage risk 86 Principal risks and uncertainties 88 Viability statement 94 ## 02 IMI plc Annual Report & Accounts 2022 ## IMI at a glance ## We are a specialist engineering ## company operating in fluid and motion ## control markets. We combine our deep ## engineering knowledge with strong ## applications expertise to develop ## solutions for the most acute industry ## problems. We help our customers ## become safer, more sustainable ## and more productive. ## 03Introduction Strategic Report Corporate Governance Financial Statements ## Over 10,000 people ## 2022 highlights ## in 50 countries Revenue ## £ ## 3 divisions ## 10% 2,049m 2021: £1,866m ## 5 sectors * Adjusted operating margin Statutory operating margin ## 80bps 17.8% 120bps 14.6% ## 28 brands 2021: 17.0% 2021: 13.4% * Adjusted profit before tax Statutory profit before tax ## One big team with ## £ £ ## 13% 346m 17% 285m ## a unifying purpose | | 2021: £307m | | | 2021: £245m | | | --- | --- | --- | --- | --- | --- | | | | * | | | * | | Adjusted basic earnings per share | | | Statutory basic earnings per share | | | | | | 15% | 105.5p | | 19% | 87.6p | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 2021: 92.0p | | | 2021: 73.5p | | Revenue by | Revenue by | | | | | | | | geography | division | * Please refer to Note 3 for definitions of the Group’s Alternative Performance Measures. | | | | | | 4 3 3 » 10% sales growth, 13% adjusted profit before tax growth 1 » Adjusted earnings per share 15% higher than 2021 1 » Adjusted operating margin up 80bps 2 » Statutory operating margin up 120bps 2 » Statutory profit before tax increased 17% 1 Europe 43% 1 IMI Precision Engineering 48% » Resilient order book up 14%, order book in IMI Critical Engineering up 18% 2 Americas 30% 2 IMI Critical Engineering 35% 3 Asia Pacific 22% 3 IMI Hydronic Engineering 17% » £52m of Growth Hub orders, pipeline growing 4 Middle East & Africa 5% » Completed three strategic acquisitions in attractive growth markets » Record employee engagement scores, improved health & safety » Proposed final dividend of 17.4p, increased by 10% ### Gender mix Gender mix all ### executive employees Total Recordable Incident Employee engagement Frequency Rate (TRIFR) | 1 1 | 38% | | | | 3% | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 0.35 | | | 80% | | | | | | | 2021: 0.56 | | | 2021: 77% | | | CO | 2 intensity | | | Women in management | | | 2 2 | 1 Female 3 / 43% | 1 Female 3,171 / 29% | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | 9% | 2.09 | | 1% | 22% | | | 2 Male 4 / 57% | 2 Male 7,820 / 71% | | | | | | | | | | | | 2021: 2.30 | | | 2021: 21% | IMI plc Annual Report & Accounts 202204 ## Chair’s statement ## 2022: ## delivering our ## strategy ## Our continued focus on ## customer satisfaction, ## complexity reduction and ## market-led innovation ## is delivering sustainable, ## profitable growth. ### Lord Smith of Kelvin ### Chair Introduction Strategic Report Corporate Governance Financial Statements 05 ## Culture, values and purpose There is no doubt that our unifying purpose **Breakthrough Engineering for a better world**, along with our inclusive, collaborative, and customer-focused culture, has made a significant contribution to our strategic and financial progress in recent years. I am therefore very pleased to report record employee engagement levels during 2022. For further information, please see page 58. ## Environmental, Social & Governance (ESG) Our Better World purpose places ESG at the heart of our strategy. Our ESG objectives are of critical importance to our ambition to deliver sustainable, profitable growth – many of our solutions help customers improve energy efficiency, sustainability, and safety. Whilst there is always more to be done, I am very proud of the significant progress we have made delivering against these objectives in the year. Particular highlights include improved CDP scores and being acknowledged with the London Stock Exchange Green Economy Mark, which awards companies that generate more than 50% of total annual revenues from products and services that contribute to the global green economy. We have also launched our new sustainability framework, Creating a Better World. This includes further details on our improved sustainability governance structure, an assessment of Scope 3 emissions and our commitment to net zero by 2050. We also took action to improve our climate risk management processes in the year. Working with our principle insurer, Zurich, we have performed a detailed review of the physical risks our largest sites face due to climate change, allowing us to begin implementing mitigating actions and better plan for the future. For further information, please see pages 46 to 83. ## Strategy It has been three years since we launched our purpose-led strategy in November 2019. Since then, we have made excellent progress towards delivering our ambition of sustainable, profitable growth and have seen significant improvements in our key financial metrics. We have done this through a continued focus on customer satisfaction, complexity reduction and market-led innovation – evidence of which can be found throughout this Report. ## M&A IMI completed three strategic acquisitions in 2022, as we continue to expand into attractive growth markets. Two of these acquisitions were in IMI Precision Engineering, where we acquired Bahr Modultechnik ('Bahr'), the German linear motion specialist and CorSolutions LLC ('CorSolutions'), a leading innovator in micro-fluid flow control. We also completed the acquisition of Heatmiser UK Ltd ('Heatmiser'), a leading UK smart thermostatic control manufacturer. Heatmiser will form part of IMI Hydronic Engineering. As the teams integrate into IMI, I am delighted to add my welcome to them and we look forward to an exciting future together. Additional commentary on the transactions can be found in the Chief Executive's review on page 6 of the Annual Report – or on our corporate website. ## Divestment of Russian subsidiary IMI strongly opposes the invasion of Ukraine and fully supports all sanctions. On 4 March 2022 we ended all new business and international deliveries to Russia and on 27 May 2022 we completed the divestment of our Russian subsidiary to local management. ## Creating value – for all Considering the interests of all our stakeholders is of fundamental importance to us, whether they be employees, customers, our wider communities, or our investors. Throughout this Report, you will read about how we address these different groups and advance our strategy with all stakeholders considered. For more information about our stakeholders and our Section 17(1) statement, please go to pages 40 and 43 respectively. ## The Board In what has been a year of great progress for the Group, I have appreciated the experience and counsel of my Board colleagues as we continue to deliver our purpose-led strategy and create value for all our stakeholders. Inclusion & Diversity remains a key priority for the Group and I am proud to lead a Board that recognises the importance of strong female representation. We have met the Parker Review requirements for ethnic minority membership since 2021 and the Board will continue its focus on Inclusion & Diversity in the coming years. There were no changes to the structure of the Board or Committees during 2022. ## Dividend The Board is recommending a 2022 final dividend of 17.4p per share (2021: 15.8p per share). Payment will be made on 12 May 2023 to shareholders on the register at the close of business on 11 April 2023. ## People At IMI we are proud to employ the best people and they remain key to the successful delivery of our purpose-led strategy. On behalf of the Board, I would like to thank them all for their continued commitment, dedication and hard work. **Lord Smith of Kelvin** Chair IMI plc Annual Report & Accounts 202206 ## Strategic Report ## Chief Executive’s review ## We continued to make significant ## progress in 2022, delivering our ## third consecutive year of profit ## and margin growth. ### Roy Twite ### Chief Executive ## 07Introduction Strategic Report Corporate Governance Financial Statements We are delivering Value Today through ## Overview a focus on customer satisfaction ## Our purpose-led strategy, Breakthrough Investment case and complexity reduction; and Value Engineering for a better world, focuses Tomorrow by developing creative ### on solutions that help our customers and innovative solutions to the » Purpose-led strategy ### become safer, more sustainable and greatest challenges our customers Breakthrough Engineering more productive. We are aligned to and society face. ### for a better world attractive growth markets and have ### delivering improved Customer satisfaction remains at the a resilient portfolio that is supported by ### heart of our strategy. We continue to margins and sustainable, long-term global macroeconomic trends. ### invest in our sales and customer service profitable growth This, combined with our continued focus teams and are developing digital tools to on customer satisfaction, market-led improve our service levels. This continued ### innovation and complexity reduction » Better World purpose focus is reflected in recent customer ### is creating real value. In our third aligns the Group to satisfaction results, with all three divisions consecutive year of profit and margin ### attractive growth markets, meeting industry leading benchmarks. growth we delivered £52m of Growth ### supported by global macro Hub orders (2021: £23m) and completed We have continued to identify and ### trends three acquisitions, each in attractive execute opportunities to reduce growth markets and aligned with complexity and drive more efficient, ### » Well-balanced portfolio, our strategy. resilient operations. Our restructuring ### bound by world-class programmes delivered £13m of benefits IMI delivered another strong financial ### in the year. Significant projects are engineering capabilities performance in 2022, generating growth ### expected to be largely complete in 2024, that offers through-cycle in a challenging environment. Organic ### although the Group will always seek and resilience revenues increased by 4% and organic execute projects that improve its adjusted operating profit increased by competitive position. ### 8%. All three divisions delivered increased » Strong balance sheet ### organic revenue and adjusted operating offering strategic flexibility Initiatives focused on reducing the margins in the year. We continue to ### complexity and increasing the resilience alongside disciplined manage our supply chain well to support ### of our supply chains have also been financial objectives our customers. Pricing and efficiencies progressed. We continue to consolidate have offset inflation in the year. Adjusted spend with key suppliers, strengthening ### » Differentiated basic earnings per share increased 15%. relationships and reducing complexity, ### environmental profile – whilst dual sourcing where appropriate Our purpose-led strategy Breakthrough ### our solutions enable energy to provide more supply chain resilience. Engineering for a better world continues ### efficiency, sustainability, to accelerate business performance, Our market-led innovation model ### and safety driving sustainable, profitable growth continues to deliver Value Tomorrow. across the Group. We are focused on Investments in business development serving ‘Better World’ markets that resource and Growth Hub projects are Find out more: have sustainable growth characteristics www.imiplc.com/investors/investment-case seeing tangible benefits. Our new and where our proven engineering products solve key industry problems, expertise can develop solutions for helping our customers become safer, the most acute industry problems. more sustainable and more productive. Our Growth Hub pipelines remain robust, We serve a number of key sectors, with exciting early-stage projects actively including Industrial Automation, Life progressing across all three divisions. Sciences, Transportation, Energy and Indoor Climate. Industrial Automation benefits from our customers’ need to automate in order to improve productivity. Life Sciences remains a high growth area. Regulatory requirements drive our Transportation customers’ need for improved emissions and safety solutions. There is strong momentum in our Energy end-markets driven by the need for emissions reductions and supply security. Our energy saving solutions support reductions in energy usage and regulatory compliance within Indoor Climate. 08 IMI plc Annual Report & Accounts 2022 ## Chief Executive's review We completed three strategic acquisitions in 2022: - » Heatmiser UK Ltd ('Heatmiser'), a leading smart thermostatic control manufacturer, in December 2022. Heatmiser extends IMI Hydronic's energy saving product portfolio and provides the opportunity to accelerate our growth in smart buildings. - » Bahr Modultechnik GmbH ('Bahr'), the German linear motion specialist, in June 2022. As part of the Industrial Automation sector within IMI Precision Engineering, Bahr's unique electric actuation systems significantly expand our product portfolio, allowing us to deliver innovative automation solutions to customers regardless of power source. We see a great opportunity to scale Bahr's product portfolio across our existing customer base. Bahr also provides growth into less cyclical markets, such as Pharmacy Automation, increasing the resilience of the division and Group. - » CorSolutions LLC ('CorSolutions'), a leading innovator in micro-fluid flow control, in October 2022. Part of the Life Sciences sector within IMI Precision Engineering, CorSolutions brings unique microfluidic capabilities to our leading product portfolio within the attractive analytical instrument market. We see a significant opportunity to leverage OEM relationships and scale the existing CorSolutions product portfolio and are excited to incorporate its talented R&D team into our Growth Hub programme. These acquisitions offer the potential for significant synergies, bring strategic capability to our business and further move us into attractive Better World growth markets. All three acquisitions meet our strict M&A criteria and are expected to deliver returns in excess of IMI's cost of capital by the end of year three. We have retained senior individuals in all three businesses, who are now actively contributing to IMI's purpose-led strategy. ## Environmental, Social & Governance (ESG) Our purpose, **Breakthrough Engineering for a better world**, continues to drive our actions and create real energy across our organisation. This year we conducted an in-depth ESG materiality assessment in collaboration with customers, investors and employees. This fed into the development of our Board approved ESG strategy and determined our sustainability pillars: **1. Empowering people:** we will develop and empower people to make an impact and create a better working world. In addition to the regulatory guidelines on Inclusion & Diversity, we have selected women in management as our key metric for improving gender balance in leadership roles at IMI. We measure this population to build the succession pool for leadership roles. In 2022 it was 21%, up from 21% in 2021, and we are targeting 25% in 2020. Ensuring all our employees are safe at work is central to our strategy and culture and we have a continued focus on identifying and reducing workplace hazards. Our Total Recordable Incident Frequency Rate (TRIFR) improved 18% from 0.56 to 0.15 in the year and, whilst this is good progress, we remain committed to the ambition of an accident-free workplace. Our continued focus on empowering people and on creating an inclusive, diverse, and safe workplace is being recognised. Our annual employee survey, One Big Voice, delivered an employee engagement score increase from 77% in 2021 to 80% in 2022. **2. Sustainable solutions:** we will engineer solutions that help our customers become safer, more sustainable and more productive. IMI's solutions support our customers' products and operations and often directly contribute to the delivery of their carbon reduction targets. When considering investments, we ensure the impact on IMI's overall ESG positioning and performance are a prime consideration. IMI sees a natural link between pursuing our ESG objectives with vigour and our wider ambitions for improved growth and profitability. Many of our best growth opportunities are supporting customers to develop solutions for a zero carbon future. **3. Climate action:** we will play our part to address climate change by minimising the environmental impact of everything we do. We reduced our CO₂ intensity by 9% in 2022. All divisions are progressing actions that will contribute to our goal of halving our factory CO₂ intensity by 2010, and IMI is committed to achieving net zero Scope 1 & 2 emissions by 2040. Having determined our Scope 3 emissions, we are now building our action plans to meet our commitment to reduce these by 25% by 2010 and be net zero by 2050. **Responsible business underpins everything we do** - doing the right thing is at the heart of our IMI. More information about our ESG credentials and initiatives, including our ESG materiality impact assessment, policies and practices, can be found on page 46 of the Annual Report and on our website: www.imiplc.com. ## People We have made tremendous progress towards delivering our purpose **Breakthrough Engineering for a better world** in 2022. This would not be possible without the continued support, commitment and contribution from all our people. Developing our talent to have a highly engaged workforce is one of the key enablers of our strategy. By acting as 'One Big Team', we are solving some of the world's most complex problems and this is something of which we can all be proud. ## Outlook Based on current market conditions we expect 2021 full year adjusted basic EPS to be around 111p. This guidance assumes foreign exchange rates will create a tailwind of 2.2% on sales and profits, a net interest charge of £25m and a tax rate of 21%. We remain confident in delivering sustainable, profitable growth and meeting our Group growth targets and operating margin target of 20% through the cycle over time. **Roy Twite** Chief Executive ## 09Introduction Strategic Report Corporate Governance Financial Statements ## Executive Committee Roy Twite Daniel Shook Chief Executive Finance Director Beth Ferreira Jackie Hu Divisional Managing Director Divisional Managing Director IMI Precision Engineering IMI Critical Engineering 1 Phil Clifton Liz Rose Divisional Managing Director Group Human Resources IMI Hydronic Engineering Director Louise Waldek Group General Counsel and Company Secretary 2 1 IMI Hydronic Engineering - Olkusz, Poland 2 IMI Precision Engineering - Palézieux, Switzerland 3 IMI Critical Engineering - Cagliari, Italy 3 IMI plc Annual Report & Accounts 202210 ## Our purpose-led strategy ## Breakthrough Engineering ## Our purpose ## for a better world ## Where we operate ### We operate in fluid and motion control markets. We are aligned to attractive growth ### markets and have a portfolio that is supported by global macro trends. This underpins ### our delivery of long-term, sustainable, profitable growth. ### IMI Precision IMI Critical IMI Hydronic ## Divisions ### Engineering Engineering Engineering ### Industrial ### Automation Energy Indoor Climate Turn to page 16 Turn to page 22 Turn to page 24 ## Key sectors ### Life Sciences Turn to page 18 ### Transportation Turn to page 20 ## Values ### Customer One big teamPlaying to win Integrity ### intimacy ## 11Introduction Strategic Report Corporate Governance Financial Statements ## How we create value ### We combine our deep engineering knowledge with strong applications ## Our strategy expertise to develop solutions for the most acute industry problems. We ### help our customers become safer, more sustainable, and more productive. ### Customer Market-led Complexity ### satisfaction innovation reduction We provide world-class Our Growth Hub and We continue to simplify engineering expertise, and selective M&A develops and improve our global ## Pillars excellent customer service to market-leading innovation manufacturing footprint all our customers alongside to support our customers and demonstrate a resilient diverse sector knowledge with their most challenging supply chain to support our and know-how. We have and complex engineering customers. market-leading brands. problems. ### Sustainability Talent and Digital ### engagement We focus on supporting the Developing and retaining We actively develop digital sustainability goals of our our key talent, attracting tools to improve our service ## Enablers customers as well as ensuring high quality diverse talent, to customers. we improve our sustainability as well as having a highly through our ESG initiatives. engaged workforce enables us to deliver excellent service to our customers. ### Customers Employees Investors Our engineering solutions We support all our We continue our track support our customers employees and continue record of enhanced value most complex problems. to improve engagement to creation and delivery for record levels. shareholders. ## Our ## stakeholders ### Suppliers Community and Government and ### environment regulators Our supply chain We support our local We comply with the partnerships communities and continue applicable laws and demonstrate long-term to reduce our impact on the regulations. trust built over time. environment and support our customers to do the same. ## Measuring our Our Key Performance Indicators measure our value creation for our ### stakeholders and are summarised on pages 12 and 13. ## performance IMI plc Annual Report & Accounts 202212 ## Key Performance Indicators ## The Key Performance Indicators (KPIs) set out below represent financial and non-financial ## measures which are integral to the delivery of our strategy and are used to track progress. ## In 2022, we have changed the employee engagement KPI to be based on our anonymised ## individual survey – One Big Voice. Linked to remuneration ## Total Recordable Employee CO 2 intensity Organic sales * ## Incident Frequency engagement growth ## Rate Gross tCO 2 e Per | 200,000 | | per 1,000 | | | --- | --- | --- | --- | | hours | % | hours worked | % | | 1 | 100 4 | | 10 | 0.8 75 3 5 0.6 +7 +4 50 2 0 -4 0.4 25 1 -5 0.2 0.57 0.56 0.35 77 80 2.42 2.30 2.09 20212020 2022 2021 202120202022 2022 20212020 2022 | Why is this a KPI? | Why is this a KPI? | Why is this a KPI? | | | Why is this a KPI? | | --- | --- | --- | --- | --- | --- | | The health and safety of all | The engagement of our | Our purpose Breakthrough | | | Delivering consistent growth | | who work at IMI is paramount. | employees is key to retaining | Engineering for a better world | | | is an important part of building | | Ensuring a safe working | the existing skills and | drives our strategy and our | | | sustainable value for | | environment is closely linked | promoting and attracting | ambition, including our | | | shareholders. | | to our business success, | employees who bring new | commitment to halve our total | | | | | including attracting and | ideas and capabilities. | CO | 2 intensity by 2030 (based | | Definition | | retaining the best talent. | | on 2019 Scope 1 & 2 emissions). | | | Organic sales is stated at | | | Definition | | | | constant exchange rates and | | Definition | We carry out an annual | Definition | | | excludes the incremental effect | | We measure our progress | anonymised survey of | We measure our progress in | | | of acquisitions and disposals. | | in this area by tracking the | employees - One Big Voice - | this area by tracking our total | | | For 2022 that means we are | | number of recordable | and use the response to the | CO | 2 intensity. This is calculated | | adjusting for the acquisitions | | work-related injuries per | question ‘I see my business | by looking at the ratio of total | | | of Adaptas Solutions (acquired | | 200,000 hours worked (TRIFR | (IMI) as a great place to work’ | Scope 1 & 2 emissions (tonnes | | | in December 2021), Bahr | | rate). See page 65 for details | as a gauge of employee | CO | 2 e) per 1,000 hours worked. | | Modultechnik (acquired in | | of the calculation. | engagement. | See page 74 for details of the | | | June 2022), CorSolutions | | | | calculation. | | | (acquired October 2022) | | Performance | Performance | | | | and Heatmiser (acquired | | In 2022 our TRIFR rate | We continue to maintain a | Performance | | | December 2022) and the | | reduced to 0.35 with no | high percentage of employees | In 2022 our total CO | | 2 intensity | disposals of our InterAtiva | | fatalities, reflecting the | that see IMI as a great place | reduced to 2.09, reflecting the | | | subsidiary (disposed in July | | Group’s continued focus | to work. | Group’s continued focus on | | | 2021) and our Russian | | on identifying and reducing | | identifying and delivering on | | | subsidiary (disposed in | | workplace hazards. | | projects to reduce our carbon | | | May 2022). | | | * In 2021 this metric presented | | | | | emissions. results to the question ‘I would Performance recommend my business (IMI) as | a good employer to friends and | Organic sales growth was | | --- | --- | | family’ sourced via a group | 4% in 2022 reflecting the | | worksheet completed as part of | continued delivery of our | | the IMI Way Day activities rather | unifying purpose-led strategy | than an anonymised individual Breakthrough Engineering for survey. 2021 results have been a better world. restated to reflect the updated definition. There was no anonymised survey in 2020. ## 13Introduction Strategic Report Corporate Governance Financial Statements ## Our KPIs have been designed to drive the Group towards meeting our strategic ## objectives outlined in our business model. See pages 10 and 11 for details. The ## Alternative Performance Measures used as Key Performance Indicators (organic sales ## growth, adjusted operating profit, adjusted earnings per share) are defined in Note 3. Linked to remuneration Linked to remuneration ## Adjusted Cash conversion Return on invested Adjusted earnings ## operating profit capital per share £m % % Pence 400 125 20 125 100 100 300 15 | | 75 | | 75 | | --- | --- | --- | --- | | 200 | | 10 | | | | 50 | | 50 | | 100 | | | | | | | 5 | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 25 | | | | | | 25 | | | | | 284.7 318.1 | | 363.8 80 | | 117 86 | | | 13.212.3 | 12.7 105.5 | | 79.7 92.0 | | | | | 20212020 2022 | | | | 20212020 2022 | | 20212020 2022 | | | | 20212020 2022 | | Why is this a KPI? | Why is this a KPI? | Why is this a KPI? | Why is this a KPI? | | --- | --- | --- | --- | | Growing our profits will | Cash generation supports | The measure provides an | Creating consistent long-term | | ultimately generate value | investment in our business | indication of IMI’s ability to | value for shareholders. | | for our shareholders and | and enables the Group to | deploy capital effectively. | | | create more opportunity | provide returns to shareholders | | Definition | | to invest further. | through dividends. Strong cash | Definition | Adjusted profit after tax | | | generation also ensures a | Adjusted operating profit after | divided by the weighted | | Definition | strong balance sheet, giving | tax divided by average capital | average number of basic | | The Group’s operating profit | customers and suppliers | invested. Capital invested is | ordinary shares. | | before the adjusting items | confidence in the future of | defined as net assets adjusted | | | described in Note 3, which | | to remove net debt, derivative | Performance | the Group. | ensures a consistent basis | | assets/liabilities, defined | Adjusted earnings per share | | --- | --- | --- | --- | | for comparison. | Definition | benefit pension position (net | increased in the year to 105.5p. | | | Cash conversion is the adjusted | of deferred tax) and to reverse | | | Performance | operating cash flow as a | historical impairments of | | | Adjusted operating profit | percentage of the adjusted | goodwill and amortisation | | | improved in 2022 reflective | operating profit. | of acquired intangible assets. | | | of the commercial and | | See the calculation on page 36. | | | operational focus during | Performance | | | | the year. Adjusted operating | Cash conversion was again | Performance | | | margin improved 80bps | robust in 2022 at 80% | The Group’s return on invested | | | to 17.8%. | supported by continued | capital declined in 2022 to | | | | focus on working capital | 12.7%, reflecting the impact of | | | | management. | recent acquisitions that have | | increased our invested capital at the year end though we do not see the full year benefit of the profits until 2023. Return on invested capital and adjusted earnings per share are performance targets for the 2021, 2022 & 2023 IIP. CO 2 intensity is a performance target for the 2022 & 2023 IIP. See page 131 for further details. ## 14 IMI plc Annual Report & Accounts 2022 ## Our people strategy ## Our people are critical to deliver our purpose of ## Breakthrough Engineering for a better world. Our ## people strategy focuses on talent development, ## employee engagement and creating a culture that ## will enable us to successfully deliver our strategy ## and purpose. ## Culture | Breakthrough Engineering for a better | Workplace, where all our employees | Growth – we are engaging more people | | --- | --- | --- | | world inspires how we think, feel and act. | come together to collaborate and | from right across the business and | | It is the unifying force that creates a | communicate. We are bringing our | externally through our entrepreneur | | culture where our people feel empowered | culture to life through storytelling | network to drive our growth accelerator | | to identify and solve customer problems, | and we are embracing social media | programme, Growth Hub. We appointed | | and are supported to grow a fulfilling | channels to reach future talent. | divisional growth accelerator leads | | career and do the right thing always. | The 2022 One Big Voice results | who take the culture and learnings | | | showed a good improvement across | from Growth Hub into our local sites. | Through 2022, we have continued to our engagement metrics. These and other activities encourage invest in, protect and nurture our culture. all our people to see and own their We have introduced a new engagement IMI Way Day – is a core driver of part in our growth agenda. | metric, which measures individual | engagement for our business and an | | | --- | --- | --- | | responses to the question ‘I see my | essential ingredient of a purpose-led | Wellbeing – we focus on four pillars | | business (IMI) as a great place to work.’ | business. The event sees every site | of wellbeing: mind, body, financial and | | In 2022, 80% of our people responded | and every team member down tools | social. With mental health now a global | | favourably, an increase of 3%. Further | and come together for one day and | issue, supporting our employees and | | information about this KPI can be found | celebrate their part in creating a Better | their families is a top priority. We | | on page 12. We are pleased that this | World for our customers, our people | launched our new Employee Assistance | | increased score reflects progress across | and our communities. We take time | Programme (EAP) globally at the | | our priorities. | out to pause, reflect and talk to each | beginning of June. It provides free, | | | other about what really matters, as | professional counselling for any work | | Health and Safety – we are intent on | well as giving something back to our | or personal issue, as well as an online | | creating a safe environment for all our | local communities. | resource hub with access to articles, | | people, and a willingness to speak-up | | checklists and advice on a wide range | Inclusion & Diversity (I&D) – having when they observe unsafe behaviours of topics. The EAP dovetails with our a diverse culture that reflects the underpins this ambition. In the 2022 One wider wellbeing support, including societies we operate in and where all Big Voice employee survey, 79% of people mental health first aiders at some sites our people can be themselves is central say they now feel comfortable and Change Champions who advocate to our Better World ambition. This year challenging any behaviour that may wellbeing and lead activities such as we focused on embedding I&D into key be unsafe (2021: 70%). We also rolled finance clinics, company challenges and business practices. We have introduced out a global, immersive training session recognition of events such as World diverse recruitment practices, called ‘Hey! That’s Not OK!’ to tackle Mental Health Day. encouraged leaders to listen more inappropriate behaviours and reinforce to employees across all levels, and Pay and benefits – we continue to ensure a speak-up culture across IMI. | | promoted and championed I&D through | pay, benefits, and wellbeing propositions | | --- | --- | --- | | Communications and engagement | education, communication and role | are competitive and fair. Pay is typically | | – clearly articulating our strategy | modelling. We are strengthening | reviewed on an annual basis, with | | and purpose is key to people’s sense | relationships with external engineering | increases aligned to an individual’s | | of connection and engagement. | networks in order to attract candidates | level of skills and experience as well | | Throughout 2022 we shared more about | from different backgrounds. Data | as external factors like market | | who we are and what we do and | collection is critical to our progress | competition and inflation. | | continued to build on our success with | and we are improving how we measure | | | our internal communications platform, | gender and ethnicity pay gaps. | | IMI Critical Engineering – Piacenza, Italy ## 15Introduction Strategic Report Corporate Governance Financial Statements ## Talent | Given the challenges all companies | recruitment professionals. We are also | multi-language capability. We have rolled | | --- | --- | --- | | face in attracting and retaining the | digitalising recruiting in order to speed | out development programmes for our | | best people, the Executive team made | up the hiring process and improve | top talent and aligned leadership | | talent its priority for 2022. Focus was | the candidate experience. This further | development to our Better World growth | | in three areas: Attraction, Visibility | supports talent attraction, particularly | ambitions. We partnered with the | | and Development. We are developing | in our more challenging geographies. | International Institute for Management | | and executing a strong internal | | Development (IMD), to deliver a bespoke | Talent visibility – we have improved succession pipeline while supplementing management programme to 50 of our performance management by this with high calibre external top leaders. A second cohort of high- emphasising career aspirations, candidates, particularly for bringing potential talent is also progressing mobility and development conversations. in new capabilities to support our through our successful Catalyst Our performance ratings assess talent growth agenda. programme, seeing excellent results as a combination of performance and and engagement. The IMI Graduate Talent attraction – we aim to attract potential, reflect delivery of results and Programme remains a key talent pipeline, high quality, diverse talent, through identify talent that will help us to win. with 40 graduates joining us as part of an impactful candidate experience. We had great success in 2021 with the 2022 intake; retaining an equal Significant progress has been made internal promotions into leadership roles, gender balance remains a priority and in 2022. We enhanced the corporate and so in 2022 our focus was on talent we continue to diversify the programme website and social media platforms, attraction to increase our pipeline. into broader disciplines. bringing our purpose and culture to life Talent development – this is key for both and demonstrating IMI to be an employer engagement and retention of our best of choice. Our testing and interview people. We have invested in e-learning processes have been standardised and content that is globally accessible with we provided unconscious bias training for ## 16 IMI plc Annual Report & Accounts 2022 ## Creating value ## Industrial Automation ## We’re co-innovating with our ## customers and leveraging digital ## technology to create the smart, ## safe, sustainable factories, ## production lines and warehouse ## operations of the future. Ever since the birth of the assembly line at the beginning of resources. We’ll see even higher value with the power of the 20th century, automation has gone hand-in-hand with machine learning, so that automated systems will know commercial success, to the point that the businesses that didn’t exactly what needs to happen and when. The long-term vision automate soon struggled. We’ve worked in partnership with is production shop floors are automated with our technology, customers for many years, optimising their automated processes so that people can spend time and energy on the tasks that so they stay competitive. They come from a range of industries machines cannot perform. around the world, from food and beverage to automative, material handling to warehouse automation and packaging. Our ## Freeing up humans to do things that high-performance valves and actuators keep their production ## a machine can’t lines and warehouse operations moving, increasing productivity, improving efficiency and reducing the occupational hazards In the wake of COVID-19, our customers are finding that associated with heavy equipment or dangerous environments. there aren’t enough people who want to do the repetitive and sometimes dangerous work, so they’re accelerating automation ## Machines that make their own decision s out of necessity. With the contraction in the labour market, it makes sense to deploy their skilled people for the highest We service customers in sectors experiencing radical change and value work, avoiding manual work like component testing and a desire to do things more sustainably so there’s great openness warehousing. Robots are already becoming adept at even the to new technology and solutions. It’s a tremendous opportunity smallest tasks, particularly when they have the latest vision for growth in an area that our employees and our customers recognition technology. Advances in spacial awareness software care deeply about. mean robots are even now operating on shop floors, safely moving Some of our products are already part of a digital ecosystem machinery across uneven floors and around busy colleagues. that can create whole new levels of visibility from data. All this creates opportunities for us to deploy our products and This allows for more efficient decision-making in real time engineering expertise to help our customers automate more to reduce energy consumption and optimise the use of other and more of the most repetitive tasks and operations. ## 17Introduction Strategic Report Corporate Governance Financial Statements ## Bringing energy savings ## to a robotics-assisted ## hydroponics farm Singrow in Singapore grows fruit including strawberries vertically indoors. The founders approached us for help reducing their high energy and water consumption. We used our expertise with sensors, Norgren-cloud and edge computing to visualise data in a feedback loop so they can run the farm from their mobile phones. ## Key automation facts: » By cooling the growing racks rather than the whole warehouse and reflecting LED light to maximise efficiency we reduced energy consumption by 40% when compared to traditional vertical farming methods » Better use of resources helped improve their yield-to-cost ratio (total yield over labour, electricity, land and water costs) so sales prices can be more competitive » Our solution enables the ability to grow food productively in urban areas instead of the suburbs, which reduces the number of miles food travels and the carbon footprint “As an agri-tech startup with our core technology from plant science, we have to work with competent engineering partners, who can help us develop our precise agriculture design. Norgren has always acted swiftly and professionally. With their strong engineering team and global network, Norgren not only developed a prototype for us, but a solution with new possibilities.” Shengjie BAO CEO and founder ## Going for growth Singrow Our Growth Hub approach is a powerful asset, opening doors “Customers don’t buy technology, they buy for us to work with new and existing customers, start-ups and solutions. The goal is to replace manual work with academic institutions to overcome some of the most critical higher value work at the same time as reducing challenges the world faces and to fuel positive social change errors and wastage. The possibilities are endless.” and economic expansion. With agile teams leveraging everyone’s competence and our collaborative problem-solving mindset Alex Tham Regional Managing Director, Rest of Asia we can act as true engineering partners. And providing the IMI Precision Engineering sustainable solutions our customers are looking for, keeps us at the forefront of our industry and in lockstep with our ambitions for a Better World. “There’s huge customer demand to automate sustainably. That’s what we know and what we’re great at and we’re working with our customers across that whole journey. It marries up with our purpose of Breakthrough Engineering for a better world,” says Liam Stanton, Growth Hub Director. ## Breakthrough ## Engineering ## for a better ## world. ## 18 IMI plc Annual Report & Accounts 2022 ## Creating value ## Life Sciences ## We empower our customers ## to digitise and automate their ## processes to diagnose disease ## early and support highly tailored, ## patient-focused critical care. We’re pushing technology to the limit in Life Sciences. We’ve ## What are the megatrends in health care? helped customers create vaccines faster by streamlining their bioprocess. We’ve enabled them to test samples and receive Urbanisation, sedentary lifestyles and climate change are the results in fractions of a second. The fluid control valves we make biggest global health threats of the 21st century. They will likely for ventilators and anaesthesia machines, and the valves, increase health risks such as cardiovascular diseases, heat and manifolds and precision syringe pumps we make for analytical pollution-related illness and vector-borne diseases. Through and diagnostic instruments, have helped save countless lives. our relationship with the scientific research community, we’re As you’d expect where precision and safety are paramount, attuned to how these trends will impact on the way we diagnose our world-class manufacturing facilities work to the most and treat patients. stringent global standards. Healthcare is already starting to look radically different from We significantly extended our product portfolio further into the one-size-fits-all approach of the past. DNA sequencing Life Sciences by welcoming Adaptas Solutions into the IMI team combined with real-time monitoring with algorithms and in December 2021. Adaptas is a market-leading provider of analytical tools present far-reaching opportunities. Our components and subsystems for ascertaining the composition customers can achieve a significantly greater level of accuracy of chemical compounds within a sample. Adaptas’s deep over key inputs like dosage control so they can treat people relationships with global analytical instrument manufacturers as individuals and offer a precisely tailored medical regime. and some of the world’s leading scientists allows us to move into adjacent markets and grow fast. Like us, Adaptas has a business model of delivering value by solving customer problems in partnership with them. With our global reach and strength at innovating, customers view us as an extension of their teams. Jay Ray, Senior Vice President, IMI Adaptas, describes the relationship as “being family”. ## 19Introduction Strategic Report Corporate Governance Financial Statements ## Getting answers in ## fractions of a second One of the largest clinical analyser companies in the world asked for our help with advancing their laboratory productivity. They wanted to accelerate processing and improve their use of lab resources, including reagents. ## Key laboratory ## automation facts: » We helped them build their system and workflow more intelligently and gave them active control over their process » They were able to speed up their line and significantly increase the number of sample tests per year » Outcomes include accurate and rapid diagnostics and reduction of errors in the laboratory process “Our customers value our innate ability to understand the problems they face. The combination of our collaborative nature, understanding of the science, vertical manufacturing capabilities and innovative culture allows us to bring tremendous worth to our customers.” Jay Ray Senior Vice President IMI Adaptas “Life Sciences has really attractive growth rates and tangible problems that we can solve for a Better World.” Beth Ferreira Divisional Managing Director IMI Precision Engineering ## No more waiting for test results Technologies now allow health practitioners to test at the point of patient care without having to send samples off to the lab – this will only grow in the coming decades. Point-of-care tests mean practitioners can access test results when they’re with a patient in the GP’s surgery or at the hospital bedside and give them the treatment they need straight away. Self-testing – something everyone learned how to do during the COVID-19 pandemic – coupled with the power of smartphones is a game-changer. We are engaging with customers on real-time instrumentation intended to analyse exhaled breath and detect biomarkers at very low levels for conditions such as presymptomatic Alzheimer’s or precursors to a heart attack. Picking up the metabolic indicators of diseases early makes successful outcomes much more likely. It is advances like these ## Breakthrough that make Life Sciences a powerful, critical and attractive ## high-growth market. It’s one we’re proud to be a part of, Engineering innovating to improve life for everyone. ## for a better ## world. ## 20 IMI plc Annual Report & Accounts 2022 ## Creating value ## Transportation ## We’re at the heart of progress ## in making better vehicles as ## manufacturers commit to ## reducing emissions. We’re ## responsible for fluid control ## innovations for many industries ## and have in-depth expertise in ## the commercial transportation ## sector. Among the areas in ## which we’re working with ## customers is on applications ## directly associated with ## emissions control in diesel ## engines, and in the alternative ## fuels space. ## The newer the diesel vehicle, What will the future look like? ## the greener the engine As well as developments in low-emission fuels we’ll see a complete overhaul of how people and products are moved We add Value Today for customers through our expertise in around in the coming years. The trend towards greater managing exhaust cleanliness to meet increasingly stringent localisation in manufacturing will, in turn, change transport emissions requirements. Heavy duty truck emissions are up requirements. There will be more short-haul commercial to 97% lower than 30 years ago. It’s a major step change. freight and a focus on greening the last mile. As diesel is phased out, truck manufacturers have two main From jumping into a driverless taxi to opening the door to options: battery electric and hydrogen. Currently, both have a delivery by drone, the what-next of transportation will look their challenges, but the technology is improving fast. Our totally different to where we are now. high-flow, motorised valves, for example, help customers get almost five times more power from hydrogen fuel cells Trials with autonomous vehicles including trucks are already than they could two years ago. taking place in the USA, Germany, China and Japan, amongst others. Roads, or the way we use them at least, will see a transformation too. The long-term vision for fleets involves automated platoons of trucks, slip-streaming to reduce fuel use and therefore emissions. A sophisticated kind of cooperative adaptive cruise control – a version of which many cars have already – will keep individual vehicles connected and closely coupled to the truck in front. ## 21Introduction Strategic Report Corporate Governance Financial Statements ## Making hydrogen fuel cells ## more powerful IMI’s fluid control technology is helping a hydrogen fuel cell manufacturer in China make more powerful fuel cells. ## Key fuel cell facts: » Our fluid control technology works by controlling the thermal dynamics and flow of gases going into the cell » The high-flow, motorised valves we’ve developed enable greater energy generation » Fuel cell output has jumped from 50kW (70 horsepower) two years ago to 240kW today “The alternative fuels space is a completely new playground. There’s some uncertainty around which fuel will ultimately predominate, but with our technology supporting many future solutions, we are helping our customers keep their options open.” Chris Prince Global Engineering and Operations Director IMI Precision Engineering Find out more: www.imiplc.com/what-we-do/imi-action/its-about-creating- better-world-through-use-hydrogen-fuel-cells ## Customer relationship There’s no single, linear pathway to the future and this is where IMI Precision’s competency at key account management comes into its own. We’re mindful of the trends we’re seeing in the industry and we’re a strong partner in the innovation process because of our engineering capability, because of our flexibility and because of our skills in truly listening to what the customer wants. From decarbonising their value chain to making sure they’re not reliant on materials that are going to be obsolete, our customers have a long list of problems that they want to solve. It’s the customer – and society – that sets the agenda. But we’ll be with them every step of the way. ## Breakthrough ## Engineering ## for a better ## world. ## 22 IMI plc Annual Report & Accounts 2022 ## Creating value ## Energy ## We are helping to reduce ## emissions in the oil and gas ## industry and exploring growth ## opportunities with new ## decarbonisation technologies. One of the main goals of the Paris Agreement in 2015 was to ## Cutting methane emissions to slow scale up efforts to reduce carbon emissions and so limit global ## global warming warming. It marked the beginning of the transition towards a net zero economy. Stopping climate change is a huge challenge As oil and gas producers commercialise smaller fields in some and, to play its part, the oil and gas sector must reduce of the world’s most challenging locations, their need for critical significantly its emissions. In the longer term there will be component reliability is growing. We create Value Today by an acceleration in the shift to green energy across the globe. enhancing plant performance and enabling customers to extract However, in the short to medium-term, the world will remain oil and gas safely for transfer to downstream processes. Our deeply reliant on oil and gas. So the sector needs to optimise products help protect people and assets by managing surge its processes to operate as cleanly and efficiently as possible. pressures and reducing leakage of greenhouse gases such as We are working with our customers in the oil and gas industry methane, a gas responsible for around 30% of the rise in global to achieve this. temperatures since the industrial revolution. Low-carbon energy technologies such as renewables, nuclear Customers use our market-leading valves and systems both and hydrogen already exist. The challenge is to find ways to at the point of extraction and for processes such as fluid make them a cost-effective alternative to hydrocarbons and catalytic cracking, which is part of the refining process to convert we are exploring ways of doing this with our clients. We are oil and gas into fuel products. We have deep expertise with a making great progress, for example, in unlocking hydrogen’s technology known as HIPPS – which stands for high-integrity full commercial potential. By using our engineering expertise pressure protection system. In an oil or gas field, a HIPPS skid and by developing innovative green hydrogen systems that automatically closes large valves within fractions of a second to improve production yields, we are supporting our customers protect downstream equipment and pipework. Without a HIPPS in building the hydrogen economy of tomorrow. system, producers often resort to flaring – an inefficient method of burning off excess gas – which releases millions of metric tons of C0 2 and methane into the atmosphere every year. This is costly on all levels, including in terms of reputational risk, as companies come under increasing scrutiny over their emissions. ## 23Introduction Strategic Report Corporate Governance Financial Statements ## A turnkey green ## hydrogen plant Two British universities needed a low capex way to produce green hydrogen for their hydrogen research centres. We are providing both with an IMI VIVO Electrolyser, which enables customers to produce large quantities of green hydrogen from water electrolysis using renewable power, on site, in a set-up no bigger than a shipping container. ## Key IMI VIVO PEM ## Electrolyser facts: » The 500kW electrolyser makes use of advanced polymer electrolyte membrane electrolysis technology » IMI can tailor the system to a customer’s specification and serve as a field service partner for the lifetime of the plant » The research centres will use it to develop sustainable aviation fuel and renewable fuel for future generations of ultra-low emissions vehicles “We provide unique product solutions so our customers in the oil and gas industry can safely and efficiently manage extremely hazardous processes.” Maximilian Wuelfing Global Business Development Director, Energy Tech & Downstream IMI Critical Engineering Find out more: www.imiplc.com/what-we-do/imi-action/growth-hub-why-its- fundamental-imis-future ## New markets where our expertise can ## support sustainable growth Oil and gas will continue to be needed as a feedstock for valuable materials, such as plastics. However, innovation can help to decarbonise the downstream processes. Mindful of how the industry will look in five to ten years’ time, we are actively investigating opportunities in new technologies and markets within this space. Dutch research organisation TNO has installed our valves in a pilot plant for a revolutionary technique for industrial carbon capture. The process, known as sorption enhanced water gas shift (SEWGS) is exciting for two reasons – not only is it extremely efficient, it also creates blue hydrogen as a by-product, which can be further utilised as a base material or energy source. Right now, there’s considerable momentum behind hydrogen ## Breakthrough as a key component in the world’s clean, secure energy future. ## Engineering The technologies are there to decarbonise our energy sources ## and industrial processes – the challenge is to bring down costs for a better to be able to grow them at scale. We embrace our role in the ## world. global energy transition. It’s hard to find a more compelling example of our purpose of contributing to a Better World. ## 24 IMI plc Annual Report & Accounts 2022 ## Creating value ## Indoor Climate ## We create intelligent heating ## and cooling systems that ## help our customers reduce ## energy consumption, improve ## building comfort and combat ## climate change. In the current energy and climate crisis, one of the most This intelligent ecosystem led by TA-Smart is an excellent powerful things IMI can do to reduce carbon emissions is help example of how we’re delivering Value Today to our customers our customers reduce their energy consumption while via innovative digital solutions that are critically needed in today’s maintaining a comfortable indoor temperature. economic and social climate. Saving energy starts with helping our customers to see where ## and when they’re using the most energy – after all, there’s Accelerating our growth in nothing more wasteful than heating or cooling an unused space. ## smart buildings Our innovative TA-Smart valve not only continuously measures and adjusts energy flow but also provides vital (and continuous) A few smart buildings aren’t enough on their own. The planet data feedback that customers can access through the cloud needs to reduce its energy consumption. So our ambition is to ensure their system is operating at optimal efficiency. to make new technologies readily available, simple to operate and affordable. It’s the challenge of a generation that we’re To demonstrate the importance of collecting data, we ran an embracing wholeheartedly. optimisation project at our factory in Germany to reduce the production hall’s energy consumption. We installed TA-Smart A significant number of buildings across Europe will need along with sensors measuring relative humidity, temperature to make their heating systems compliant with energy and and CO 2 levels. The combination of TA-Smart’s technology, environmental legislation over the next 30 years. In 2022, our mobile app HyTune and our cloud platform HyCloud allowed we were delighted to welcome Heatmiser, a leading UK us to pinpoint where and when energy was being wasted. smart thermostatic control manufacturer, to the IMI family. By setting TA-Smart to flow control mode and using HyCloud Heatmiser’s products enable heating and cooling in each room to track data, we were able to deliver considerable savings to be controlled remotely via a smart phone. This acquisition is on thermal energy consumption while still maintaining a game-changing opportunity for IMI to use the strength of a comfortable temperature. our brands and market position to scale Heatmiser’s offering, making energy-saving technologies more accessible to homeowners across Europe. ## 25Introduction Strategic Report Corporate Governance Financial Statements ## Helping reduce energy ## waste in Brazil Reducing energy consumption and increasing the efficiency of HVAC systems is a global challenge. The Teresina Shopping Centre in Brazil, is one of the biggest commercial centres in the region, housing a cinema, a large food court, a bank, a gym, and over 150 shops. The original HVAC system design had many inefficiencies causing unwanted temperature variations, leading to energy waste and user discomfort. To design an optimal retrofit solution, the app HySelect was used to ensure the correct products were selected. Once the design was finalised, the system was renovated with a comprehensive cross-brand solution. To ensure the design matched the real environmental conditions, the TA-Scope balancing instrument was used to set the system up correctly. ## Key indoor climate facts: » The system was optimised to respond to changing weather conditions, ensuring optimal energy use and user comfort » The renovation reduced energy consumption by 28% “The buildings of tomorrow won’t require people to change behaviours to save energy; they will automatically manage the energy saving for them. That’s the vision for the future, which is closer than we think.” Peter Agneborn Divisional Sales and Marketing Director IMI Hydronic Engineering ## High customer satisfaction We have an international network of Hydronic Colleges, where we share knowledge and develop new solutions with customers – it’s just one of the many ways we offer our support. While our products are excellent at reducing energy use on their own, our approach is to look at the requirements of the entire system and work in partnership with customers to design a bespoke solution. That’s how we deliver on our purpose to build a Better World: we use state-of-the-art technology and our industry- leading knowledge to reduce energy consumption and emissions in cities across the globe. ## Breakthrough ## Engineering ## for a better ## world. 26 IMI plc Annual Report & Accounts 2022 # Operational review ## IMI Precision Engineering IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the processes in which they are involved. IMI Precision Engineering operates across three principal business units: Industrial Automation, Precision Fluid OEM and Transportation. Further details on that segmentation and comparison with the 2021 results are available in Note 4. **Beth Ferreira** Divisional Managing Director ![img-0.jpeg](img-0.jpeg) ### Key brands - Norgren - Bimba - Buschjost - FAS - Herion - IMI Adaptas - Kloehn - Bahr Number of employees **5,800** 2021: 5,400 ### 2022 financial highlights Revenue 18% £986m 2021: £836m Adjusted operating margin* 70bps 18.5% 2021: 17.8% Statutory operating margin 130bps 13.2% 2021: 11.9% Revenue by geography ![img-1.jpeg](img-1.jpeg) 1 Europe 4% (Δt1: 45%) 2 Americas 40% (Δt1: 7%) 3 Asia Pacific 18% (Δt1: 18%) Middle East & Africa 0% (Δt1: 0%) Revenue by market ![img-2.jpeg](img-2.jpeg) 1 Industrial Automation 67% (Δt1: 49%) 2 Precision Fluid OEM 1% (Δt1: .5%) 3 Transportation 0% (Δt1: .6%) ## 27Introduction Strategic Report Corporate Governance Financial Statements integrating well into the Group, and ## Key developments Outlook extending the divisions product portfolio | » Strong sales growth of 18%, | further into the attractive Life Sciences | Based on current market conditions, | | --- | --- | --- | | organic growth of 5% | sector. The acquisition of CorSolutions, | including the softening industrial | | | a leading innovator in micro-fluid flow | production environment, IMI Precision | » Adjusted operating margin up 70bps control, will further expand growth in Engineering 2023 organic revenues this area by complementing the offering are expected to be lower than in 2022, » Statutory operating profit up 31% from Adaptas. with margins slightly higher. » Acquisition of Bahr completed, expanding electric linear motion offering Transportation revenues were up 1% compared with 2021. Whilst we continue to experience good underlying demand ## 2022 performance for our products, the supply of | IMI Precision Engineering had a strong | semiconductors and other electronic | | --- | --- | | year, delivering organic revenue growth | equipment has constrained truck volumes | | of 5% and revenue growth of 18%. | in EMEA and North America, while | | This performance reflects positive | COVID-19 restrictions impacted truck | | conditions in our core end markets; | volumes in China. We are maintaining | | selective M&A increasing our exposure | strong relationships with OEMs, ensuring | | to attractive adjacencies; and our | we stay well placed to meet demand as | | continued focus on customer satisfaction, | these pressures ease. | achieving an industry leading customer Adjusted operating margin in the division satisfaction score in the year. improved in the period by 70bps to 18.5%. | Industrial Automation delivered strong | The division continues to advance | | --- | --- | | organic growth of 7% compared with | complexity reduction initiatives, | | 2021. We see continued underlying | simplifying the business to better serve | | demand for solutions that automate | customers. These projects delivered | | processes in a competitive labour market. | £9m of incremental benefits in the year. | The integration of Bahr, acquired in June Growth has been supported by a 2022, has been progressing well and we significant investment in people in the see a significant opportunity to scale year, with a specific focus on Growth Bahr’s innovative electric linear motion Hub and digital roles. We have seen system across our existing customer base. strong improvements in employee Furthermore, Bahr’s strength in less engagement and Inclusion & Diversity cyclical markets, such as Pharmacy remains a priority. Automation, increases the resilience of IMI Precision Engineering. IMI Precision Engineering also made progress with initiatives that reduce Precision Fluid OEM, around half of which the environmental impact of its facilities is in the Life Sciences sector, remains and operations. Solar panels are being an exciting segment, delivering organic installed across our sites globally and we growth of 6%. Adaptas, acquired in are investigating opportunities to electrify December 2021, has performed strongly our vehicle fleet and roll-out integrated with its order book up 66% at £40m energy management systems across at the end of the year. The business is manufacturing facilities. 2022 2021 Change Organic vs 2021* | Revenue | £986m £836m +18% +5% | | --- | --- | | Adjusted operating profit* | £182.6m £148.9m +23% +9% | | Adjusted operating margin* | 18.5% 17.8% +70bps | | Statutory operating profit | £130.1m £99.6m +31% | | Statutory operating margin | 13.2% 11.9% +130bps | *See Note 3 for definitions of alternative performance measures and the references to reconciliations of these measures. 28 IMI plc Annual Report & Accounts 2022 # Operational review ## IMI Critical Engineering IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, cleanly, reliably, and more efficiently. Our products control the flow of steam, gas and liquids in harsh environments and are designed to withstand temperature and pressure extremes as well as intensely abrasive or corrosive cyclical operations. Further details on IMI Critical Engineering market segmentation, and comparison with 2021, are available in Note 4. Jackie Hu Divisional Managing Director ### Key brands - IMI Bopp & Reuther - IMI CCI - IMI Fluid Kinetics - IMI NH - IMI Orton - IMI PBM - IMI Remosa - IMI STI - IMI TH Jansen - IMI Truflo Italy - IMI Truflo Marine - IMI Truflo Rona - IMI Z&J - IMI Zikesch Number of employees 3,100 2021: 2,900 ### 2022 financial highlights Revenue 3% £713m 2021: £691m Adjusted operating margin* 90bps 19.0% 2021: 18.1% Statutory operating margin 190bps 17.9% 2021: 16.0% Revenue by geography ![img-3.jpeg](img-3.jpeg) 1 Europe 2% (£0.1: 5%) 2 Americas 9% (£0.1: 8%) 3 Asia Pacific 16% (£0.1: 15%) 4 Middle East & Africa 1% (£0.1: 1%) Revenue by market ![img-4.jpeg](img-4.jpeg) 1 Refining & Petrochemical 11% (£0.1: 11%) 2 Fossil Power 10% (£0.1: 10%) 3 Oil & gas 18% (£0.1: 18%) 4 Nuclear 7% (£0.1: 9%) 5 Marine 6% (£0.1: 5%) 6 Other 8% (£0.1: 8%) ## 29Introduction Strategic Report Corporate Governance Financial Statements Adjusted operating margin for the year ## Key developments Outlook was 19%, 90bps higher than the prior year. | » Organic order intake up 12% in the full | This was another strong performance | Based on the division’s order book | | --- | --- | --- | | year, order book up 18% year on year | reflecting the division’s strategy to | and current market conditions, IMI | | | maximise higher margin aftermarket | Critical Engineering 2023 organic | » Growth Hub delivers £43m orders opportunities as well as the continued revenues and margins are expected execution of footprint optimisation to be higher than 2022. » Adjusted operating profit up 8% initiatives, delivering £4m of incremental » Statutory operating profit up 15% savings in 2022. Growth is supported by continued ## 2022 performance investment in talent and development. | IMI Critical Engineering delivered another | This is underpinned by a focus on Inclusion | | --- | --- | | impressive performance in 2022, with | & Diversity, higher levels of employee | | organic order intake 12% higher than 2021. | engagement and the introduction of | | This reflects increased activity across our | further commercial and leadership | | Energy end markets, as well as a | development programmes. This | | significant contribution from the | investment is also driving significant | | division’s Growth Hub and Sprint Teams. | improvements in customer service, | with IMI Critical Engineering now Aftermarket orders grew 16% organically, reporting an industry leading with strong growth in Refining & customer satisfaction score. Petrochemical, Oil & Gas and Power. | New Construction orders were 8% higher | IMI Critical Engineering also made | | --- | --- | | on an organic basis, largely reflecting | great progress with initiatives aimed | | increased Oil & Gas activity. | at improving sustainability and reducing | the environmental impact of operations IMI Critical Engineering continues to in the year. The division’s new advance its strategy and is actively manufacturing facility in Sardinia, deploying Growth Hub where its expertise opened in October 2022, has been can support sustainable future growth. designed to be a showcase facility for The division’s Growth Hub and Sprint efficiency, from its use of renewable Teams are providing a significant impact energy sources to its layout which is to the divisional results and contributed optimised for material and product flow £43m of orders in the year (2021: £20m). and employee safety. The site is set to | The IMI Critical order book at the end | play an important role in the division’s | | --- | --- | | of the year was 18% higher than | continued development of green solutions | | December 2021. | and will host a team dedicated to | developing and testing solutions Organic revenue was 2% higher than the for hydrogen generation products. prior period, and 3% higher on an adjusted basis. Aftermarket organic sales were 5% higher than 2021, largely due to growth in the Oil & Gas, Refining and Petrochemical and Nuclear segments. New Construction organic sales were 2% lower than last year, reflecting the phasing of Oil & Gas projects. 2022 2021 Change Organic vs 2021* | Order intake | £812m £712m +14% +12% | | --- | --- | | Closing order book | £627m £531m +18% | | Revenue | £713m £691m +3% +2% | | Adjusted operating profit* | £135.5m £125.0m +8% +7% | | Adjusted operating margin* | 19.0% 18.1% +90bps | | Statutory operating profit | £127.7m £110.7m +15% | | Statutory operating margin | 17.9% 16.0% +190bps | *See Note 3 for definitions of alternative performance measures and the references to reconciliations of these measures. IMI plc Annual Report & Accounts 202230 ## Operational review ## IMI Hydronic Engineering ## IMI Hydronic Engineering is a ## leading provider of technologies ## that deliver energy efficient ## water-based heating and cooling ## systems for the residential and ## commercial building sectors. Phil Clifton Divisional Managing Director | Key brands | 2022 financial | Revenue by geography | | | | --- | --- | --- | --- | --- | | | highlights | | | 3 | | • IMI Pneumatex | | | 2 | | • IMI TA • IMI Flow Design 1 Revenue • IMI Heimeier ## £ • IMI Aero-Dynamiek ## 3% 350m • IMI Heatmiser 2021: £339m 1 Europe 88% (2021: 88%) 2 Americas 8% (2021: 8%) 3 Asia Pacific 4% (2021: 4%) Middle East & Africa 0% (2021: 0%) Adjusted operating margin* ## 20bps 20.3% Revenue by market 2021: 20.1% 4 3 1 Statutory operating margin Number of employees 2 ## 130bps 20.2% 1 Balancing & Control 43% (2021: 42%) 2 Thermostatic Control 35% (2021: 36%) 2021: 18.9% ## 2,000 3 Pressurisation & Water Quality 19% (2021:18%) 4 Other 3% (2021: 4%) 2021: 1,800 ## 31Introduction Strategic Report Corporate Governance Financial Statements This investment is accompanied by a ## Key developments Outlook continued focus on customer experience. | » 4% organic sales growth with adjusted | IMI Hydronic Engineering reported a | Based on current market conditions, | | --- | --- | --- | | operating margin improved to 20.3% | customer satisfaction score benchmarked | IMI Hydronic Engineering 2023 organic | | | as industry leading, despite the continued | revenues and margins are expected | » Statutory operating profit up 10% supply chain pressures. to be higher than 2022. » Continued strong demand for our The acquisition of Heatmiser, completed energy saving solutions in December 2022, will accelerate the » Acquisition of Heatmiser completed, division’s growth in smart buildings. significant opportunity to accelerate Complimenting IMI Hydronic’s existing growth in smart buildings HVAC product offerings, Heatmiser provides an attractive entry point into ## 2022 performance connected residential thermostatic control, a fast-growing market where IMI Hydronic Engineering’s premium Heatmiser is already a UK leader. There products play an important role in helping is a significant opportunity to leverage customers meet their environmental and IMI Hydronic’s strong brand and market sustainability goals, delivering optimal presence to scale Heatmiser’s offering energy efficient heating and cooling across Europe, as well as leverage solutions to the residential and Heatmiser’s proven connected technology commercial building sector. With its capabilities across existing and new strong brands and product positioning, IMI products. combined with the global imperative to reduce energy consumption in buildings, The division is also actively progressing IMI Hydronic Engineering is positioned to initiatives to reduce complexity and deliver sustainable, profitable growth. simplify business processes for growth. Back-office functions are being simplified Organic revenue was 4% higher when and standardised and a Business Service compared to the prior year, and 3% Centre is being implemented to centralise higher on an adjusted basis. Growth activities where appropriate. was supported by strong orders for In addition to playing an important automated control and actuation role helping customers reduce energy products. Sales of our digitally enabled consumption, IMI Hydronic has continued products – including the TA-Smart valve to invest in improving the energy – continue to make excellent progress. efficiency of its operations through Adjusted operating profit increased 5% equipment upgrades and process on an organic basis versus the prior year improvements. and adjusted operating margin improved to 20.3%, an increase of 20 basis points, reflecting the quality of the business. Growth is supported by strategic investments in our digital R&D centre in Belgium and the expansion of the division’s Growth Hub programme. Employee engagement remains high and there has been a continued focus on Inclusion & Diversity. 2022 2021 Change Organic vs 2021* | Revenue | £350m £339m +3% +4% | | --- | --- | | Adjusted operating profit* | £71.1m £68.1m +4% +5% | | Adjusted operating margin* | 20.3% 20.1% +20bps | | Statutory operating profit | £70.6m £64.1m +10% | | Statutory operating margin | 20.2% 18.9% +130bps | *See Note 3 for definitions of alternative performance measures and the references to reconciliations of these measures. IMI plc Annual Report & Accounts 202232 ## Financial review ## IMI delivered another excellent ## financial performance in 2022, ## with increased organic revenues, ## adjusted operating profit and ## margins in all divisions. ### Daniel Shook ### Finance Director Introduction Strategic Report Corporate Governance Financial Statements 33 ## Key highlights | | Adjusted^{1} | | | | Statutory | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | 2021 | Change | Organic^{2} | 2022 | 2021 | Change | | Revenue | £2,049m | £1,866m | +10% | +4% | £2,049m | £1,866m | +10% | | Operating profit | £364m | £318m | +14% | +8% | £298m | £251m | +19% | | Operating margin | 17.8% | 17.0% | +80bps | | 14.6% | 13.4% | +120bps | | Profit before tax | £346m | £307m | +13% | | £285m | £245m | +17% | | Basic EPS | 105.5p | 94.0p | +15% | | 87.6p | 75.5p | +19% | | Operating cash flow^{3} | £290m | £274m | +6% | | £336m | £317m | +3% | | Dividend per share | 25.7p | 27.7p | +8% | | 25.7p | 27.7p | +8% | | Net debt : adjusted EBITDA | 1.8x | 1.5x | | | | | | $^{1}$ Excluding the effect of adjusting items as reported in the income statement. See Note 3 for definitions of alternative performance measures. $^{2}$ Adjusted operating cash flow, as described in Note 3 to the financial statements. Statutory measure is Cash generated from operations as shown on the cash flow statement. $^{3}$ After adjusting for acquisitions, disposals and exchange rates (see Note 4). Certain alternative performance measures ('APMs') have been included within this Annual Report. These APMs are used by the Executive Committee to monitor and manage the performance of the Group, in order to ensure that decisions taken align with the Group's long-term interests. Movements in revenue and adjusted operating profit are given on an organic basis (see definition in Note 3) so that performance is not distorted by acquisitions, disposals and movements in exchange rates. A table summarising the reconciliation of adjusted measures to statutory measures is included in Note 3. ## Third year of profit and margin improvement The Group delivered a good financial result in the year, as revenue and operating margin improved. Revenue increased by 10% to £2,049m (2021: £1,866m). Organic revenue was 4% higher than the prior year, after adjusting for acquisitions, disposals and exchange rate movements. The exchange rate adjustment was positive £67m. Adjusted operating profit of £364m (2021: £318m) was 14% higher than last year. On an organic basis, adjusted operating profit increased by 8%. The adjusted operating margin was 17.8% (2021: 17.0%). All three divisions grew adjusted margins in the year, supported by revenue growth, the benefits of ongoing restructuring programmes and value-pricing initiatives. Statutory operating profit was £298m (2021: £251m), which increased 19%. Adjusted net financing costs on net borrowings of £19.2m (2021: £12.1m) was higher as a result of recent acquisitions and increases in base rates and includes the impact of £2.8m (2021: £2.8m) interest cost on leases. Statutory net finance costs were £12.8m compared to £5.9m in 2021, reflecting the higher net financing costs. Adjusted net financing costs were covered 24 times (2021: 33 times) by adjusted earnings before interest, tax, depreciation, amortisation, impairment and adjusting items of £457m (2021: £404m). The net pension financing income under IAS 19 was £1.5m (2021: £1.0m). Statutory profit before taxation increased 16% to £285m (2021: £245m) reflecting growth in the year and the Group's continued execution of restructuring activities to improve customer focus and long-term competitiveness. Adjusted profit before taxation was £346m (2021: £307m), which was 13% higher than 2021. The total statutory profit for the period after taxation was £226m (2021: £196m). IMI plc Annual Report & Accounts 202234 ### Financial review ## Adjusting items Complexity reduction continues to ## deliver benefits Adjusting Items 2022 2021 £m £m Along with investments into our future growth, IMI continues Reversal of net economic hedge contract losses/(gains) 3 (6) to identify and execute on opportunities to drive more efficient Restructuring costs and associated impairment losses (26) (40) operations. The following table provides a summary of progress Loss on disposal of subsidiary - (4) on our restructuring programmes: Acquired intangible amortisation and other acquisition items (34) (18) £m 2022 2023* 2024* 2025* Exit from Russia (9) - Restructuring charge | Gains on instruments measured at fair value through profit | 5 5 | | | --- | --- | --- | | or loss | | (including impairment losses) | | Tax in connection with the above adjusting items | 15 15 | IMI Precision Engineering (25) (28) (11) - | | Change in UK tax rate | - (19) | IMI Critical Engineering - (8) (35) (5) | | Release of prior year provisions | - 17 | IMI Hydronic Engineering (1) - - - | Total (26) (36) (46) (5) Adjusting items that are excluded from adjusted profit before tax Cash impact (43) (35) (32) (5) are listed below: Incremental annual benefits » Reversal of net economic hedge contract losses/gains: for segmental reporting purposes, changes in the fair value of IMI Precision Engineering 9 16 7 3 economic hedges which are not designated as hedges for IMI Critical Engineering 4 3 6 6 accounting purposes, together with the gains and losses on IMI Hydronic Engineering - 1 - - their settlement, are included in the revenues and adjusted Total benefits 13 20 13 9 operating profit of the relevant business segment. The adjusting item reverses this treatment at an operating * Future looking forecast information. profit level, leading to a gain of £3m (2021: £6m charge). » Restructuring: restructuring costs of £26m were incurred in All three divisions advanced their significant multi-year 2022, which includes a £2m impairment reversal. A detailed restructuring programmes in 2022, recognising a total charge breakdown of these costs by division, alongside expected of £26m. This predominantly relates to the Customer First benefits is provided below. Further details on 2021 projects project (across a number of businesses) and the rationalisation are included in Note 3. of four facilities within IMI Precision Engineering. » Loss on disposal of subsidiary: following the disposal of IMI The restructuring programme contributed £13m of benefits Interativa in July 2021, the Group recorded a loss on disposal in the year, exceeding the previously reported target of £10m of £4m. due to an acceleration of the programme benefits. Including » Acquired intangible amortisation and other acquisition items: 2022, the total cost of the programme to date is £144m and Acquired intangible amortisation is excluded from adjusted benefits of £84m. profits, to allow for comparability of the performance across Significant projects are expected to be complete in 2024, divisions. We exclude amortisation of acquired intangibles in although the Group will always seek and execute on opportunities our adjusted measure to provide additional information on that improve its competitive position. the impact of our acquisition strategy. We note that the trading results of acquired businesses are included in the adjusted ## results. Acquired intangible amortisation increased to £30m Taxation (2021: £15m). Other acquisition costs of £4m (2021: £3m) The adjusted effective tax rate for the Group increased to 21.3% primarily relates to professional fees associated with the (2021: 20.0%) reflecting a one-off tax credit in 2021. The total acquisitions of Bahr, CorSolutions and Heatmiser. adjusted tax charge for the year was £74m (2021: £61m) and the » Exit from Russia: IMI strongly opposes the invasion of Ukraine statutory effective tax rate was 20.7% (2021: 19.7%). The Group and fully supports all sanctions. On 4 March 2022 we ended all seeks to manage its tax affairs within its core tax principles of new business in and international deliveries to Russia and on compliance, fairness, value and transparency, in accordance 27 May 2022 we completed the divestment of our Russian with the Group’s Corporate Tax Strategy which is available on subsidiary to local management, resulting in a charge of £9m. the Group’s corporate website. We are expecting the adjusted effective tax rate to increase to 22% in 2023, reflecting the » Gains on instruments measured at fair value through profit or increase in the UK statutory rate of corporation tax from loss: a gain arose on the revaluation of financial instruments 19% to 25% with effect from 1 April 2023. and derivatives under IFRS 9 of £5m (2021: £5m gain). » Taxation: the tax effect of the above items has been recognised ## Statutory basic earnings per share as an adjusting item and amounts to a £15m gain (2021: £15m ## increased by 19% gain). In 2021, two adjusting tax items arose that were not repeated in 2022. First, the impact of the Group’s deferred tax The average number of shares in issue during the period was liabilities of the increase in the UK corporation tax rate to 25% 258m (2021: 267m), resulting in adjusted basic earnings per with effect from April 2023, was a charge of £19m. Second, a share of 105.5p (2021: 92.0p), an increase of 15%. Statutory gain of £17m was recorded due to the release of provisions in basic earnings per share increased by 19% at 87.6p (2021: 73.5p) respect of prior years which were no longer expected to arise. and statutory diluted earnings per share increased by 19% at 87.2p (2021: 73.2p). ## 35Introduction Strategic Report Corporate Governance Financial Statements Cash spent on property, plant and equipment and other ## Maintaining continued cash discipline non-acquired intangibles in the year was £71m (2021: £58m) which was equivalent to 1.2 times (2021: 1.0 times) depreciation | Cash flow Movement in net debt 2022 | | 2021 | | | --- | --- | --- | --- | | | £m | £m | and amortisation thereon. | | Adjusted EBITDA* | 457.0 403.5 | | | The Group continues to deploy capital to improve the efficiency Working capital movements (85.1) (50.6) of its operations, including projects that support our net zero Capital and development expenditure (71.3) (57.5) carbon target. Provisions and employee benefit movements** 1.5 (0.5) Research and development spend, including capitalised Principal elements of lease payments (32.3) (30.0) intangible development costs of £6m (2021: £5m), totalled Other 20.2 9.0 £68m (2021: £54m) representing 3.3% (2021: 2.9%) of sales. Adjusted operating cash flow*** 290.0 273.9 The Group continues to support investment in growth with Adjusting items (52.6) (35.6) this spend focused on our Better World purpose. As this measure Interest (19.2) (12.1) focuses primarily on the efforts of the engineering function, it does not fully capture the cross-functional support in Growth Derivatives (8.6) 26.4 Hub initiatives – a significant investment alongside our research Tax paid (48.6) (50.9) and development spend. Additional pension scheme funding (3.5) (7.0) Free cash flow before corporate activity 157.5 194.7 In 2022 the Group paid cash tax of £49m (2021: £51m) which was 66% (2021: 83%) of the adjusted tax charge for the year. | Dividends paid to equity shareholders | (62.2) (61.8) | | | --- | --- | --- | | Acquisition/disposal of subsidiaries | (213.3) (203.8) | Dividends paid to shareholders totalled £62m (2021: £62m), | | Net purchase of own shares and share buyback programme | (18.8) (225.6) | and there was a cash outflow of £19m (2021: £26m outflow) | | Net cash flow (excluding debt movements) | (136.8) (296.5) | for share purchases to satisfy employee share options. There | was no cash outflow associated with share buybacks in 2022 Reconciliation of net cash to movement in net debt (2021: £200m). Net increase/(decrease) in cash and cash equivalents 11.0 (86.7) Overall net debt increased by £189m in 2022 (2021: £307m). excluding foreign exchange Less: cash acquired/disposed (10.0) (1.8) ## Strong balance sheet continues to Net drawdown of borrowings excluding foreign exchange (137.8) (208.0) and net debt disposed/acquired ## provide strategic opportunity | Increase in net debt before acquisitions, disposals and | (136.8) (296.5) | | | | --- | --- | --- | --- | | foreign exchange | | | Net debt at the year-end was £812m compared to £623m at | | Net cash acquired/disposed | | 10.0 - | the end of the previous year. The increase reflects in-year | acquisitions of Bahr, CorSolutions and Heatmiser, partly offset Currency translation differences (50.6) (4.5) by the cash generation in the year. The net debt is composed of a Movement in lease liabilities (11.8) (5.6) cash balance of £133m (2021: £95m), a bank overdraft of £94m Movement in net debt in the year (189.2) (306.6) (2021: £66m), interest-bearing loans and borrowings of £746m Net debt at the start of the year (622.8) (316.2) (2021: £558m) and lease liabilities of £105m (2021: £94m). Net debt at the end of the year (812.0) (622.8) The year-end net debt to adjusted EBITDA ratio was 1.8 times * Adjusted profit after tax (£272.4m) before interest (£17.7m), tax (£73.7m), (2021: 1.5 times). At the end of 2022, loan notes totalled £546m depreciation (£74.2m), amortisation (£18.5m) and impairment (£0.5m). (2021: £353m), with a weighted average maturity of 4.6 years ** Movement in provisions and employee benefits as per the statement of (2021: 4.3 years) and other loans including bank overdrafts cash flows (£13.8m) adjusted for the movement in restructuring totalled £294m (2021: £271m). Total committed bank loan provisions (£15.3m). facilities available to the Group at the year-end were £300m *** Adjusted operating cash flow is the cash generated from the operations shown in the statement of cash flows less cash spent acquiring property, (2021: £300m), of which £100m (2021: £70m) was drawn. plant and equipment, non-acquired intangible assets and investments; plus cash received from the sale of property, plant and equipment and the sale At 31 December 2022, the value of the Group’s intangible assets of investments, excluding the cash impact of adjusting items, a reconciliation was £1,004m (2021: £768m). The increase compared to the prior is included in Note 19. year primarily reflects in-year acquisitions. The net book value of the Group’s property, plant and equipment Adjusted operating cash flow was £290m (2021: £274m). at 31 December 2022 was £299m (2021: £268m). Capital This represents a conversion rate of total Group adjusted expenditure on property, plant and equipment amounted operating profit to adjusted operating cash flow of 80% to £57m (2021: £46m), with the main capital expenditure (2021: 86%) largely due to increased working capital to support focused on production facility investment to support operational effective supply chain management. There was a £53m cash efficiency and growth. Including capitalised intangible assets, outflow from adjusting items (2021: £36m outflow) primarily total capital expenditure was £71m (2021: £58m) and was 1.2 related to restructuring costs. times (2021: 1.0 times) the depreciation and amortisation charge Net working capital balances increased £85m due to an increase (excluding acquired intangible amortisation and lease asset in receivables of £39m as a result of the growth and an increase depreciation) for the year of £60m (2021: £56m). in inventory of £47m to maintain service levels to customers The net deficit for defined benefit obligations at 31 December in light of the continuing supply chain challenges, partly offset 2022 was £19m (2021: £63m surplus). The UK surplus was by an increase in payables of £1m. The increase in 2021 of £51m £28m (2021: £129m surplus) with the liabilities now fully was due to an increase in receivables of £44m and an increase bought-in and no future funding requirements expected. in inventory of £37m partly offset by an increase in payables The deficit in the overseas funds as at 31 December 2022 of £31m. was £47m (2021: £66m deficit). IMI plc Annual Report & Accounts 202236 ### Financial review ## Return on invested capital (‘ROIC’) Disposals The Group uses ROIC as an indication of IMI’s ability to deploy The Group disposed of its Russian subsidiary IMI International capital effectively. The Group’s definition is Adjusted Operating LLC on 27 May 2022 for proceeds of £nil resulting in a loss on Profit after tax divided by Average Capital invested. Capital disposal for the Group of £4.8m after disposing of £3.3m of invested is defined as net assets adjusted to remove net debt, net assets and incurring £0.9m of associated disposal costs. derivative assets/liabilities, defined pension position (net of In addition, the exit resulted in a £4.2m impairment of assets deferred tax) and to reverse historical impairments of goodwill related to Russian contracts. and amortisation of acquired intangibles. ## ROIC was 12.7% in 2022 (2021: 13.2%) which decreased by 0.5%, Foreign exchange reflecting the impact of recent acquisitions that have increased The income statements of overseas operations are translated our invested capital at the year end, though we do not see the into Sterling at average rates of exchange for the year, balance full year benefit of the profits until 2023. sheets are translated at year end rates. The most significant currencies are the Euro and the US Dollar – the relevant rates Return on invested capital 2022 2021 of exchange were: | | | £m | £m | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Adjusted Operating Profit | | 363.8 318.1 | | | | | | | | | | | | Average | Balance Sheet | | | Notional Tax charge | | (77.5) (63.6) | | | Rates | | Rates | | Net Adjusted Operating Profit after tax | | 286.3 254.5 | | Foreign Exchange 2022 2021 2022 2021 | | | | | Net Assets | | 905.6 779.1 | | Euro | 1.17 1.16 1.13 1.19 | | | | Adjusted for: | | | | US Dollar | 1.24 1.38 1.21 1.35 | | | | | Net debt | 812.0 622.8 | | | | | | | | Restructuring provision | 17.8 31.6 | | | | | | The movement in average exchange rates between 2021 and | Net derivative assets/liabilities | (1.9) (3.7) | 2022 positively impacted both revenue and adjusted operating | | --- | --- | --- | | Net defined pension benefit | 18.9 (62.5) | profit by 4% in the full year when compared to 2021. | | Deferred tax on employee benefits | (5.0) 13.9 | | If average exchange rates for January 23 of US$1.23 and €1.14 Previously written-off/impaired goodwill 346.9 346.9 were projected for the full year and applied to our 2022 results, it Acquired intangibles amortisation 366.5 311.5 is estimated that both revenue and adjusted operating profit would be 2% higher. | Closing capital invested | 2,460.8 2,039.6 | | | --- | --- | --- | | Opening capital invested | 2,039.6 1,818.1 | | | Average capital invested | 2,250.2 1,928.9 | Treasury | | Return on invested capital | 12.7% 13.2% | | IMI has a centralised Treasury function that provides treasury services to Group companies including funding liquidity, credit, foreign exchange, interest rate and base metal commodity ## Three strategic acquisitions in the year in management. The Group Treasury function manages financial ## attractive growth markets risks in compliance with Board-approved policies. Further details of the Group’s financial risk management are included in Note 18. The Group completed three strategic acquisitions in 2022: ## » On 9 June 2022 the Group acquired 100% of the share capital, Continued disciplined approach to and associated voting rights, of Bahr Modultechnik GmbH ## capital allocation for cash consideration of £88.3m. Bahr is a leading provider of highly configured modular electric linear motion systems, The Board determines the appropriate capital structure based on a broad portfolio of specialist components and is for the Group, specifically how much cash is raised from based in Luhden, Germany. shareholders (equity) and how much is borrowed from financial institutions (debt) to finance the Group’s activities both now » On 27 October 2022 the Group acquired 100% of the share and in the future. capital, and associated voting rights, of CorSolutions LLC for initial cash consideration of £7.5m and an expected earn-out The Board considers the Group’s capital structure and dividend of £3.6m. CorSolutions is a leading innovator in micro-fluid policy at least twice a year ahead of announcing results in the flow control, based in Ithaca, New York. context of its ability to continue as a going concern and deliver its business plan. » On 23 December 2022 the Group acquired 100% of the share capital, and associated voting rights, of Heatmiser UK Ltd for At 31 December 2022, IMI plc (the company) had distributable initial cash consideration of £117.5m, with up to a further reserves of £282m (2021: £294m). £8.0m payable based on future financial performance. Heatmiser is a leading UK smart thermostatic control Daniel Shook manufacturer and is based in Blackburn, England. Finance Director ## 37Introduction Strategic Report Corporate Governance Financial Statements IMI Precision Engineering – Shanghai, China ## 38 IMI plc Annual Report & Accounts 2022 ## Stakeholder engagement ## Why do we engage? ## Building strong and positive relationships with our ## key stakeholders is critical to fulfilling IMI’s purpose, ## delivering our strategy and achieving long-term ## sustainable success. We aim to engage with our ## key stakeholder groups to develop and maintain ## positive and productive relationships. Where ## we are making strategic decisions, we assess ## the impact on affected stakeholders, balance ## competing interests and where appropriate, ## engage directly with them on the topic. IMI Precision Engineering – Farmington, USA ## 39Introduction Strategic Report Corporate Governance Financial Statements IMI plc Annual Report & Accounts 202240 ### Our stakeholders ## Employees Customers ### Their priorities Their priorities » Health, wellbeing and safety at work » Value enhancing products and services » A positive and inclusive culture which values the unique contribution » New products to help meet sustainability requirements of individuals and supports their diverse working needs » Access to engineering expertise » An environment that engages all employees in creating our future » World-class customer service » Opportunities to grow and develop, supporting our people to be » Long-term partnerships their best ### » Rewarding contribution – which celebrates our people for their part How do we engage in our growth » Our Growth Hub programme builds a pipeline of new products for the future success of the Group and involves hundreds of ### How do we engage customer interactions » Thomas Thune Andersen (our non-executive director with designated » Ongoing relationship management at strategic, sales and technical responsibility for employee engagement) has an annual programme engineering levels of employee engagement events, including sessions with our » Technical and product support, with access to our industry graduates and our European Communications Forum renowned experts, such as through the Hydronic College and » Leadership calls, conferences, town hall meetings Valve Doctor® programmes » Through our communications platform Workplace – sharing IMI » Increasing use of digital platforms to drive knowledge sharing, news, celebrating our people and their contribution across all customer networking and relationship building geographies and levels » Social media – including building customer communities » Proactive engagement at local level to discuss key topics » Participation in relevant trade associations and industry bodies including when restructuring changes affecting the workforce are being considered » Locating facilities nearer to customers in the most attractive growth markets » Anonymised all employee survey to understand the views of our people. Focus groups have been established to review findings, » Direct customer engagement with the Board through events such conduct deep dives into key topics and consult on proposed follow as the opening of our new IMI Remosa site up actions ### Outcomes of engagement » Certain employees from a number of sites have been invited to meet the Board to discuss their career paths and aspirations » Market-led product development » Inclusion of ‘Hey! That’s Not OK!’ workshop on tackling » Improved net promoter scores across all divisions inappropriate behaviour as part of our 2022 IMI Way Day ### 2023 priorities » Feedback from certain employees via a materiality survey which has contributed towards our overall ESG strategy » Maintain strong customer service levels and manage supply chain challenges ### Outcomes of engagement » Continue to apply our engineering knowledge and applications » 2022 Employee Engagement Score: 80% of employees would expertise to solve key customer problems with innovative solutions recommend IMI as a great place to work (2021: 77%) » Implement digital tools to improve customer experience » 36% reduction in serious health and safety incidents » To demonstrate our commitment to the environment and our » Pay rises and cost of living support customers, increase the use of environmental product declarations and review our utilisation of product life cycle assessments » New Code of Conduct refreshed and introduced across the Group ### Further information ### 2023 priorities » Our Growth Hub programme – see page 61 » Drive progress around wellbeing » Examples of digital platforms that drive knowledge sharing, » Advance our Inclusion & Diversity commitments customer networking and relationship building see pages 16 to 25 » Pages 7 and 8 of the Chief Executive’s Review ### Further information » Health and Safety – see page 64 » IMI Way Day – see pages 14 and 59 » Employee engagement – see pages 14, 58 and 110 » Training and development – see pages 15 and 60 » Code of Conduct – see page 53 » Employee benefits and pensions – see pages 14, 59 and 129 ## 41Introduction Strategic Report Corporate Governance Financial Statements ## Investors Suppliers ### Their priorities Their priorities » Trust » Long-term partnerships » Financial returns » Fair, prompt and timely payment » Strategy and execution » Fair commercial terms » ESG » Collaborative approach » Effective capital allocation ### How do we engage » Balance of long-term versus short-term results » Ongoing commercial dialogue » Stewardship » Supplier summits where appropriate ### How do we engage » Regular business reviews with preferred suppliers » Annual General Meeting » Audits, due diligence and relationship management for key suppliers » Active Investor Relations programme which includes regular meetings with investors » Board review and approval of the Group’s Modern Slavery Act Statement, which can be found on our website » Engagement with sell side-analyst community » All Directors are available to shareholders including at the AGM ### Outcomes of engagement » Investor communications and corporate website » Prompt payment of suppliers » Post announcement roadshows for existing and potential investors » Strengthened relationships and resilience » Remuneration related consultation, in policy change year, » Minimal disruptions to customers from supply shortages and as required » Compliance with our standards and policies » Selected investors provided input into our materiality survey which contributes towards our overall ESG strategy ### 2023 priorities ### Outcomes of engagement » Navigate current supply chain challenges to ensure supply chain resilience across the Group » All 2022 AGM resolutions passed 88.87 – 99.77% » Enhance supplier engagement regarding ESG commitments » Full year dividend payment increased by 8% » Work with suppliers to mitigate the impact of inflation » Positive feedback on strategic progress from major investors » Optimisation of supply chain » Stable shareholder base of long-term investors ### Further information ### 2023 priorities » Supply chain management – see page 69 » Maintaining quality and frequency of investor and analyst engagement » Modern Slavery Act Statement, Supply Chain Code of Conduct and Responsible Minerals Sourcing policy – see our website » Evolve reporting to meet investor needs - including understanding their ESG priorities and disclosing against GRI standards » Maintain or improve external recognitions including the LSE Green Mark Excellence, CDP Climate and Water disclosures ### Further information » Shareholder engagement – see page 111 IMI plc Annual Report & Accounts 202242 ### Our stakeholders ## Community & Governments & ## Environment Regulators ### Their priorities Their priorities » Positive social impact » Compliance with applicable laws and regulation » Employment opportunities » Tax income to support society » Minimised environmental impact in the locations where we operate » Safe and responsible business practices and on the global community » Compliance with UK Corporate Governance Code and Listing Rules ### How do we engage ### How do we engage » Obtain market insights from adviser – Ricardo Energy & Environment » Engagement in relation to specific issues on an ad hoc basis » Reporting in accordance with the Global Reporting Initiative » Good corporate citizen with on time tax filings and other » Local community support and humanitarian activities submissions to regulators and governments » University partnerships and Graduate Programme ### Outcomes of engagement » Educational workshops in local schools to inspire young people across » Licence to operate the UK to build a Better World » UK Corporate Governance Code Compliance » Partnership in Germany with a local non-profit, community organisation, to offer people with learning disabilities access to the » Updated our Code of Conduct which includes compliance with local regular labour market laws and regulations such as anti-bribery laws » Active management of emissions and implementation of reduction » Published our corporate tax strategy plans across IMI sites » Integrated sustainability and climate reporting on TCFD » Regular Board ESG updates. Thomas Thune Andersen (our non- » Climate transition plans executive director with designated responsibility for ESG matters) » ISSB standard integration has an annual programme of ESG related engagement events, including sessions with our Better World team ### 2023 priorities ### Outcomes of engagement » Maintaining positive relationships with governments and regulators » Further reduction in environmental impact » Continuing to foster a culture of compliance » Increased environmental disclosure recognised through ### CDP Climate Change score improving from C to B rating Further information » Over 4,000 employees volunteered a combined total of more » Our corporate tax strategy is available on our website than 10,000 hours » Corporate Governance Compliance statement on pages 100 and 101 ### 2023 priorities » Driving progress towards our reduction targets » Optimising our Better World governance for the next phase of ESG strategy ### Further information » Community activities – see page 59 » Environmental, Social & Governance section – see pages 46 to 79 » Environmental performance – see pages 70 to 79 Introduction Strategic Report Corporate Governance Financial Statements 43 ## s.172 statement This statement is made to explain how our Board of Directors, both individually and together, have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and having regard (amongst other matters) to factors set out in Section 172(1) (a) to (f) of the Companies Act 2006 in the decisions taken during the year ended 31 December 2022. When making decisions, each Director ensures that he/she acts in the way he/she considers, in good faith, would most likely promote the Company's success for the benefit of its members as a whole, and in doing so have regard (among other matters) to: ### a) the likely consequences of any decision in the long-term The Board has adopted an established business planning process and sets strategy with a view to long-term success, to deliver our purpose – **Breakthrough Engineering for a better world**. Further information on our Growth Hub programme is included on page 61. Our Creating a Better World strategy, including our ESG ambitions and targets are described on pages 46 to 79. ### b) the interests of the Company's employees Our people are essential to delivering performance and growth. They bring diverse skills, knowledge, and experience to fuel our performance and growth. The Group depends on its employees for its success and invests considerable time and resources on employee engagement, training and development as summarised on page 60. Thomas Thune Andersen is the non-executive director with designated responsibility for employee engagement, which includes gathering the views of the workforce on behalf of the Board. Please see pages 104 and 110 for more information about his role and activities. The Board also meets a range of employees. When making key decisions, the Board considers employees' views gathered through engagement mechanisms and potential impacts on the workforce, with Thomas and other directors (where relevant), contributing any relevant employee insights during board discussion. ### c) the need to foster business relationships with suppliers, customers and others Customer service and value are at the core of our business model and strategy and are key to building a long-term sustainable business. The Board monitors indicators of the customer experience and welcomes the increased emphasis on the customer which management is building. Our businesses work collaboratively with partners including suppliers, distributors and agents who are closely managed from a commercial and compliance perspective. Further information can be found on page 69. ### d) the impact of operations on the community and the environment Our sites are positive contributors to their local communities as employers and through apprenticeships, employee training and community activities (including the annual IMI Way Day, charitable activity and donations). The Group supports such community involvement, more detail on which can be found on page 59. The Board approves and monitors the Group's plans to minimise the impact on the environment. Our continued progress depends upon the Board driving ESG initiatives and channelling investment to projects with due regard for the environment. Further information on ESG matters appears on pages 46 to 79. ### e) the desirability of maintaining a reputation for high standards of business conduct Our ESG initiatives are consistent with building our standing as a good corporate citizen looking to have a positive impact on the world. The Board demands high standards of conduct from all directors and Group employees and expects management to be mindful of how and with whom business is conducted. This year we have rolled out an updated Code of Conduct which has been supported by compulsory training. Please see page 53 for more details on our updated Code of Conduct. The Group will decline to have dealings with third parties who display poor business conduct or do not pass applicable onboarding checks. Further information about how we ensure we operate ethically at all times and our purpose, values and culture, can be found on pages 52 to 55. ### f) the need to act fairly between shareholders of the Company It is not always possible to provide positive outcomes for all stakeholders and the Board sometimes has to make decisions based on balancing the competing priorities of stakeholders. IMI plc Annual Report & Accounts 202244 The IMI Governance Framework describes Board level governance and how the Board delegates its authority. All Board decisions are made with the Group’s long-term success in mind and, as can be seen from this Annual Report, the Board has regard to a broad range of matters including the voice of stakeholders. Where appropriate, Board papers include a s.172 assessment to support the Board in its duties. The oversight and monitoring activity of the Board includes maintaining an understanding of key stakeholders and being receptive to the voice of stakeholders. In the table below, some of the key decisions made by the Board over the year are described. There is an explanation of how the Directors engaged with, or in relation to, the different key stakeholder groups and how stakeholder interests were considered over the course of decision-making. Key Board Our decision process Stakeholders considered decisions in 2022 Our ESG The Board reviewed and agreed our Creating a Better Customers Strategy World sustainability strategy described on page 8 and During the year, the Board was informed about how a Better World lens set the targets and ambitions stated on pages 49 and is applied to the development of products and solutions to help customers 50. This involved a number of decisions being taken meet their sustainability targets. The Board was provided with customer which required the Board to engage with stakeholders feedback via the materiality survey results suggesting sustainability and take account of information at several touchpoints strategy focus areas. throughout the year. Progress updates were provided Employees by the Head of Sustainability and relevant insights were The Board received a detailed summary of wellbeing and employee given by Thomas Thune Andersen. The Board carefully engagement activities during a number of touchpoints in the year. considered the output from the ESG materiality survey The Board was provided with employee feedback via the materiality which included feedback from senior members of the survey results suggesting sustainability strategy focus areas. Thomas Thune leadership group, customers and investors about the Andersen also participated in a sustainability strategy session delivered by the relative importance of various sustainability focus Group General Counsel & Company Secretary with members of our European areas to support the setting of the Creating a Better Communications Forum (ECF), and engaged with a number of ECF members. World strategy. In July, the Board engaged with In addition, Thomas received feedback on sustainability matters during his members of the Better World team who shared details employee engagement sessions, which are described in more detail on page of progress made on social initiatives. This session 110. A summary of key insights was shared with the Board. generated detailed engagement on areas including Inclusion & Diversity, health, safety and environment, Suppliers talent development, employee wellbeing, reward and The Board received information about carbon emissions generated by our communications. The Board was also informed about supply chain and heard about plans for engagement with suppliers to reduce site specific initiatives relating to CO 2 , waste and water carbon emissions. reduction. During a site visit to IMI Remosa in October, the Board was given a demonstration of the IMI VIVO Investors electrolyser, a turnkey solution capable of producing The Board was given feedback from investors via the materiality survey on green hydrogen from renewable energy sources and suggested sustainability strategy focus areas. The Board received updates details of ESG related activities and investment at the from IMI’s Investor Relations team about engagement with investors on ESG- new site. In February, the Remuneration Committee related matters and engagement with external ratings agencies for example also considered and agreed the inclusion of a climate CDP and MSCI regarding ESG performance and areas for improvement. related metric within the executive remuneration Community & Environment structure thus formalising the linkage of our executive The Board took into account feedback received via the materiality survey remuneration outcomes to our Better World purpose. on suggested sustainability strategic focus areas and enhanced its focus Through our Creating a Better World strategy, we on waste and water. seek to minimise or eliminate any negative impact our businesses may have on our stakeholders and on the Government & Regulators environment to enable a greener future. During a number of Audit Committee meetings, the full Board received updates from Deloitte about guidance and expectations of the Financial Reporting Council and the requirements of the Financial Conduct Authority regarding ESG strategy, targets, compliance and reporting. Willis Towers Watson shared regulatory and investor community expectations about ESG targets in executive remuneration with the full Board during a meeting of the Remuneration Committee. ## 45Introduction Strategic Report Corporate Governance Financial Statements Key Board Our decision process Stakeholders considered decisions in 2022 Acquisition In the highly competitive M&A environment, the Group Suppliers of Bahr successfully completed a number of acquisitions in The Board had regard to the opportunity for suppliers to increase their 2022. The Board approved the acquisition of Bahr business with IMI, which could deliver synergies for IMI. Bahr’s suppliers Modultechnik Holding GmbH (“Bahr”), a leading can remain confident in IMI’s financial strength and commitment to provider of highly configured modular electric linear long-term partnerships. motion systems, a sector which the Board considers Employees to be aligned with its Better World strategy. Bahr has The Board considered expected reactions from employees and the become part of IMI Precision Engineering’s industrial broader career development opportunities from the enlarged industrial automation unit. Bahr provides access to Better automation business. World end markets such as pharmacy automation, warehouse automation and robotics application. Customers The Board also considered the longer-term growth As part of the Board’s decision making process, the Board assessed the prospects of the enlarged Group and potential returns. long-term commercial opportunities and considered that the combined product portfolio of IMI and Bahr would provide customers with a larger range of solutions and likely enhance IMI’s contribution to a Better World. The addition of Bahr will enable IMI Precision to deliver a power agnostic offering of pneumatic and electric linear motion systems. Community & Environment In successfully completing the acquisition, the Board was mindful of the increased exposure to Better World end markets. Investors The Board took into account our broker’s opinions on the expected market reaction to the acquisition. The Board had regard to the opportunity that Bahr is expected to be both margin and growth accretive to IMI Precision and the acquisition is projected to deliver a financial return in excess of IMI’s cost of capital by the end of year three. Disposal Upon Russia’s invasion of Ukraine, the Board quickly Employees of Russian discussed the impact on our colleagues and customers The Board considered employees affected in the region first and foremost. business in affected regions. Following IMI’s commitment to The Board understood the impact this would have on employment for some cease all new business in and international deliveries to of the workforce, and was assured by management that relevant groups Russia, the Board decided to dispose of IMI’s Russian would be consulted fairly in line with IMI’s values and local law. Local subsidiary to local management. The Board considered management took steps to ensure open dialogue with the local workforce the complex and evolving situation including ensuring and reduce adverse consequences for employees. the ongoing solvency of IMI Russia. The Board was Customers & Suppliers mindful of taking steps to do the right thing and The Board was cognisant that continuing to support local customers in Russia protect our reputation, complying with international was not right nor practical. The Board agreed that the proposed transaction sanctions and keeping our local employees within would enable the business to continue supporting customers. The Board Russia safe. was aware of the impact of the decision on our teams who worked hard to maintain ongoing dialogue with local customers and manage customer expectations in challenging circumstances. Government & regulators The Board recognised the wider reputational considerations and agreed that the disposal would show IMI’s commitment to discontinuing its Russian business and would therefore promote the long-term success of IMI. The Board took into account evolving laws, compliance with international sanctions and banking covenants. We maintained communication with our banks to ensure compliance with our finance covenants. ## 46 IMI plc Annual Report & Accounts 2022 ## Creating a BETTER WORLD ## Our sustainability strategy, Creating a Better World, sets ## out the most important priorities for our business and for ## our stakeholders. This framework has been developed in ## collaboration with certain customers, investors and our ## people who were part of our materiality assessment process. ## This involved completing a survey and ranking 42 sustainability ## issues in order of importance to our business. The responses ## fed into the development of our board-approved ESG strategy ## and helped determine our sustainability pillars. ## 47Introduction Strategic Report Corporate Governance Financial Statements | Empowering | | Sustainable | | Climate | | | --- | --- | --- | --- | --- | --- | | people | | solutions | | action | | | | Turn to page 56 | | Turn to page 66 | | Turn to page 70 | | We will develop and | | We will engineer | | We will play our part to | | | empower people to | | solutions that help | | address climate change | | | make an impact and | | our customers | | by minimising the | | | create a better | | become safer, more | | environmental impact | | | working world. | | sustainable and more | | across everything | | | | | productive. | | we do. | | ## Responsible ## business Turn to page 52 ## Operating responsibly and doing the right thing ## are the foundation of everything we do. IMI plc Annual Report & Accounts 202248 ## Creating a BETTER WORLD ## Our performance and targets ## Empowering people Measure Target Employee engagement Employee engagement, measured through the One Big Voice survey results for employees seeing One Big Voice survey, has increased from 77% IMI as a great place to work to be >75%* in 2021 to 80% in 2022. Employees see IMI as a great place to work | Diversity | Percentage of women in management positions | To have 25% of women in management across | | --- | --- | --- | | | is 22% | the Group* | | Health and Safety | Total Recordable Incident Frequency Rate (TRIFR) | To remain within the top quartile of safety | | | was 0.35, down from 0.56 in 2021 | performance for the industry sector | ### Our goals • Health and safety: ensure all our employees are safe and supported at work • Culture and employee engagement: create a culture where our employees can thrive • Talent and people development: develop and empower people to make a positive impact on our business, customers and communities • Inclusion & Diversity: build a truly inclusive business where people are free to be themselves and that reflects the diversity of the societies in which we operate ## Sustainable solutions Our ambitions Product performance Maintain our membership with the London Stock Exchange Green Economy Mark. Continue to develop our Growth Hub sustainable portfolio assessment and integrate current and emerging ‘green’ taxonomy definitions, in addition to our own Better World objectives Innovation Ensuring our R&D spend as a % of revenue remains at a minimum of 3% and focusing all of our people on solving acute customer problems in order to deliver IMI’s purpose of Breakthrough Engineering for a better world* Supply chain Engagement with our suppliers to progress our Scope 3 reduction plans ### Our goals • Product performance: optimise product quality and performance for our customers to help them reduce their own emissions • Operational excellence: improve efficiency and reduce waste • Innovation: develop products with enhanced focus on quality, environmental impact and reliability to solve customers’ problems • Supply chain: engage our suppliers to ensure we maintain a sustainable, ethical and resilient supply chain * Targets/ambitions new for 2022. Employee health We strive We aim to provide We provide ## Our and wellbeing is of for equity in solutions which training and utmost importance. treatment of our help our customers development for ## priority Our health and safety people and have reduce their all of our people policies and our made gender emissions and and follow best ## UN wellbeing initiatives diversity a business increase efficiency. practices in are key to ensuring priority and ensure providing good high levels of health our development working conditions ## SDGs and wellbeing programmes are and practices. amongst our people. available for all. ## 49Introduction Strategic Report Corporate Governance Financial Statements ## Climate action Achievements Targets Our Scope 1 Total CO 2 intensity reduction of 25% from 2.78 in 2019 to To reduce emission intensity to 1.39tCO 2 e per emissions & 2 2.09tCO 2 e per 1,000 hours worked on a location basis. 1,000 hours worked (50% of 2019 baseline) by 2030 on a location basis. Absolute CO 2 e emissions reduction of 30% from 57,500t To be net zero for Scope 1 & 2 emissions by 2040 (in 2019) to 40,480t Scope 3* Established total Scope 3 emissions (as at 31 December To reduce total Scope 3 emissions by 25% by 2030 2021) of 586,629tCO 2 e (see pages 78 and 79 for To be net zero for Scope 3 emissions by 2050** further details) | Our water | Total water usage reduction of 5% from 203,444m3 | To reduce water intensity to 9.7m3 per 1,000 | | --- | --- | --- | | usage* | in 2020 to 193,457m3 in 2022. Total water intensity | hours worked (10% reduction compared to 2020 | | | reduction of 7% from 10.8 in 2020 (m3 per 1,000 hours | baseline) by 2030 | worked) to 10.0 in 2022 Waste* Total non-recycled hazardous waste of 387 tonnes To reduce total non-recycled hazardous waste in 2022 by 50% from a 2022 base by 2030 ### Our goals • Emissions reduction: reduce environmental impacts of our operations on air, water and waste • Climate change: minimise our impact on climate change and mitigating against the risks ** Subject to further analysis and validation ## Responsible business Highlights Code of Conduct Enhanced Code of Conduct and associated online training introduced across the business, with further onsite sessions planned in 2023 Reporting We will report in accordance with the GRI for the first time (see our website for details) Wellbeing New Employee Assistance Programme launched in 2022 IMI is currently rated AA IMI has been a member of FTSE4Good since June 2021, IMI responds to the CDP climate and water security (leader) for MSCI with an ESG score in the 54th percentile of our peer group questionnaires, scoring B and C respectively in 2022 ### Our areas of focus • Long-term sustainable success: ensure the viability of the business by generating and preserving value over the long-term • Governance: framework of policies and procedures which control and direct our company • Ethics: acting with integrity to demonstrate the highest standards of responsible and ethical behaviour • Compliance: respecting and adhering to laws and regulations and our policies and procedures Our technologies help We aim to Focusing on Our products improve efficiency in ensure equality emissions reduction and solutions many end applications, opportunities for and innovating for help contribute particularly in buildings all our people and improved product to mitigating and infrastructure adopt policies that efficiency ensures a the effects of projects. promote greater Better World for all climate change. equality. whether city dwelling or rural based. 50 IMI plc Annual Report & Accounts 2022 # Our sustainability milestones 2020 - Established our Better World purpose - Established our Better World team - Committed to halve our CO₂ intensity (Scope 1 & 2) by 2030 compared to a 2019 baseline - Appointed Thomas Thune Andersen as non-executive director responsible for ESG 2021 - Appointed Louise Waldek as the Executive sponsor for the Better World team - Appointed a Head of Sustainability - Met (and exceeded) the FTSE Women Leaders requirement for >33% of female representation on both the Board and Executive Committee - Met the Parker Review requirement of at least one director from a minority ethnic group - First TCFD report published 2022 - Expanded the Better World team to include Scope 3 and governance and reporting sub-committees - Completed our materiality impact assessment with input from key stakeholders including employees, investors and customers - Assessment of Scope 3 emissions and inclusion of reduction plans with interim and net zero targets - Developed and communicated our ESG strategy Creating a Better World to key stakeholders - Purchased renewable energy certificates to guarantee renewable energy supply covering 79% of our electricity consumption - Inclusion of our women in management metric within our empowering people targets 2023 - Begin product assessment work to help alignment of products and markets to Better World - Increase the use of product Life Cycle Assessments - Design a sustainability portfolio assessment for markets, risks and benefits - Materiality assessment update to double materiality - Update transition plans with Scope 3 emission reductions - Improve and develop TCFD disclosures 2030 - Achieve 10% reduction in water intensity compared to a 2020 base - Achieve 50% reduction in Scope 1 & 2 intensity compared to a 2019 base - Achieve 25% reduction in Scope 3 emissions compared to a 2021 base - Achieve 50% reduction in non-recycled hazardous waste compared to a 2022 base 2040 - Achieve net zero target for Scope 1 & 2 emissions 2050 - Achieve net zero target for Scope 3 emissions** ** Subject to further analysis and validation. ## 51Introduction Strategic Report Corporate Governance Financial Statements IMI Critical Engineering – Kobe, Japan IMI Hydronic Engineering – Ljung, Sweden ## 52 IMI plc Annual Report & Accounts 2022 ## BETTER WORLD ## Responsible ## business ### On pages 46 to 49 we describe what Creating a Better World ### means to IMI and how we approach key aspects of our ESG ### agenda. Our ESG pillars are empowering people, sustainable ### solutions and climate action. We are committed to acting ### responsibly. We seek to minimise or eliminate any negative ### impact our businesses may have on our communities, our wider ### stakeholders, and on the environment. We will play our part to ### address climate change and protect the planet by minimising ### the environmental impact across everything we do. We will ### engineer solutions that help our customers become safer, more ### sustainable and more productive. We will develop and empower ### people to make an impact and create a better working world; ### Breakthrough Engineering for a better world. IMI Critical Engineering – Piacenza, Italy ## 53Introduction Strategic Report Corporate Governance Financial Statements ## Code of Conduct IMI plc Code of Conduct Doing the right thing, always, is inherent include Internal Control Declarations, in our purpose to deliver Breakthrough spot checks and regular on-site legal and Engineering for a better world. Integrity compliance reviews, which are designed is one of our core values and underpins to help instil the highest standards of everything we do. regulatory compliance. These policies and procedures are embedded in our risk Our Code of Conduct sets out the assessment processes, further details of standards our stakeholders can expect which are provided on page 92. from us and what we expect from Breakthrough our people and our business partners. The new Code of Conduct, our ‘Speak Up’ Engineering for a better | In December 2022, we launched a revised | and ‘Hey! That’s not OK!’ campaigns | world. | | --- | --- | --- | | Code of Conduct (available in our core | continue to encourage all employees to | | | spoken languages) and our people are | report any incident that is not in keeping | | | completing training to ensure they | with our values and behaviours through | | | understand our expectations and are | line managers, senior leaders or via a | | | clear about how to raise any ethical | confidential independent hotline, which | | | concerns or dilemmas. | allows anonymous reporting in our core | | spoken languages. The Group’s Ethics We have a number of detailed standard and Compliance Committee reviews operating procedures underpinning hotline activity on a monthly basis. our Code of Conduct and appropriate Reports are investigated thoroughly and, compliance processes. A list of key where required, action is taken to resolve policies and procedures can be found issues. The Executive Committee and the in the Non-financial Information Board also monitor the operation of the Statement on page 84 and include hotline and check that commensurate anti-bribery and corruption policies. investigation and follow-up is carried out. Monitoring and review procedures IMI plc Annual Report & Accounts 202254 Committee monitors and reviews To strengthen reporting and improve ## Our ESG ESG progress, climate-related risk stakeholder communications, it is management processes and reviews important to provide comparable and ## framework biannually a detailed analysis of the meaningful ESG data and information, Group’s risk profile including aligned with internationally recognised supporting divisional data standards and disclosures. As such, During 2022, we built on our four we have presented our ESG reporting step process (outlined in 2021) and » Divisional leadership implements the framework Creating a Better World, developed our ESG framework, Creating a Better World strategy. building on our strong foundations. Creating a Better World. This approach It also monitors changes in the We conducted a peer review to inform aligns to our purpose and provides climate-related risk profile and is how leading organisations from various a focal point for us all to strive towards responsible for ensuring risk sectors are reporting against ESG. and measure our progress against. management culture is integrated We also carried out a review of the We have also adopted the Task across the division and aligned to criteria within leading sustainability Force on Climate-Related Financial the Group’s objectives and appetite. reporting standards. Disclosures (TCFD)’s recommendations Divisional leadership is responsible for governance. for data capture and cascading ## Global Reporting initiatives and projects ## Creating a Better World Initiative (GRI) » Our Head of Sustainability leads the ## governance To strengthen our reporting and give Group’s Better World team which is a greater level of transparency, we are » Led by the Chair and the Chief composed of senior representation disclosing in line with the GRI Standards Executive, there is Board level from around the business, each with for the first time. We have now commitment to develop a strategy a different perspective and expertise developed a framework to capture covering how we best deliver in ESG matters the required data across the various Breakthrough Engineering for a » During 2022 two sub-committees ESG categories to align with the GRI better world and how we report on of the Better World team were Standards. We will also continue to our progress – for all our stakeholders established: use the CDP to report Greenhouse » Our senior independent, non- Gas (GHG) emissions as well as water – Scope 3: A focused group of key executive director, Thomas Thune security which we disclosed for the first individuals involved in establishing Anderson, has designated time in 2022. As detailed on page 77, we what our Scope 3 emissions are responsibility for ESG matters to have also undertaken climate scenario and development of a strategy support the directors’ collective analysis to support our TCFD disclosure. to reduce Scope 3 emissions responsibility to consider a wide range We fully appreciate the importance of stakeholder perspectives and drive – Governance and Reporting: of data required to provide robust IMI’s ESG agenda when arriving at A selected group of employees and transparent reporting, and this Board decisions. His role and relevant involved in collating and organising Annual Report is our first full Report experience is described on page 96 our data and regulatory responses ‘in accordance’ with GRI. We have required for key internal and » The Board set our Creating a Better disclosed (on our website) our material external sustainability reporting World strategy and our ESG priorities. issues (including our materiality impact The Board is responsible for the Inclusion & Diversity is managed by the assessment matrix) that are most impact of climate-related risks and divisions and monitored by the Better important to our stakeholders as opportunities. For full details of World team. identified by the materiality assessment activities carried out by the Board conducted earlier this year, described Better World sub-committees met in the year, see pages 106 and 107. on page 8 of this Annual Report. We monthly throughout 2022 and made The Board receives updates will continue to invest in systems and progress in these areas: our Scope 3 throughout the year on progress on processes to help us with our reporting data capture and disclosure (see emissions reduction targets (Scope 1, requirements in this key area. Our pages 70 to 75), strategy; our internal 2 and 3). The Board determines risk website includes a comprehensive and external governance; and reporting appetite regarding climate-related index which maps our material items requirements. This included providing risks. The Board reviews principal risks against the required GRI disclosures. clarity to the Group on the increasing biannually and reviews the external governance landscape and effectiveness of internal controls the key third parties involved. annually. The Board also horizon scans for emerging climate-related risks We also have a dedicated management committee with » Strategy execution is delegated to responsibility for charitable the Chief Executive, supported by donations, humanitarian support the Executive Committee. The and sponsorships. Executive Committee is fully engaged with ESG matters and Louise Waldek is the IMI Executive sponsor for the Better World team. The Executive ## 55Introduction Strategic Report Corporate Governance Financial Statements ### Area Roles Responsibility Board Chief Executive To approve the Creating a Better Communicating World strategy and ensure ESG issues Non-executive director with designated are considered as part of the Group’s responsibility for ESG strategy through purpose, strategy and objectives. the organisation Oversees progress against targets. Assesses climate-related risks Executive Executive sponsor for Better World team To set direction and ESG focus areas relevant to IMI Divisional Managing Directors To oversee ESG initiatives and provide regular updates to the Board Making sure the right people and resources are in place to achieve our ESG objectives Better World Head of Sustainability A cross-divisional and functional team, team co-ordinating ESG initiatives across IMI Precision champion the Group IMI Critical champion Responsible for recommending ESG IMI Hydronic champion strategy, developing plans for its implementation, and establishing Head of Health, Safety & Environment structures, measures and validation plans Group Financial Controller that deliver to Group targets. Routinely reports to Board and Executive Head of Risk Developing external and internal Head of Engagement & Communications Communication communication plans in parallel to of activities and the above Head of Global Wellbeing initiatives Managing IMI’s relationships with external Governance team consultants and agencies Investor Relations Analyst ## How we approach ESG Across the Group we operate both a ‘top down’ and ‘bottom up’ approach to the ESG agenda, as illustrated above. This allows the Board and the Executive Committee to review and assess ESG strategy and activities. It also ensures that ESG progress and initiatives are managed at multiple levels and that key ESG information is communicated effectively across the Group. IMI Hydronic Engineering – Ljung, Sweden ## 56 IMI plc Annual Report & Accounts 2022 ## BETTER WORLD ## Empowering ## people ### We will develop and empower people to make an ### impact and create a better working world. ### Our people are critical to delivering our purpose of ### Breakthrough Engineering for a better world. ### Our better world ambition is about developing and ### empowering people to create a positive impact in our ### business, for our customers and for the people we serve ### and the communities in which we operate. ### Our values remain the backbone of our business – customer ### intimacy, integrity, playing to win and one big team guide all ### our interactions and inform our decisions. ### A summary of our people strategy is outlined on pages ### 14 and 15 and in the pages that follow. IMI Precision Engineering – Shanghai, China ## 57Introduction Strategic Report Corporate Governance Financial Statements IMI plc Annual Report & Accounts 202258 Through 2022 we have continued to Workplace, our internal ## Culture and invest in and nurture our culture to communications platform, continues ensure it is a differentiator for our to provide all employees the ability to ## employee business. In a world that continues connect and collaborate every day. ## engagement to be volatile, having a strong culture We have been focused on engaging is helping us to manage uncertainty. front line workers with a number of We operate a business where the supported site pilots; those that have safeguarding of our employees is front participated are now featuring in our and centre, where we collaborate top ten most active locations. This to create a Better World for our platform continues to provide a customers, communities and each channel to showcase our purpose, other, and where we adapt to ensure strategy and values in action. our people, products and processes Our global employee survey, One Big continue to thrive. Voice, is now in its second year in this | Over the last year we have shared more | format and is a great way to engage | | --- | --- | | about ‘who we are and what we do’ | with our colleagues. The survey is | | with our stakeholders to showcase | translated into our core 12 languages | | IMI as a purposeful and progressive | and the results are analysed locally with | | business. Our corporate website now | sites creating specific action plans for | | includes regular updates that bring to | improvement that are signed off by | | life our culture through the use of ‘proof | divisional HR Directors. We are pleased | | point’ storytelling of our people and | to report that our key metric to | | products, and we have embraced | measure employee engagement | | multiple social media channels to reach | increased to 80% in 2022, up from | | future talent. The Executive Committee | 77% the prior year (our new | | has sponsored a ‘Big Play on Talent’ | engagement measure is outlined on | | initiative focusing on talent attraction, | page 12), reflecting the ongoing efforts | | talent visibility and talent development. | and investment being made to ensure | | This has resonated positively across the | that IMI has a positive culture and is a | | whole organisation. | great place to work. | IMI Critical Engineering – IMI Precision Engineering – Kobe, Japan Farmington, USA ## 59Introduction Strategic Report Corporate Governance Financial Statements In addition to the local community ## IMI Way Day Employee representation initiatives that take place across Front and centre of our engagement We are committed to upholding the business at site level, IMI made approach is the IMI Way Day. It strong relationships, and engaging donations to a number of not-for-profit provides the opportunity for every regularly, with union bodies – these organisations amounting to £180,000 site and every team member to come are represented across many of our in 2022. Highlights include partnering together for one day and celebrate sites. We host an annual European with the Derby Museum to sponsor the their part in creating a Better World Communications Forum (ECF), which Midlands Maker Challenge - an exciting for our customers, our people and our took place virtually this year, and programme that draws on the rich communities. Taking time to pause, was attended by employee manufacturing heritage of the reflect and contribute to our business representatives from all of our key Midlands to encourage an open and priorities, talk to each other about European geographies. The annual exploratory mindset that helps young what really matters to us all at IMI, ECF is an important opportunity to people feel empowered to make a and give something back to our share an update on key business and difference in their communities and communities are core drivers of people initiatives as well as respond to learn and develop new skills. We also engagement for our business – and to any questions or concerns. We also joined with our employees to fundraise essential ingredients of a purpose-led meet with the forum members every for the people of Ukraine through a organisation. quarter to share updates and seek their UNICEF fund. IMI committed to match thoughts and feedback on key In such a demanding world, the IMI funds raised by our employees and as a topics arising in their geographies. | Way Day is protected time to examine | result, over £32,000 has been donated. | | | --- | --- | --- | | our purpose and our connection to it. | On a practical level, our teams on the | This year we have also engaged | | It’s essential to identify and celebrate | ground in different European locations | with a cross-section of employees | | how each division, each site and each | set up collection points in offices to | in focus groups on topics including | | individual contributes to our growth | receive donations of vital items for | communications and engagement, | | and our purpose. This year seven of | refugees. Containers were then packed | talent attraction (especially early | | our sites were featured in video stories | up using our distribution hubs and, with | careers), and talent development | | showcasing the part our people are | the help of colleagues liaising with the | opportunities. | | playing in creating a Better World – | Red Cross, shipped to Poland to help | | | from our assemblers to our line | those most in need. | Leadership engagement | operators, our machinists to our IT Our focus on Leadership Engagement ## team. A key highlight was showcasing Wellbeing has continued with our Playing to Win our values in action and the work our Ensuring that all employees feel valued leadership conference at the beginning team in Poland has led to support the and supported is central to our culture. of the year and quarterly leadership humanitarian crisis on Our wellbeing framework is centred sessions around our strategy, led by their doorstep. around four pillars – mind, body, the Chief Executive and Executive financial and social. To compliment Committee with our leadership group. ## Community engagement these, this year we introduced an Key messages from these sessions The IMI Way Day enables our Executive sponsored Employee are cascaded to all employees with employees to engage in volunteering Assistance Programme (EAP), which a specific focus on supporting activities which contribute to our local launched globally at the beginning of middle management to understand communities. Common activities June. This free, confidential programme the company’s purpose, strategy included assisting at local food banks provides short-term professional and values. and helping clear and tidy local parks counselling for any work or personal ## and woodlands for local residents to issue. It includes an online resource Pay and benefits enjoy, in addition to raising and making hub with access to articles, checklists We continue to ensure pay, benefits, direct contributions to local charities. and advice on a wide range of topics and wellbeing propositions are In 2022 over 4,000 employees including work, life, parenting, health competitive and fair. Pay is typically volunteered a total of over 10,000 and ageing. We have a team of reviewed on an annual basis, with hours. We ensure that all activities wellbeing champions around the increases aligned to an individual’s align to at least one of the 17 United business who assist the Head of level of skills and experience as well Nations Sustainability Development Global Wellbeing in communicating as external factors like market Goals. In 2022; activities aligned to the programme to colleagues via our competition and inflation. 2022 life on land; zero hunger; good health internal communication platform, was a year of great global economic and wellbeing; and climate action Workplace, and also to our front-line uncertainty and, in many countries, amongst others. workforce through townhall sessions. there has been a backdrop of Awareness days such as World Mental historically very high inflation. This is Health Day are embraced around the expected to continue in 2023, and, with business with events being held to that in mind we focused our resources support the wellbeing of colleagues. on those who need it most by giving higher relative pay awards to employees on the lowest incomes. IMI plc Annual Report & Accounts 202260 Having focused development ## Talent visibility ## Talent and people programmes for our talent population We have also made a series of changes will ensure they are able to progress ## development which give us greater understanding and grow our business. Key to this and visibility of the talent that exists has been to realign leadership Talent was an Executive priority for inside our organisation. We improved development to our Better World 2022 and we have focused on three our performance management growth ambitions and to engage workstreams: Talent Attraction, process to emphasise career our leadership community in their Visibility and Development. This aspirations, mobility and development role to grow IMI. | has resonated positively across the | conversations. We also re-defined | | | --- | --- | --- | | whole organisation. Our Inclusion | talent to encompass performance | » In 2022 we began a partnership with | | & Diversity policy has been fully | and potential, with performance | the International Institute for | | integrated into each of these | ratings now reflecting delivery of | Management Development (IMD), | | workstreams, ensuring that we | results in the right way and identifying | launching an executive management | | continue to leverage Inclusion & | talent that will help us to win. | programme in October with 50 of | | Diversity as a key enabler to further | | IMI’s key leaders (24% female) | The Talent Review process now develop our culture. The overall focus incorporates the full Executive team » Our successful Catalyst programme is on developing and executing a strong reviewing cross-divisional and for high-potential talent has internal succession pipeline while functional succession plans and continued with a second cohort, supplementing this with high calibre development. There is also a monthly representing a gender balanced external candidates where required, Executive team discussion on open, group more closely aligned in and especially in those parts of the business-critical roles, high potential experience level. This programme is business requiring new capabilities talent development and follow up seeing excellent engagement and for growth such as digital expertise actions from the most recent talent will continue into 2023 for customer experience; commercial review. The Talent Review process excellence; strategic product » The IMI Graduate Programme covers roles two levels below the management and new skills remains a key talent pipeline, with Executive Committee with a in engineering. 40 graduates joining us as part of focus on the talent assessment the 2022 intake. Retaining an even and succession pipeline, Growth Hub, ## Talent attraction gender balance into the organisation early careers, site leaders and We are committed to attracting high remains a priority with 40% of the commercial talent. Succession quality, diverse talent, through an 2022 intake being female (50% in coverage has also improved compared impactful and excellent candidate 2021). We continue to diversify the to prior year, as a result of the cross- experience. Doing this will ensure programme into broader disciplines, divisional talent sharing and improved that we continue to have a pipeline further ensuring the delivery of key talent visibility across the Group. | of high-calibre talent to deliver our | | capabilities into the business and in | | --- | --- | --- | | growth agenda. Excellent progress | Owing to success in recent years | 2023 we will expand our early careers | | was made in 2022 to improve our | with internal promotions into | opportunities as a pipeline to the | | attraction, recruitment and selection | leadership roles, a lower than expected | graduate programme | | and onboarding processes. | percentage of roles were filled | | We want all our people to see and Enhancements to our corporate internally at 28%. We continue to own their part in our growth. We are website and social media platforms enhance our internal pipeline through engaging more people from right are bringing our purpose and culture development of high potential talent across the business and externally to life and ensuring our ‘go-to-market’ and therefore expect to see this return through our entrepreneur network strategy demonstrates IMI to be an to a higher percentage in the medium to drive our growth accelerator employer of choice. We have to long-term. programme, Growth Hub. We standardised our testing and interview appointed divisional growth accelerator ## processes to support our hiring Training & development leads who use the tools, techniques and managers and unconscious bias Development remains a key enabler growth mindset from Growth Hub and training is also being rolled out to to both engagement and retention take the learnings into our local sites. further embed Inclusion & Diversity of talent and a core part of our talent These, and other activities, encourage best practice into our processes. strategy. We have continued to invest more employee involvement in our Digitalisation of our recruitment in IMI Learn, our e-learning platform growth agenda. process is also being invested in to that is accessible to more employees improve time to hire and improve globally with multi-language capability. the candidate experience. The varied content will support personal development and begin the journey away from a ‘push’ system of compliance training to one that is individually driven for personal development. ## 61Introduction Strategic Report Corporate Governance Financial Statements The growth in ambition this engenders The rigour of the Growth Hub approach ## The Growth Hub effect touches far more than the hundreds is key to its success. Getting into the ### Our innovation process is people who have been involved in habit of busting assumptions early ### about more than creating Growth Hub to date. Through the on is one of the best things team ### new products: it’s opening power of the network, it impacts members learn from being involved ### the door to transformational on all 10,000 of our people and is with Growth Hub. We all hold ### cultural change. bringing about a remarkable assumptions, and what assumption cultural transformation. busting does is allow you to test out: Growth Hub, IMI’s innovation engine, ‘Is this a fact, or is this a story we’re is a hands-down commercial success. Experiments not projects telling ourselves to make a situation Our internally incubated Growth Hub Testing assumptions to confirm them more in line with our expectations?’ projects produced £23m of orders in or bust them fast is a skill that can 2021 and £52m of orders in 2022. Growth Hub is arming our people with be applied to almost any role. Likewise, What makes Growth Hub even more new skills that will help us navigate the Growth Hub mantra of focusing on exciting for our future is the way the uncertainty and it’s changing how product-market fit sharpens our process is already sparking a profound customers perceive us and we perceive commercial sense across the board. change in mindset at IMI. ourselves. It is securing our future as It drives us closer to our customers, a driving force behind our Better Growth Hub encourages an agile, keeping us tuned-in and alert to their World growth ambitions. decisive, entrepreneurial approach emerging challenges and needs. Rather to solving industry-wide customer than the sense that we are inside IMI, problems. Sprint teams move at communicating outwards towards our pace and learn new ways of working, customers, we’re reversing the flow including killing projects early and and making communication more pivoting fast when necessary to of an outside-in process, inviting take advantage of newer, bigger customers to hackathons and co- opportunities. creation sessions which yield dozens of new insights and ideas. IMI Precision Engineering – Palézieux, Switzerland IMI plc Annual Report & Accounts 202262 ### Our Inclusion & Diversity strategy continues to focus on four key areas: ## Inclusion & ## Diversity | 1. | 2. | | --- | --- | | Engagement: | Resourcing: | | connecting with colleagues | ensuring that both external | | across IMI about Inclusion & | and internal recruitment | | Diversity and embedding | processes are inclusive | ### into business as usual ### processes | 3. | 4. | | --- | --- | | Development: | Measurement: | | tackling the impact of | more effectively capturing | | unconscious bias on who | and using employee | | is developed within IMI, | demographics, establishing | | and supporting the | external benchmarks, | | development of | measuring pay gaps, | | diverse talent | as well as measuring | ### the opinions of different ### employee groups through ### One Big Voice A number of actions across these highlight many areas of diversity - areas have been taken during the including; International Womens’ Day, year. Firstly, and in line with our I&D International Women in Engineering strategic focus on Engagement and Day, PRIDE month, National Inclusion Development, programmes and Week and International Day of videos have been developed on the People with Disabilities. This year topics of Tackling Inappropriate we also created ‘communication Behaviour, Psychological Safety for packs’ for site leaders to take from leaders. Also, a series of I&D related our internal communications sessions run within teams, tackling platform and use within their sites. topics such as what I&D means for On the back of the PRIDE awareness us as a team, understanding and campaign, we are delighted that an tackling unconscious bias, actively employee-led PRIDE network has building in inclusion, and working now been set up, with an Executive with cross-cultural intelligence sponsor. The group comprises were introduced. colleagues from across the globe In addition, the Inclusion & Diversity who are either part of the LGBTQ+ Working Group have been working community or wish to be allies. in partnership with colleagues across Priorities to start with are: IMI to embed I&D into key ‘business attendance at PRIDE events, as usual’ practices. Our learning and awareness of LGBTQ+ communications and engagement culture and being a support network plan, which supports our I&D on all things LGBTQ+ as well as ambitions, has continued to drive sharing best practices. events which educate, celebrate and IMI Precision Engineering – Farmington, USA ## 63Introduction Strategic Report Corporate Governance Financial Statements | Work is also underway to improve | In 2022 the FTSE Women Leaders | the target of the Review. We met the | | | --- | --- | --- | --- | | the external face of IMI from an Inclusion | Review published its first report and | requirements of the Parker Review | | | & Diversity perspective. As part of | recommendations – it is an independent, | in 2021 and have one non-executive | | | the Women in STEM campaign for | voluntary and business-led initiative | director from an ethnic minority on | | | International Women in Engineering | supported by Government, aimed at | our Board. | | | Day, IMI had great coverage in the New | increasing the representation of women | | | | Scientist, with an article highlighting | on FTSE 350 Boards and in their | Gender pay gap | ** | | not just the experiences of IMI employees | Leadership teams. The FCA’s new listing | | | We are committed to creating an from different backgrounds, but also rules in relation to diversity also came inclusive and diverse working providing a great showcase for the into effect in April 2022 and will apply to environment and fair treatment for all, Growth Hub. We are establishing us from our 2023 financial year. Both the including equal pay. Overall, our statistics stronger relationships with other review and the listing rules recommend remain similar to the sector in which external engineering groups and that at least 40% of the board should be we operate. In the UK we have around societies in order to promote IMI women and at least one of the senior 1,000 employees and there is a 72% and attract candidates from different board positions should be a woman. male, 28% female gender distribution backgrounds. This also included Our Board currently has 38% female which is fairly typical in the engineering conducting an I&D review and putting membership, and our approach to board sector. We have seen our mean and new sections on the IMI website. diversity and succession is detailed in the median pay gap increase slightly Governance Report. The FTSE Women compared to 2021, but 2022 results still Inclusion & Diversity data collection Leaders Review additionally point towards longer-term sustainable continues to be a focus. With every data recommends that leadership teams improvement since we began reporting collection cycle, we continue to improve (Executive Committee and their direct in 2017. how we measure gender and ethnicity reports) should be 40% women. As at pay gaps. As part of our Talent the time of submission, our leadership Find out more: Attraction workstream we are also www.imiplc.com/esg team, as defined by the Review, was investigating how we can be more 29.4% female. We have made a gradual effective in monitoring resourcing short but significant improvement over time, lists and reporting internal promotions but we know we must continue to do and regretted turnover. more to reach the 40% aspiration. ** ### 2022 mean gap In a sector where globally women are ## Women in senior leadership underrepresented, this is challenging. ## 18.3% * We continue to focus on the career ### Gender mix across the Group levels from Graduate Alumni through Female Female % Male Male % to leadership roles to ensure that we ** ### 2022 median gap improve our overall gender diversity. Board 3 38% 5 62% We are also focusing on our culture Executive 3 43% 4 57% and the policies that make IMI a leading ## 20.6% company in the sector for women to Direct 12 27% 33 73% reports to work, so that we can attract and retain Executive talented women, particularly with ## Ethnicity pay gap ** Managers 394 22% 1,397 78% STEM backgrounds. And for our This year we began collecting data non-engineering roles, we need to Leadership 32 18% 142 82% to analyse our ethnicity pay gap for group actively consider the talent pipeline and UK employees. Currently, there is no how this can support and accelerate our All 3,171 29% 7,820 71% statutory obligation for IMI to report longer-term diversity aspirations. employees our ethnicity pay gap results although * Including agency and contractors we will publish our full Ethnicity Pay ## Parker Review report alongside our Gender Pay report We are targeting ‘Women in It is five years since the publication of on the IMI website. | Management’ as our key metric for | the first report into the Ethnic Diversity | | | --- | --- | --- | | improving gender balance in leadership | of UK Boards in 2017 by Sir John Parker | Data has been voluntarily provided by | | at IMI. This is defined as anyone who | and the Parker Review Steering | c.40% of all UK employees, and we | | oversees an area of responsibility | Committee. For FTSE 250 companies, | have determined that IMI has a median | | involving planning, organising, leading | the target is to have a person from a | ethnicity pay gap in 2022 of 6.4%. These | | and/or directing the responsibilities of | minority ethnic group on their Boards by | results show a pattern that is seen more | | employees. We measure this population | December 2024. With these companies, | generally in the UK, where employees | | to build the succession pool for | there has been good progress, | from some ethnic groups are under- | | leadership roles. In 2022 it was 22% | particularly in the last two years with | represented in roles that command | | and our target is 25% in 2023. | 55% now meeting this target compared | higher salaries. Our efforts will be | | | to a small percentage in 2016. 128 out of | focused on how we can effectively | | | 233 companies (55%) currently meet the | recruit and develop employees from | | | December 2024 target. Of these 128 | these under-represented groups into | | | companies, 25 companies have exceeded | higher paid positions. | ** Does not include Heatmiser, acquired in December 2022. IMI plc Annual Report & Accounts 202264 Another priority for 2022 was to ## Accountability ## Health and Safety encourage all our employees to raise At IMI we are deeply committed to and report hazards. As a result, we protecting our people and keeping have seen a significant increase in them safe at work is of the utmost hazard reporting across the Group, importance. We have set high with a 29% increase year over year with standards for Health, Safety and 30,722 total hazards raised. We also the Environment (HSE) and do our track the closure rate of hazards to absolute best to ensure everyone ensure the risks are being removed. leaves work safe and well. This ethos During 2022 of all hazards raised, we is embedded in our Code of Conduct, closed 93% within 30 days of being which applies to all our employees and raised, surpassing our target of 90%. business partners. We have also produced and released IMI continues to invest in Health, Safety a suite of golden rules focusing on key and Environmental processes and safety risks. With clear infographics professionals across the globe to and concise messaging, these posters support us all in doing the right things, are clearly displayed in our facilities the right way, every day. This is and are issued with an accompanying reinforced by a shared commitment ‘toolbox talk’ training pack. This ensures from all our leadership teams globally. our employees understand the rules Together, we continuously improve and and the expected behaviours. Topics strive for excellence in HSE. have included: safe use of mobile | Prioritising health and safety and | phones, handling chemicals, stair | | --- | --- | | keeping our employees, and any | safety, and hand safety. In 2023 we | | individual entering our sites, safe is | have a communications campaign | | our number one priority. We take | planned to reinforce our safety culture | | a proactive approach and strive to | across our business. | continuously improve our performance. Investing in our people remains a top Our Group Head of Health, Safety priority. We are committed to ensuring & Environment reports directly to we have highly skilled, trained the Chief Executive who has ultimate employees especially those with safety responsibility for health and safety. The responsibilities. During 2022, where Executive Committee reviews health a skill gap was identified we have and safety matters every month and upskilled our supervisory, leadership IMI Precision Engineering – regular reports are made to the Board. Farmington, USA and HSE professionals to recognised industry standards such as NEBOSH ## Safety priorities certificate in health and safety, IOSH | | In 2021 we introduced the HSE | managing safely or OSHA 30 and other | | --- | --- | --- | | | Excellence Framework and | regional equivalents. As a result, during | | | accompanying Standard Operating | the year 424 employees were trained, | | | Procedures. This enhanced | attaining certification in one of the | | | management system consists of | standards mentioned. | | 424 | 10 elements with sub-elements that | | 18 of our 51 manufacturing sites includes specific subject areas such ### employees trained are accredited to ISO 45001, the as distributed work force (field service), ### during the year with international standard for health environment (air, water, waste) along ### a recognised safety and safety management. with leadership engagement and risk ### certification assessment. Throughout 2022 as committed, we have now physically visited and assessed all manufacturing sites to create a baseline score across the Group, with the exception of China, where restrictions prevented travel. This new framework has proved incredibly effective and has been one of the key factors in improving our HSE performance year on year. ## 65Introduction Strategic Report Corporate Governance Financial Statements Our TRIFR includes all work-related injuries greater than first ## Occupational injuries and recordability aid. This is also in line with OSHA and gives us the ability to As a culmination of all of these activities, we have achieved benchmark against the industry sector for comparison. a significant reduction of recordable accidents across the Group year over year. This included 12 Lost Time Accidents This globally recognised annual normalised rate takes into in 2022 vs 23 Lost Time Accidents in 2021. Our recordable account employee numbers and hours worked across the accidents have reduced to 34 in 2022 compared to 53 in 2021. Group. We include all employees, agency workers, contractors and visitors in our accident reporting statistics. There were Our Total Recordable Incident Frequency Rate (TRIFR) has no fatalities during the year. also improved, decreasing to 0.35 in 2022 from 0.56 in 2021. IMI remains in the top quartile of safety performance within the industry sector, however we remain committed to our TRIFR 0.70 ambition of an accident free workplace and HSE excellence. Aligned with the Global Reporting Initiative (GRI), we report 0.60 our recordable work-related injuries using the methodology based on 200,000 hours (equivalent to 100 fulltime workers 0.50 over a 1-year timeframe). 0.40 0.30 Total Number of recordable 0.20 | Recordable | | work-related injuries | | | | | --- | --- | --- | --- | --- | --- | | Incident | = | | x | 200,000 | | | | | Number of hours | | | 0.10 | Frequency worked 0.59 0.57 0.56 0.35 Rate (TRIFR) 0 2019 2020 2021 2022 IMI Hydronic Engineering – Ljung, Sweden ## 66 IMI plc Annual Report & Accounts 2022 ## BETTER WORLD ## Sustainable ## solutions ### As the world continues to move towards more sustainable ### solutions, we are committed to providing our customers with the ## Sustainable solutions ### most sustainable products possible. We will continue to innovate ## activities ### and invest in clean technologies to produce industry-leading and ### climate-conscious products that empower our customers to be » Completed Life Cycle ### the sustainability leaders of their own industries. Assessment (LCA) on one of our key Growth Hub products ### Our products, services and solutions enable our customers to » Launched a new Proton ### improve their own sustainability and support their ambitions for Exchange Membrane (PEM) ### a Better World. Our products help our customers in five key electrolyser that generates ### sectors which are Industrial Automation, Life Sciences, hydrogen from renewable energy sources (see page 23) ### Transportation, Energy and Indoor Climate. In addition to our ### own emission reduction plans, we want our products to help our » Enhanced our product offering ### customers reduce their own emissions and hence contribute to within IMI Hydronic Engineering to launch the Halo-B valve, ### creating a Better World. which saves energy ### The performance of our products is key to ensuring we deliver on ### our purpose of Breakthrough Engineering for a better world. It is ### paramount to not only our own success in achieving our net zero ### commitments but that of our customers and other stakeholders ### too, making a Better World for all. IMI Precision Engineering – Farmington, USA ## 67Introduction Strategic Report Corporate Governance Financial Statements ## Portfolio We continue our work to focus on the sustainability impact of our products to guide decisions concerning their development, whilst also working to increase our understanding of their sustainability impact. Evaluating the sustainability of our products at different stages of the product life cycle (materials and design, production, consumer use and end of life) is an important focus for us. In particular, our Growth Hub initiative applies a Better World lens to ensure sustainability remains at the heart of the process. We aim to expand this assessment so that we can steer our portfolio towards an improved sustainability impact for our customers’ markets and operations. It will also help capture risks and opportunities related to the products in our portfolio. This insight will help shape our offering Retrofit3D and steer us towards a higher proportion of sustainable products and highlight products that are of future concern, either because of their raw material inputs or application and end of life costs. Retrofit3D is an example of where we have developed this assessment further using a life cycle assessment process to understand the sustainability benefits of this product. IMI Critical Engineering works very We are increasing our use of ## Performance closely with the Engineering Environmental Product Declaration What we do Procurement Contractors (EPC) (EPD) processes. The EPD is a means and end user customers to ensure of identifying the environmental We analyse various products from | | | optimisation of design to their exacting | impact of a product. It can also be | | --- | --- | --- | --- | | a CO | 2 impact perspective using a | | | | | | process conditions, requirements and | used as a benchmark in order to | specialist modelling tool that covers standards. This ensures maximum improve the sustainability goals, and the scope of material production to output with minimum use of fuels to demonstrate a commitment to the delivery to customers. and emissions aligning to our Better environment to customers. EPDs are We also routinely initiate tear-down World purpose whilst ensuring lower primarily intended to facilitate analysis and conduct value engineering emissions for our customers. business-to-business transactions, on our own product range to seek ways although they may also be of benefit Halo-B is a mechanical thermostatic of reducing material usage whilst to consumers who are environmentally valve that ensures thermal comfort maintaining optimal performance and focused when choosing goods or and energy savings thanks to its integrity of the product. This includes services. This project will deliver an EPD innovative tamper-proof temperature the use of hazardous materials which based on life cycle assessment which setting system, which does not allow we aim to minimise the use of and will be meeting customers’ and the end-user to change it constantly. effect of, such as lead. authorities’ demands for credible, This removes one of the many sources easily understandable and comparable Sustainability in action of energy waste, as increasing the environmental information. The temperature by as little as 1˚C can Full Life Cycle Assessments also help underlying life cycle assessment is also increase energy consumption by 6%. establish the impact of our products an excellent basis for further improving Another benefit of the Halo-B is that for our customers and the the product’s environmental properties. it is a liquid-filled thermostat with environments in which they use our high-pressure power and precision products. Our dBX Shield™ valve was control designed to last up to 15 years, initially developed to reduce noise levels making it a sustainable long-term in gas pipelines and city gates which, solution that can stand the test of owing to expansion or urban areas, are time. The Halo-B is a product that located closer to communities. Our dBX can help make the world a more Shield™ valve has been effective at sustainable, energy-efficient place reducing noise whilst retaining ease and fits perfectly into our Better of maintenance and service. World ambitions. The EroSolve Wet Steam solution was developed to prevent steam leakage which reduces the efficiency of a plant and prolongs the life of the remaining valve components, requiring less intervals between maintenance and service. Halo-B IMI plc Annual Report & Accounts 202268 ## Operational excellence Market-led innovation Our focus on operational excellence ensures that our We invest heavily in research and development. In 2022, products are manufactured to very high standards 3.3% of our revenue was focused on R&D expenditure and tolerances. (2021: 2.9%). We aim to invest above 3% of revenue each year in innovation and developing solutions which We continue to engage our people to drive continuous solve customer problems. Applying a Better World lens improvement through the identification and realisation to our Growth Hub process ensures we keep of opportunities in several areas of our internal sustainability front and centre in everything we do. operations such as quality improvement, lead time reduction, raw materials, production overheads, Our focus on hydrogen as a sustainable fuel has led inventory reduction, and equipment utilisation. Lean to a number of projects. This includes but is not limited is the methodology we use for this purpose and a to supporting the developing hydrogen refuelling continuous improvement financial tracker tool to infrastructure with manifolds and solutions that help assess and monitor the financial impact of to reduce both the capital expenditure and operational operational improvements. expenditure of running a refuelling station. We are also working in the Transportation space with hydrogen fuel Examples of this in action include completing ergonomics cells to address the main challenges of performance, projects in our site in Poland that, in addition to reducing a complex system and efficiency. physical stress and impact on operators, led to an efficiency improvement. In the material handling space, Adaptix is the first fully adjustable soft jaw. This patented product allows our We continue to focus on reducing styrofoam material customers to reduce waste, and increase productivity, used for packaging and use cardboard as an appropriate with less inventory of soft jaws and fixturing. For a alternative. We also have a strong focus on eliminating machine shop focused on custom machining, using single use plastics when packing and distributing our Adaptix translates to an average one hour saving per products to customers. day on set up time (10% time saving on a 10-hour shift) In our manufacturing site in Fullinsdorf, Switzerland, we when the machine can now be running. It would also yield optimised the Zeparo welding robot programme, leading a 10% increase in productivity in machining, holding to a 40% scrap reduction compared to the previous year. a variety of part shapes without creating new jaws. We also improved our preventative maintenance process This helps our customers to increase throughput by leading to a 12% breakdown reduction compared to 2021. making what they need, when they need it, reduce inventory and product/service lead time. In our manufacturing facility in Ljung, Sweden, we expanded our foundry, improving the layout for increased In the biopharma space we are working on products to safety and installed three new die casting machines. help improve the efficiencies of bioreactors, which are We also implemented a digital knowledge management critical to the pharmaceutical industry where batches system that allows us to monitor progress of of products need to be either tested/grown or used for improvements identified in areas such as health medical reasons, as well as development of best-in-class and safety, quality, process and people using lean mass flow controllers to be used in a range of medical manufacturing kanban principles. devices as they continue to develop for their customer base. Improved efficiency in bioreactors is key for the Reducing machine downtime increases utilisation and development of vaccines, cancer treatment, diabetes lessens the need for additional machines. Managing treatment, gene therapy as well as more broadly medical our total preventative maintenance and the internal research. Bioreactors are also used for the development operational processes we employ, ensures we keep of alternative proteins, a move driven to reduce the global internal excellence as a key focus area which reduces carbon footprint in food production. the resources we use and improves the overall efficiency of our plants. We aim for exceptional performance with regards to equipment effectiveness and we can achieve this through regular checks, preventative and predictive measurements and recording follow up actions to help reduce equipment breakdowns and downtime. ## 69Introduction Strategic Report Corporate Governance Financial Statements ## Supply chain Supplier engagement is key to ensuring a sustainable supply chain in the future. We have partnered with Assent Inc to investigate suppliers for Corporate Sustainability (Conflict Minerals reporting across all three divisions) and Product Compliance (EU Reach, Rohs, EU MDR, EU WFD, US TSCA and Prop 65). Assent has supported us with product compliance investigations across over 3,600 suppliers, covering approximately 95,000 components that go into around 215,000 products. Whilst these regulations are detailed and complex, 97% of our products are fully compliant. Of the remaining 3%, the majority of the issues are due to lead content in our brass materials. We recognise there is work to do to improve this for our customers and our world class engineering teams are aware of this and are working hard to remove it from our latest specifications. To ensure we are ready to fully comply with the German Supply Chain Due Diligence Act we launched in November 2022 online training for our procurement teams on product compliance and human rights in the supply chain, and reiterating our three key supply chain policies (Supply Chain Code of Conduct, Modern Slavery and Responsible Minerals). In September 2022 we launched the Solar Panel Sourcing policy outlining the additional due diligence required to prevent forced Uyghur labour in our supply chain (as IMI Hydronic Engineering - highlighted by the Uyghur Forced Labour Prevention Act). Erwitte, Germany We continue to work closely with key customers on ESG and product compliance. ### Case study We endeavour to work with key suppliers that are aligned to Creating a Better World. One such supplier is Peekay Steel Castings based in Kerela, India. Peekay supplies IMI Critical Engineering with high quality components which we use when manufacturing butterfly valves, ball valves and globe valves. However, Peekay is also aware of their own impact on the environment and has sustainability at the core of their product. Peekay make use of a high proportion of recycled material and have set stretching targets to reduce their Scope 1 & 2 emissions by 40% by 2031 (20% reduction target by 2026). Re-using heat where possible from their processes and investing in self generated electricity (via wind turbines) are further examples of their commitment to a sustainable future. In addition, this key supplier have conducted their own materiality impact survey and have implemented a sustainability committee to drive their sustainability agenda. We welcome this level of investment from our key suppliers and look forward to continued collaboration with Peekay going forward. IMI Precision Engineering – Irwin, USA ## 70 IMI plc Annual Report & Accounts 2022 ## BETTER WORLD ## Climate ## action ## Keeping our impact low ## Climate action ### IMI has manufacturing facilities in 18 countries, and we are ## activities ### committed to operating these facilities in a sustainable way to ### minimise their impact on the environment by reducing energy » Photovoltaic cells installed in a ### and water use, pollution, waste and single use plastics. total of nine locations, with a further 17 planned during 2023 ### We monitor and report our environmental performance at ### monthly Executive meetings with a view to delivering continuous » LED lighting conversion being actively installed across our ### improvement. We have an explicit goal of halving our factory manufacturing locations ### CO intensity by 2030 (based upon 2019 Scope 1 & 2 emissions). 2 » In a number of locations, we ### As previously stated, during 2022 we evaluated our Scope 3 have begun to install water ### emissions and now have a roadmap to plan our reductions. management systems including rainwater harvesting, process ### In addition to the central Better World team, all divisions have water reclamation and ### a dedicated ESG lead and all of our manufacturing sites have domestic water saving devices. ### a nominated environmental champion. This consistent approach This will continue to be a focus ### ensures we continue to develop and share best practice across area for us ### the organisation, can collate site and divisional project plans and » In 2022, IMI Critical Engineering ### monitor progress. Many initiatives and best practices are shared in Japan became one of a number of sites to be carbon ### via our internal communications platform, Workplace. During 2022 neutral for both Scope 1 & 2 ### there were significant environmental initiatives either in planning, » Purchased renewable energy ### in progress or completed stages. These projects are helping reduce certificates to guarantee ### our environmental impact in areas that include; energy, water, renewable energy supply ### waste, single use plastic elimination, reduction in the use of covering 79% of our electricity ### hazardous materials, installing renewable energy generation, and consumption ### heat recovery. In addition, in 2022 we purchased renewable energy ### certificates to guarantee renewable energy supply covering 79% ### of our electricity consumption. We aim to continue our investment ### in renewable energy in 2023 demonstrating our commitment to ### a Better World. ## 71Introduction Strategic Report Corporate Governance Financial Statements ## Investing to reduce our carbon output In 2022 we committed to extending our payback criteria for investment on environmental projects. As such, we have either completed or committed to over 90 projects requiring investment across all of our divisions. One such example was the installation of solar photovoltaics (PV). Nine of our facilities have now installed renewable energy in the form of solar PV and 17 further systems are either in the process of being installed or planned for 2023. All of our manufacturing sites now have plans for how they are reducing their impact. New facilities that we invest in are designed in accordance with the local sustainable codes of practice to ensure our carbon impact is as low as possible from the outset. | Case study 1 | Case study 2 | Case study 3 | | --- | --- | --- | | At our IMI Hydronic Engineering | Energy Management Systems | To help towards net zero targets, | | plant in Erwitte, Germany, we are | (EMS) allow us to accurately | objectives were put into place at | | progressing towards our 2040 net | assess and understand a site’s | sites, one of which was the | | zero target. | energy performance. Many of | reduction of single use plastics. | | | our locations have such systems | IMI Critical Engineering in Kobe, | This year the plant saw its first installed, however, at IMI Precision Japan took on the challenge by photovoltaic (PV) installation, Engineering in Fradley, UK, we are creating a team to lead the expected to generate 240,000 currently undergoing a test project with a robust roadmap. kWh or 2% of its electricity process to lay the groundwork They used the IMI Way Day to demands. The PV system is for an advanced environmental engage all employees, taking connected to a battery system management system. Taking its everyone to a single use plastic that allows for electricity to be roots from industry 4.0 software recycling centre and running stored so that it can be used and optimisation practices, the workshops to generate ideas. during peak demand hours. In facility is on a journey to complete Single use plastics are either 2023, we will complete the second automation across building areas; now being eliminated, changed phase of this PV project by ranging from machine start-up to biodegradable material or installing more panels allowing the times to automatic adjustment recycled. The result was a 77% plant to generate more than 10% of the heating, ventilation and air reduction from 2021 to 2022. of its annual electricity demand conditioning system based on and by 2025, with the addition of In addition, owing to the ambient weather conditions. PV installations, we plan to be significant amount of water used The primary aim of the project able to generate 40% of the to pressure test valves, we have is to meet our net zero ambition. electricity needed by the plant. focused on installing water This pilot gives us accurate restrictors, which save both Another critical improvement visualisation of energy water and time. that took place in 2022 was the consumption and the ability to installation of several TA Smart roll-out across our businesses. valves to increase the energy efficiency of our HVAC system in one of the plant’s buildings which will allow us to reduce our CO 2 emissions by about 25 tonnes. Other improvements include purchasing a significant amount of the foundry’s raw materials from recycled sources and from scrap that is then remelted and reused. IMI plc Annual Report & Accounts 202272 ## Environmental Water To underpin our commitment to reduce our environmental We are committed to reducing our water impact and impact, 24 of our 51 manufacturing facilities are certified all our locations collect and report their water data in to ISO 14001 Environmental Management and four are alignment with our global reporting environmental certified to ISO 50001 Energy Management standards. Standard Operating Procedure. Where appropriate, the sites have water reduction actions in place. The CDP majority of our sites use water for domestic purposes We disclosed our environmental performance to the CDP only but where it is used in manufacturing processes, framework again in 2022 and for the second year running we strive to use water efficiently, and manage this our score for the CDP Climate Change increased by two through various initiatives. Since 2021, we have grading points. This reflects the steps we took in 2022 to completed the CDP water security disclosure and will progress in our sustainability journey including evaluating use our 2022 water data set to further improve and our Scope 3 emissions and calculating the avoided reduce water usage where possible across the Group. emissions for select products. Since 2020, we have reduced our absolute water usage 3 CDP Climate Change disclosure was graded B which is in by 5% (9,897m ). In 2020, our water intensity was 10.8 3 the Management band. This is in line with the Europe (m per 1,000 hours worked) and we have set a Group regional average of B. target to reduce water intensity by 10% by 2030 3 | | (intensity of 9.7m | per 1,000 hours worked). Water | | | --- | --- | --- | --- | | Whilst we don’t consider ourselves to be an intense water | | | 3 | | | intensity at the end of 2022 was 10.0m | | per 1,000 hours | consumer, we understand the value and importance of worked. We will keep this under review over the next few water as a global, shared resource, therefore we continue years and update this target, if appropriate. to support the CDP Water Security disclosure. Our CDP Water Security score also increased by two grading 3 Water used (m ) points to a C in 2022 which represents IMI’s commitment Water usage to a Better World. m3 205,000 The findings of the CDP score reports for both water 203,444 security and climate change will be reviewed alongside 200,000 200,533 the IMI sustainability strategy which was developed in 195,000 2022 so that we can improve our environmental 193,547 performance. 190,000 185,000 180,000 2020 2021 2022 ## Air emissions We operate across the world within many different environmental regulatory frameworks. Environmental ## performance for the Group as a whole is managed Waste through the IMI Health, Safety and Environment (HSE) We are committed to reducing our impact on the framework which requires identification of applicable environment and especially in the area of non-recycled (national) legislation for each site and, quantification of hazardous waste. In 2022 we produced 387 tonnes of site-specific emission characteristics where required for non-recycled hazardous waste and are targeting a 50% determining applicability of legislation or, for compliance reduction by 2030. We will continue to report non- with regulatory requirements. At an operational level, recycled hazardous waste and will also include other compliance with local legal requirements (including waste categories in our future reporting cycle, with an environmental permits) is the responsibility of site leaders aim to reduce the amounts which are sent to landfill at each IMI site. This includes, where relevant, compliance and increase the proportion which is recycled. with license or permit conditions; for example on monitoring and reporting emissions to air, emissions Non-recycled hazardous waste to water and, waste production. We plan to establish an air emission inventory for all sites tonnes and alongside this work on emissions to air we will review 500 information held by our sites including emission reduction 400 targets, emissions to water and, hazardous and non- 387 hazardous waste production. We will look to develop an 300 appropriate process to gather such information (although 200 we already have a process to collect all Scope 1 & 2 emissions from our sites) with the objective of establishing 100 a global reporting mechanism. We will keep this under 0 2022 continual review to improve our reporting going forward. ## 73Introduction Strategic Report Corporate Governance Financial Statements IMI Precision Engineering – Palézieux, Switzerland IMI plc Annual Report & Accounts 202274 ## Carbon disclosure The below table and supporting narrative summarise the Streamlined Energy and Carbon Reporting (SECR) disclosure in line with the requirements for a quoted company, as per The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. 2022 is our third year of disclosure and includes the prior year data as a comparison. Projects and resources that are contributing to our reduction in emissions are summarised on page 71. | Current reporting year | | Previous reporting year | | | --- | --- | --- | --- | | | 1st January 2022 - | | 1st January 2021 - | | 31st December 2022 | | | 31st December 2021 | Location UK Global incl UK UK Global incl UK Scope 1 & 2 Emissions - tCO 2 e Scope 1 - Natural Gas Usage 576 7,359 768 8,786 Scope 1 - Diesel Usage On-site - 83 - 140 Scope 1 - Diesel Usage Company Vehicles 79 2,353 83 2,405 Scope 1 - Fuel Oil Usage - 524 - 743 Scope 1 - Petrol Usage Company Vehicles - 560 - 553 Scope 1 - Liquefied Petroleum Gas Usage 8 299 6 311 Scope 1 - Combined Heat and Power Usage - - - 20 Scope 1 - Refrigerants* 64 648 Scope 1 - Total 727 11,826 857 12,958 Scope 2 - Location-based 1,383 28,654 1,770 31,172 Total (Scopes 1 & 2) 2,110 40,480 2,627 44,130 Consumption - kWh Scope 1 - Total 3,499,360 55,741,957 4,548,860 64,917,809 Scope 2 - Total 7,175,645 102,481,674 8,339,185 106,856,592 Total (Scopes 1 & 2) 10,675,005 158,223,631 12,888,045 171,774,401 Hours Worked 1,876,083 19,333,911 1,862,769 19,176,514 Intensity ratio: tCO 2 e (gross Scope 1 & 2) per 1,000 hours worked 1.12 2.09 1.41 2.30 Scopes 1, 2 and 3 Emissions - tCO 2 e Scope 3 - Car Travel 136 528 76 567 Total (Scopes 1, 2 and 3) 2,246 41,008 2,703 44,697 Consumption - kWh Scope 3 - Total 550,805 2,141,649 308,801 2,302,967 Total (Scopes 1, 2 and 3) 11,225,810 160,365,280 13,196,846 174,077,368 Intensity ratio: tCO 2 e (gross Scope 1, 2 + 3) per 1,000 hours worked 1.20 2.12 1.45 2.33 Scope 2 - Market-based 109 4,954 * New for 2022 reporting year, refrigerants were not included in the 2021 total ## 75Introduction Strategic Report Corporate Governance Financial Statements Methodology | The stated greenhouse gas emissions | Scope 1 - UK Government’s GHG | The emissions total represents a 30% | | --- | --- | --- | | estimates have been calculated to | Conversion Factors used for all sites. | reduction compared to 2019 for Scope | | cover all material sources of emissions | | 1 & 2. | Scope 2 – UK Government’s GHG from the operations for which IMI is Conversion Factors are used for UK We report the intensity metric of gross responsible*. The methodology used was sites and the International Energy tCO 2 e per 1,000 hours worked as a that of the Greenhouse Gas Protocol: Agency’s (IEA) conversion factors are unit of comparison to reflect our A Corporate Accounting and Reporting used for non-UK sites. In addition, for operational performance compared Standard (revised edition, 2015). our market-based calculations, the to carbon output as we feel this Responsibility for emissions sources Reliable Disclosure (RE-DISS), AIB provides a more reflective measure of was determined using the operational European Residual Mixes and factory volumes and as a result carbon control approach. All emissions sources Green-e are used. intensity. Our 2022 intensity ratio based required under The Companies on Scope 1 & 2 emissions is 2.09 tCO 2 e (Directors’ Report) and Limited Liability Our reported Scope 3*** emissions in per 1,000 hours worked. This compares | Partnerships (Energy and Carbon | the adjacent table were calculated by | | | | --- | --- | --- | --- | | | | to our 2019 baseline of 2.78 tCO | 2 e per | | Report) Regulations 2018 are included. | converting mileage into emissions using | | | 1,000 hours worked. We are on track UK Government’s GHG Conversion The scope of emissions covers the to achieve our target of 1.39 tCO 2 e per Factors for Company Reporting. following sources: 1,000 hours worked (50% of the 2019 Our carbon reporting statistics baseline intensity) by 2030. » Scope 1 – emissions from the use of demonstrate that our recent natural gas, diesel (on-site and performance of tCO 2 e has continued to off-site) **, fuel oil, petrol and liquified improve. On a like for like basis, we petroleum gas, and combined heat achieved our target to keep emissions and power (CHP) and refrigerants below 2019 levels for 2022. The data in » Scope 2 – emissions covers emission our SECR table has been externally from the purchase of electricity verified by Ricardo Energy & Environment, who performed a » Scope 3 – emissions from business limited-level assurance review in travel in employee-owned or accordance with the requirements of company vehicles ISO 14064-3 and the GHG Protocol The UL 360 Sustainability Software Corporate Standard. GHG (Greenhouse Gas) emission tool Of the 2022 total: our direct Scope 1 was used to calculate and consolidate emissions of tCO 2 e (in essence gas, the Scope 1 & 2 emissions adopting diesel and fuel oil consumed) amounted a location-based and market-based to 11,826 tonnes; and our indirect Scope approach. The tool used the following 2 emissions of tCO 2 e (in essence the conversion factors: emissions generated on our behalf to provide our electricity) amounted to 28,654 tonnes. * Small offices in rented spaces where energy consumption data was unavailable an estimate was made that this use is less than 1% of the overall energy use and therefore fall into the de-minimus ** Diesel usage for 2021 has been updated to show the split for onsite use and company vehicles *** Scope 3 emissions for our SECR reporting currently only reflects business travel in company cars or employee-owned vehicles IMI plc Annual Report & Accounts 202276 2. Under the scenario where there is a move towards a hydrogen future. ## Climate related disorderly regime of global climate We’re already working with engineers, change legislation (policy & legal consultants, and R&D teams in some ## strategy, risks and | | transition risk) the aggressive drive | of the world’s biggest companies and | | --- | --- | --- | | opportunities | to phase out products including | most exciting start-ups, to help solve | | | plastics or metals like ‘dirty steel’ | the challenges of today to build the | | | may affect the availability of | hydrogen economy of tomorrow. In | | In our 2021 Annual Report, we | material supply or the cost of certain | 2022 IMI created IMI VIVO within | | described the work performed by the | products (either due to the cost of | IMI Critical and in September we | | divisional risk champions and Ricardo | upgrading equipment, purchasing | launched a new a Proton Exchange | | Energy & Environment to identify four | ‘cleaner’ materials or due to lost | Membrane (PEM) electrolyser that | | top risks and three top opportunities in | revenues). The potential financial | generates green hydrogen from | | the following two climate scenarios: | impact on IMI could be increased | renewable energy sources. For more | | | operating costs such as higher | information on how we contribute to | IA 2020 ‘Allbank’ assumes ambitious compliance costs, insurance premia, a Better World in the Energy sector, policy measures are implemented in a higher production costs and please see page 22. disorderly way but does reduce physical impairment of equipment previously risks a nd limits temperate rises to 1.5˚C; 2. Climate change is likely to lead to associated with the phased out increased demand for IMI Hydronic ‘Clean Planet for All’ assumes very products. Capital expenditure Engineering’s products. For example little policy measures are implemented may also increase due to the costs the demand for electrified smart and by governments limiting transition risks, associated with redesigning green buildings will lead to increased which results in a 3˚C increase in global products and upgrading demand for smart valves, radiant temperatures and therefore high production equipment. systems and heat pumps. The recent physical risks. | | 3. With stricter climate-related | acquisition of Heatmiser extends IMI | | --- | --- | --- | | The climate-related risks and | regulation, fossil fuel-related | Hydronic’s energy saving portfolio by | | opportunities listed below were those | activities and the Oil & Gas sector | adding a range of adjacent smart | | where the climate scenarios highlighted | are likely to decline (market transition | thermostatic control products. | | both the impact and likelihood as high. | risk). Given that some IMI Critical | | 3. Whilst not graded as a high products support technologies which likelihood, the greater use of 3D ### Climate risk management rely on fossil fuels, the phase out printing technology could see of those technologies may result in ### timeframes increased profits and mitigate a reduced demand for goods and material shortages through the services surrounding the affected IMI Short-term 0 – 3 years adoption of circular economy products and a redeployment of the business models as the demand Medium-term 4 – 10 years resources (assets and employees) for more resource efficient currently servicing those markets. Long-term 11 – 30 years manufacturing continues. Very long-term By 2100 4. Regardless of the climate scenario used, some of IMI’s raw materials such as plastic and steel could ## Climate risks (high impact become in the medium-term ## & potentially high susceptible to water shortages (chronic physical risk). The potential ## likelihood) financial impact being the increased | 1. Should global temperatures rise by | operating costs caused by greater | | --- | --- | | 3˚C, the frequency and intensity of | volatility of material prices, | | weather events will increase, which | distribution costs sourcing products | | may lead to floods or storms causing | from different locations and | | damage and/or restricting operations. | the needs for higher levels of | | The potential financial impacts could | safety inventory. | be reduced output, high replacement ## costs, higher insurance premia Climate opportunities (high ## (assuming coverage remains impact & potentially high available), write-offs and early ## likelihood) retirement of existing assets, the | setting up of back-up facilities and | 1. The transition to low carbon for | | --- | --- | | greater remote working. Further work | example through the increased use | | has been performed in identifying the | of hydrogen may mean that our | | expected storm/flood probability by | approach to solving customer | | site and how this may change over | problems, and our heritage of being | | time (see later in this section). | a trusted partner means we’re poised | to help navigate the complexity in the ## 77Introduction Strategic Report Corporate Governance Financial Statements Using these two scenarios Zurich reviewed geolocation data against nine different ## Further analysis on climate perils supplied by Jupiter Intelligence rating each site from low to very high per peril: ## related physical risks We committed in our 2021 Annual Peril Description High Very High Report to carry out further detailed Precipitation Projected increase of 24 hour precipitation in mm for 8 – 16% > 16% work on the physical risks our sites 100-year return period, expressed as relative change in face due to climate change. In 2022, % since 1995 we requested a climate change Fluvial flood Flood depth 100-year return period (metres) 0.55 – 1.9 > 1.9 exposure analysis of 41 of IMI’s biggest sites (all sites with asset values over Wind 1-minute sustained gust 100-year period (km/h) 102 – 116 > 116 | £25m) from Zurich (our long-term | Hail Number of days per year with conditions to produce hail | | 1 – 2.5 > 2.5 | | --- | --- | --- | --- | | primary insurer). | | ≥ 5 cm diameter | | | | Thunderstorm Number of days per year with conditions to produce | | 12 – 36 > 36 | Zurich assessed physical climate risks severe organised storms under different climate change scenarios, with a focus on the medium Drought Number of months with extreme drought conditions 0.36 – 0.54 > 0.54 to long-term (2030 - 2050). Very Heat Number of days per year with maximum temperature 25 – 50 > 50 long-term information (2100) was > 35ºC also provided for context. While Cold Number of 3-day periods where daily average 4 – 8 > 8 climate change effects will become temperature is less than or equal to -5°C more evident over the longer term, 2 Wildfire Annual local fires per km per 1,000 years 5 – 18 > 18 other evolving factors such as local development mean that there is higher uncertainty around the impact on the The results highlighted that, regardless of scenario used, by 2050 IMI’s sites sites. The climate change scenarios showed significant increases in the risk of high or very high levels of precipitation used were IPCC (Intergovernmental and drought. In the 2.4˚C scenario a quarter of IMI’s sites (in value terms) will Panel on Climate Change) climate suffer from high or very high levels of hazardous heat. scenarios, called the Shared Socioeconomic Pathways (SSPs) with: Precipitation – in the worst-case scenario, sites in North America, UK, and Asia are exposed to very high hazard levels by 2050 with the Adaptas site in Palmer with » SSP1-2.6 – corresponding to a best the highest hazard value closely followed by Farmington. estimate of 1.7˚C warming by 2041-2060, and 1.8˚C warming by Drought – in the worst-case scenario, three of IMI’s larger sites will be hit by very 2081-2100 relative to 1850-1900. high incidents of drought by 2050 (Remosa, Füllinsdorf and FAS) with the Remosa This scenario has lower physical area set to average extreme drought for three weeks every year and is the only climate impacts due to global climate large site with a very high risk of thunderstorms. action, potentially leading to lower Heat – sites in south and west coast USA, as well as south Asia (India and UAE) adaptation costs relative to other are exposed to very high hazard levels but represent smaller sites. Sites in scenarios northeast USA, central Europe, and east Asia represent larger sites but are » SSP5-8.5 – corresponds to a best exposed to lower heat hazard levels. estimate of 2.4˚C warming by Hail – only the two IMI sites based in Texas had high risks of hail by 2050. 2041-2060, and 4.4˚C warming by 2081-2100 relative to 1850-1900. Looking across the various perils and combining the average scores across the best This scenario relies heavily on fossil case and worse case climate scenarios, the top 10 highest risk sites were (perils fuels, and physical climate risks rated very high in brackets): increase more quickly, likely representing a greater need for 1. Houston, Texas, USA (rain, wind, heat & thunderstorms) adaptation and associated higher 2. Sri City, Andhra Pradesh, India (rain, wind, heat & thunderstorms) adaptation costs 3. Shanghai, China (flood, wind, rain & drought) 4. Dubai, UAE (heat, drought, rain & thunderstorms) 5. Dallas, Texas, USA (heat & thunderstorms) 6. Cagliari, Italy (drought & thunderstorms) 7. Palmer, Massachusetts, USA (rain & wind) 8. Paju-si, Korea (rain & wind) 9. University Park, Illinois, USA (rain) 10. Farmington, Connecticut, USA (rain & wind) Initial follow up discussions have been held with the operational heads at each division on potential next steps, including reviewing priority sites (sites of higher operational significance) and understanding existing mitigations not taken into account during the desktop analysis. We will report on our progress in due course. ## 78 IMI plc Annual Report & Accounts 2022 will be a key area of focus for 2023 Disclosure ## Scope 3 emissions to ensure they understand the steps This year, we publish our first Scope Throughout 2022 we have worked that we are taking to help decarbonise 3 assessment on page 79. This together with Ricardo Energy & our sector. The aim is collaborating assessment has been conducted on a Environment, to quantify our Scope 3 with suppliers so that we all maintain combination of volume data (where it emissions inventory for the first time, the momentum in carbon reduction has been available), spend data and starting with our 2021 financial year. initiatives. other standard estimation techniques for the full year to 31 December 2021. Our largest Scope 3 category is Our supply chain teams are committed We recognise the importance of data purchased goods and services which to reviewing the recycled material accuracy in this area and will be accounts for 80% of total Scope 3 content of the input materials to our working to improve collection going emissions. As very few of our products products, which will significantly reduce forwards. Our assessment was are powered (and hence do not directly the level of embedded carbon in our developed using methodologies generate emissions during their service products and enable us to continue specified by the Greenhouse Gas lifetime), our ‘use of sold goods’ the reduction in our emissions. Protocol and the UK’s Environmental category is low and accounts for Product innovation Reporting Guidelines, by our external only 3% of the total. In addition to environmental consultants Ricardo our Scope 1 & 2 targets, we have also Applying a Better World lens to Energy & Environment. Enhancing our committed to a 25% reduction in our products and new product data and disclosure will involve Scope 3 emissions by 2030. We are development initiatives has been a collaboration with our suppliers and committed to helping our industry focus for a number of years and has a focused approach from our supply decarbonise and recognise the led to some great products that chain teams as mentioned above. | importance of this for our customers | improve energy efficiency for our | | | --- | --- | --- | | and other stakeholders. We want to | customers and hence reduce emissions. | Our Scope 3 inventory was calculated | | ensure our commitments have | Over the longer term, shifting towards | using methodologies specified by the | | credibility and integrity and we will | greener materials will result in a | Greenhouse Gas Protocol Corporate | | review the viability of these targets | greener supply chain and support | Value Chain (Scope 3) Standard, as | | and their alignment to Science Based | the reduction in the purchased goods | listed below. Categories 8, 10, 13-15 are | | Targets in 2023. | and services category. | not applicable to IMI’s business | activities so have not been quantified. | Purchased goods and services | Internal efficiencies | | --- | --- | | We continue to focus activities to | Recognising that Scope 3 covers a | | reduce the number of suppliers we | number of areas, there is more we | | have and are making use of internal | can do within our own internal | | tools and systems to help us | processes to reduce other categories | | understand the embodied carbon | of Scope 3. For example, we are | | emissions within the materials | looking at change in working practices | | we purchase. | to use electric vehicles for business | travel, employee commuting and We have begun detailed discussions upstream transportation of materials with major suppliers to understand and products. their own plans for decarbonisation which will help the drive to reduce both their own Scope 1 & 2 emissions, and in turn our Scope 3. Supplier education ## 79Introduction Strategic Report Corporate Governance Financial Statements ## Our Scope 3 emissions (as at 31 December 2021) | Category Category name Methodology followed Total GHG | | | | % | | --- | --- | --- | --- | --- | | | emissions tCO | | 2 e | | | 1 Purchased goods and services Average data based for key input materials. Spend-based for | | 471,117 80.3% | | | all other purchases 2 Capital goods Spend-based 32,402 5.5% 3 Fuel and energy related Based on actual consumption of fuels and electricity 13,419 2.3% 4 Upstream transportation and distribution Estimated from transport distances and shipment weights 18,370 3.1% 5 Waste generated in operations Based on waste disposal quantities with assumptions on 2,606 0.4% waste type and disposal route 6 Business travel Emissions based on actual journeys and distance 2,871 0.5% 7 Employee commuting Estimated from employee numbers, with assumptions of 18,730 3.2% travel distances and modes 8 Leased assets (upstream) Not applicable to IMI - - 9 Downstream transportation and distribution Approximated from sales volumes 9,202 1.6% 10 Processing of sold goods Not applicable to IMI - - 11 Use of products sold Estimated from sales quantities and annual energy usage 17,386 3.0% per electricity-using product, accounting for territory of sales (IMI Hydronic only) 12 End of life treatment of sold products Estimated from sold material quantities for key materials 526 0.1% only, assumed disposal routes (recycled). Excludes some known areas such as packaging 13 Leased assets (downstream) Not applicable to IMI - - 14 Franchisees Not applicable to IMI - - 15 Investments Not applicable to IMI - - Total 586,629 100.0% ## Emerging issues Avoided emissions Many of our products help our customers reduce their energy consumption and hence increase the proportion of avoided emissions compared to an alternative solution. Avoided emissions are often referred to as ‘Scope 4’ emissions, but the assessment in this area is emerging and complex with no formal standard agreed to date. However, we recognise the importance of data capture in this area and its increasing focus from external stakeholders and will assess our ability to collect this in the future. We believe that calculating and managing avoided emissions, in addition to Scope 1, 2 & 3 emissions can be an effective way to accelerating climate action and encouraging sustainable innovation in the value chain. Climate transition plan We recognise the importance of developing a clear and thorough climate transition plan and will be working on this during 2023 ahead of the mandatory reporting in next year’s annual report. Biodiversity and the Task Force on Nature-related Financial Disclosures (TNFD) We look forward to reviewing the TNFD’s recommendations later in 2023 and will look to establish a framework compliant with the TNFD’s requirements. We recognise we have a role to play in protecting our biodiversity, welcome the objectives of the TNFD and will include any relevant updates to our approach on both our website and our IMI Hydronic Engineering – next Annual Report. Ljung, Sweden 80 IMI plc Annual Report & Accounts 2022 # TCFD reporting We continue to work to improve our climate-related disclosures, this includes supplementary information on our corporate website, www.implc.com (for example, the mapping of material disclosures against the required GRI requirements and the results of our materiality impact assessment). In accordance with the requirements of LR 9.8.67R (UK Listing Rules), IMI's climate-related disclosures are consistent with nine of the eleven recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We expect to make consistent disclosures in our JQ² Annual Report and Accounts in respect of: » Strategy part b in relation to the impact of climate-related risks and opportunities on our financial performance, position and planning. We are in the process of carrying out a quantitative assessment and plan to develop a clear and thorough climate transition plan during JQ²; and » Strategy part c in relation to the assessment of organisational resilience in the face of climate change as we are in the process of quantifying the potential impact on our financial performance and position. | # | TCFD recommendation | How IMI aligns with the recommendations | For more information | | --- | --- | --- | --- | | | **Governance** | | | | a) | **Board oversight of climate-related risks and opportunities** | The Board has overall responsibility for IMI's environmental, social and governance agenda which include: » Setting our Creating a Better World strategy » Reviewing and approving the ESo framework, strategy, priorities » Determining and keeping under review the Company's ESo climate-related risks and opportunities and its risk appetite » Horizon scanning for emerging climate-related risks » Keeping under review the materiality of climate-related risk and its impact on the financial statements » Receiving regular updates on our sustainability milestones from the Better World team (for example progress on reductions in water, waste and oHo emissions) and feedback from the Investor Relations team on ESo expectations from shareholders and rating agencies » The Remuneration Committee continue to include CO₂ intensity reduction as core part of IMI's incentive plans. In addition, the Audit Committee review guidance from regulators to ensure our continued compliance with the reporting of our ESo strategy The Board is supported by our senior independent, non-executive director, Thomas Thune Anderson, who has considerable ESo experience and has designated responsibility to support the directors' collective responsibility to consider a wide range of stakeholder perspectives and drive IMI's ESo agenda when arriving at Board decisions. | Pages 44, 54 and 55, 86 and 87, 99, 104, 106, 110, 114, 144 | | b) | **Management's role in assessing and managing climate-related risks** | ESo Strategy execution is delegated to the Chief Executive, supported by the Executive Committee. The IMI Executive Committee, are regularly informed about climate-related issues by the Head of Sustainability (via their work with the Better World team their sub-committees and Ricardo Energy & Environment). In addition to these updates, the IMI Executive Committee monitors and reviews ESo progress, climate-related risk management processes and reviews bi-annually a detailed analysis of the Group's risk profile including supporting divisional data and the actions undertaken. The Executive Committee continue to review and approve: » All ESo achievements and targets for inclusion in the Annual Report » The ESo strategy and proposal to the Board » Updates on latest climate-related reporting requirements and monitoring of our external ESo rankings » Scope ³ work relating to the assessment of Scope ³ emissions and review of reduction plans and target setting » The approach to Inclusion & Diversity, health and safety, employee development and talent retention The Executive Committee will continue to improve its knowledge and understanding of climate related risks and opportunities and their related financial impact. Louise Waldek, Group General Counsel and Company Secretary, has specific responsibility for Executive sponsorship of the Better World team. | Pages 14, 48, 54 and 55, 78, 86 and 87, 141 | ## 81Introduction Strategic Report Corporate Governance Financial Statements # TCFD recommendation How IMI aligns with the recommendations For more information Strategy a) Climate-related risks IMI has identified four climate risks and three opportunities, which have been rated as having a high impact and a Pages 76 and 77, and opportunities potentially high likelihood. 86 to 93 identified over the The climate risk management timeframes are short-term 0-3 years, medium-term 3-10 years, long-term 10-30 short, medium and years, and very long-term by 2100. These time horizons have been considered with reference to our internal long-term financial planning timeframes. Risks » Reduced output and higher costs associated with the increased frequency and intensity of floods, storms, and other extreme weather events, caused by a 3˚C increase in global temperatures (long-term) » Aggressive phasing out of certain plastics and metals (medium to long-term) » Decline of the Oil & Gas sector due to stricter regulation (medium-term) » Water shortages impacting the production of steel and plastics (medium to long-term) Opportunities » Demand for several of IMI’s products and solutions may increase with the greater demand for energy efficient products and technologies (medium-term) » Likewise, IMI is well placed to provide innovative products to support the increased use of hydrogen in a low carbon economy (medium-term) » The greater demand for a circular economy may increase the demand for certain products within IMI Critical Engineering which enable the re-use of materials (medium-term) To capture all of IMI’s global operations, the process for identifying and managing risks and opportunities includes the involvement of management and staff at the operating sites and across all divisions within the different geographies. Further work will be carried out to standardise the process for reviewing all climate risks and opportunities as well as further understand the varying level of risks across the business sectors and geographies within the next disclosure. b) Impact of climate- In the medium to long-term IMI’s sites could be impacted by physical climate risks. The physical climate risk analysis Pages 8, 20 to 25, 29 related risks and on page 77, using computer models, has identified those sites potentially at high levels of peril in the long-term. and 30, 45, 70 and opportunities on IMI’s Further detailed onsite analysis of the risks and potential existing mitigations would be required before making any 71, 76 and 77, 171 businesses, strategy changes to IMI’s resilience assumptions. and financial planning » In 2022, IMI Critical Engineering saw a significant increase in aftermarket orders, in particular due to increased Oil & Gas activity. However, in the long-term the transition to zero-emissions is likely to see reduced demand in the Oil & Gas sector, particularly in new construction, representing 6% of Group sales. As a result of this, the division is continuing to advance its strategy into more new energy and actively deploying Growth Hub to support sustainable future growth » In the long-term (10-30+ years) IMI Critical could see a reduction in its Petrochemical business, which currently represents 6% of Group sales. If there is a significant shift away from using certain plastics, we expect this change to be slow and we continue to support our customers to reduce emissions in this area » In the medium-term (3-10 years) the transition to zero-emissions could impact the sale of some IMI Precision’s Transportation products. The sustainable solutions section of this report highlights some of the work being performed to remove the use of hazardous materials, minimise or remove the use of lead and to keep on top of product compliance legislation. In addition, IMI is involved in supporting our customers with zero-emission hydrogen fuel cell technology » In the short and medium-term we continue to expect demand for our automation products, with Industrial Automation representing 22% of 2022 Group sales to increase to support the drive for increase automation with greater energy efficiency » Our IM Hydronic division, representing 17% of IMI’s sales, supports its customers with energy efficiency in buildings. Due to the ongoing drive to reduce energy usage and regulatory changes supporting the reduction of energy usage, we see an opportunity for an acceleration of organic growth for the division » IMI is supporting customers across a number of applications related to hydrogen in the short and medium-term, we see a significant growth opportunity in the coming years » IMI Critical has received £43m of Growth Hub orders in 2022, much of which are supporting our customers to extend the life of the solutions we provide. We continue to see this as an ongoing short-term growth opportunity for the division In 2023, IMI will further develop how risks and opportunities are prioritised, cross-referencing to the risk management and any other relevant sections of the annual report where appropriate. IMI will also look to disclose the quantified outcomes of the scenario analysis to inform future financial planning. c) Resilience of IMI’s Analysis of the resilience of the Board’s strategy highlighted that none of the climate-related risks identified above Pages 20 to 25 strategy taking would likely impact IMI in the short-term. The latest IMI strategic plan does take into account the potential impact into consideration of the truck market transitioning to a zero-emission market and the potential impact on the oil and gas market different climate- within IMI Critical Engineering, however due to IMI’s extensive engineering expertise, climate change may also offer related scenarios, significant opportunities and therefore a significant proportion of the strategic response has been focused on the including 2˚C or lower short to medium-term opportunities. IMI will look to disclose the quantified outcomes of the scenario analysis to inform future financial planning across the short, medium and long-term. IMI strives to continue to improve the quality and robustness of its scenario analysis outcomes and strengthen its adaptation and mitigation activities. IMI plc Annual Report & Accounts 202282 # TCFD recommendation How IMI aligns with the recommendations For more information Risk management a) IMI’s processes for Working alongside our environmental consultants Ricardo Energy & Environment, in 2021 we carried out Pages 76 and 77, identifying and an analysis of climate-related risks and opportunities using the TCFD framework. 86 and 87 assessing climate- The initial horizon scan looked at 13 climate related events structured around TCFD’s four climate categories related risks (Physical, Reputation, Market & Technology and Policy & Legal) and identified 63 potential climate-related risks & opportunities. The next step was to conduct a materiality assessment which looked at the extent to which each division/ location could be exposed to a particular climate event (climate sensitivity) and the existing ability to mitigate or take advantage of the climate event (adaptive capability). To enable a financial evaluation, each risk and opportunity was mapped against three financial materiality drivers (sales, operational costs and capital investment). The materiality assessment identified 20 key areas of focus. Those identified as a high priority risk or opportunity (i.e. significant financial impact and high score on the sensitivity vs capability matrix) were then assessed against the two climate scenarios mentioned on page 76. The two scenarios tried to represent: 1) Little public intervention resulting in significant physical and other climate change impacts 2) High public intervention limiting physical and other climate change impacts The scenarios were selected to ensure they aligned with TCFD methodology, would be acceptable to EU policy makers, are recognised worldwide and, rely on up-to-date projections. This likelihood analysis created the four climate risks and three opportunities which have been rated as having a high impact and a potentially high likelihood. IMI will continue to develop the processes for assessing the potential size and scope of identified climate-related risks and will detail the development of the financial TCFD materiality. b) IMI’s processes for Climate-related risks form part of the overall risk management process and the Better World agenda. Pages 69, 76 and 77, managing climate- For example, further work has taken place in 2022, alongside our main external insurance provider to gain 86 and 87 related risks a greater understanding of the potential physical risks faced by IMI’s larger sites as part of an ongoing project to determine the current mitigations in place and those that may be required in the future to manage the risks associated with extreme weather events. » Engineering and procurement teams continue to review the components within our products and where relevant, gain certifications on more sustainable components, reviewing sourcing policies to ensure good availability and pricing on materials » Our production and supply chain teams have been working, alongside external consultants to understand and review our product compliance against the increasing volume of new regulations and to understand what alternatives there are for various components (for example lead content in brass). All divisions have specially selected suppliers to investigate ESG topics (climate impact, human trafficking & slavery, organisational commitment and labour rights) through our compliance partner, Assent Inc. In 2023, we will engage with these 75 suppliers to identify emissions reduction programmes to support our Scope 3 goals, together with ensuring human rights are protected in the supply chain » To mitigate the risk of supply chain disruption caused by water shortages, our supply chain teams are working to ensure we have dual sourcing of key components and are treated as a priority customer via framework agreements with tier 1 suppliers c) How IMI’s processes for Climate-related risks determined and reviewed via the work of divisional risk champions, form part of several Pages 86 to 93 identifying, assessing principal risks, and are included as part of risk management presentations to the Executive and the Board. and managing As opposed to having a specific principal risk regarding climate change, the Board believes there are several climate-related risks principal risks which already cover the potential impact of climate change. are integrated into IMI’s overall risk » Business disruption due to natural disasters – which covers the physical risks of climate change management » Failure to comply with legislation – including the risk that IMI were to breach country specific legislation on carbon initiatives, industry standards, material restrictions etc » Talent risk – the impact of a poor ESG strategy or reputational climate incidents would have on the ability to retain and attract premium talent » Failure to manage the supply chain – the impact on the cost, availability, and delivery times of key components due to disruptive transition risks towards low carbon energy efficient products » Organic growth – the ability to adapt to new customer problems and realise the climate opportunities identified IMI will continue to further develop how managing climate-related risks are integrated into the overall risk management framework, which we see as a continually evolving process. Introduction Strategic Report Corporate Governance Financial Statements 83 | # | TCFD recommendation | How IMI aligns with the recommendations | For more information | | --- | --- | --- | --- | | **Metrics and targets** | | | | | a) | **Metrics used to assess climate-related risks and opportunities in line with strategy and risk management process** | Our purpose is **Breakthrough Engineering for a better world**, where we are committed in providing customers with the most sustainable products possible. To ensure IMI supports sustainability, our climate goals include reducing emissions and minimising our environmental impact. To help achieve this we have set up several climate-related metrics aimed at reducing our greenhouse gas emissions, water usage and waste. We have obtained limited level assurance over the accuracy of our greenhouse gas emissions from an independent third-party consultancy. As noted above, impact and likelihood alongside a materiality assessment are the metrics used to assess climate-related risks and opportunities. We have included details of the relevant percentage of business activities aligned with each risk/opportunity set out in page 81. In xD_{10} we included the halving of our CO_{2} intensity (Scope 1 & 2) as part of our executive remuneration. See part c) below for further information. We recognise the importance of developing an internal carbon price as a critical forward-looking metric that can help us to manage climate-related transition risks and opportunities. We will be working on this during xD_{2}^{3} ahead of reporting in next year's Annual Report. Specific climate-related opportunities linked to research and development have not yet been measured but we will consider measuring this in the future. | Pages 48 to 50, 74 and 75, 78 and 79 part b) below Strategy part b), page 81 | | b) | **Scope 1, 2 and 3 greenhouse gas emissions and related risks** | Details of our achievements against our climate-related targets including CO_{2} intensity can be found in the Creating a Better World section of this Annual Report. | Pages 48 to 50, 74 and 75, 78 and 79 | | c) | **Targets used to manage climate-related risks and opportunities and performance against targets** | Our purpose drives our strategy and our ambition, including our commitment to: » Halve our total Scope 1 & 2 CO_{2} intensity by xD_{10} (based on a xD_{19} baseline) and be net zero for these emissions by xD_{40}. » For Scope 1, we are targeting reducing our emissions by x5% by xD_{10} and be net zero by xD_{50}. » Reduce our water intensity (m^{3} per 1,000 hours worked) by 10% by xD_{10} (compared to xD_{20}). » Reduce our non-recycled hazardous waste by 50% by xD_{10} (compared to xD_{10}). Since January xD_{10}, shorter-term (annual) targets for Scope 1 & 2 CO_{2} intensity reduction have formed part of our executive remuneration. From January xD_{2}^{3}, annual targets for water intensity will be included as part of the personal objectives of the annual bonus for the Chief Executive and Executive Committee members. We will look to include shorter term targets for waste and Scope 1 CO_{2} emissions in the future. Recent acquisitions, Adaptas, Bahr, CorSolutions and Heatmiser, continue to move IMI into more resilient markets with long-term growth prospects. Research and development expense continues to increase year on year to accelerate our organic growth opportunities, and we continue to see a wide range of opportunities available in our markets that will help our strategy to be resilient to climate-related risks. | Pages 48 to 50, 1^{3}1, 1^{4}4, 1^{7}7, 144 Note 5 | IMI plc Annual Report & Accounts 202284 ## Non-financial information statement We aim to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. The table below, and the information it refers to, is intended to help stakeholders understand our position on key non-financial matters. Reporting requirement Policies and standards which govern our approach Additional information Environmental matters Environmental policy Pages 70 to 79 Employees IMI Code of Conduct Page 53 Speaking up; hotline for raising concerns Pages 53, 92 Health and safety policy Pages 64 and 65 Inclusion & Diversity policy Pages 62 and 63, 121 Wellbeing Page 59 Social matters IMI Corporate Tax strategy and Tax policy IMI website Charitable donations Page 59 Volunteering Page 59 Human rights Modern Slavery statement, Responsible Minerals, Supply Chain Code of Conduct IMI website Inclusion & Diversity policy Pages 62 and 63, 121 Anti-corruption and anti-bribery The IMI Code of Conduct includes our policy statements on a number of areas Page 53 of compliance:- (1) No bribery and corruption (2) No facilitation payments (3) No political donations (4) No anti-competitive conduct (5) Use of appropriate charitable donations, gifts, hospitality & entertainment (6) Know your customer checks (7) Dealing with third parties (8) Managing conflicts of interest (9) Insider dealing & confidential information (10) Non-facilitation or tolerance of tax evasion (11) Compliance with export controls & sanctions (12) Doing the right thing and speaking up (13) Fraud detection and investigation Description of principal risks - Pages 88 to 93 Business model - Pages 10 and 11 Stakeholder engagement - Pages 38 to 45 Outcome of non-financial policies Carbon emissions reporting Pages 70 to 79 and standards One Big Voice employee engagement survey results Page 58 Diversity reporting Pages 62 and 63 Health and Safety reporting Pages 64 and 65 Due diligence processes implemented in Customer satisfaction surveys pursuance of promotion non-financial policies Carbon emissions reporting and monitoring and standards Scrap and waste reduction measurement Monitoring of expenses, hospitality and entertainment Monitoring One Big Voice employee engagement survey and the follow up pulse surveys All employees receive the IMI Code of Conduct Hotline reports reviewed by the Board Health and Safety reporting and monitoring Modern slavery training and risk assessments Compliance training Compliance risk assessments and tailored programmes by division Compliance implementation reviews and internal audits Know your customer policy and due diligence reviews Third party agent and distributors policy and due diligence reviews Internal control declarations and compliance declarations ## 85Introduction Strategic Report Corporate Governance Financial Statements IMI Critical Engineering – Kobe, Japan IMI plc Annual Report & Accounts 202286 ## How we manage risk ## Our risk management processes are embedded throughout our ## businesses and are designed to identify, evaluate and manage the ## risks (including emerging risks) which could impact our performance, ## our reputation or our ability to execute our strategy successfully. During the year: - » We continued to pay close attention to the impact of inflation, hedging and passing on changes in the cost of raw materials, whilst supporting those employees impacted the most by cost of living increases (see page 124) » We performed a deeper dive into the potential physical risks faced by our sites due to climate change » We were involved in the due diligence process for the acquisitions carried out in 2022 » Following the start of conflict in Ukraine, we mapped the risks, exposures and mitigations surrounding IMI’s operations in and around Russia and ensured IMI exited in the most efficient and measured way possible » We continued supporting the businesses around policies, guidance and additional supplies to help mitigate COVID-19, this was particularly key for our sites in China » We strengthened our Code of Conduct (the Code) and scoped training and guidance around its contents. This process will continue into 2023 with the launch of compulsory training on elements of the Code relevant to key sets of employees ## Three lines of defence Our risk management process forms a core element of our strategy reviews and monthly operational meetings, and is embedded in all our businesses and utilises all three lines of defence. It provides guidance on the identification, evaluation and management of risks, including emerging risks, which could impact our performance and our ability to implement our strategy. With each line of defence having a purpose, combined, they help us provide confidence to the Board and ultimately our shareholders that we have adequate mitigating controls and processes in place. ### First line – risk ownership and Second line – monitoring and Third line – independent ### management compliance assurance This is provided by management and This is the oversight, review and challenge This is primarily provided by the Group staff at the operating sites and divisions provided by division, functional and IMI Assurance function. Sitting outside of who are responsible for identifying Group management (including IMI the risk management and operational and managing risks as part of their Executive and Board). This provides the processes, its main role is to review and accountability for achieving IMI’s policies, frameworks, tools and support report on the effectiveness of the first objectives. This includes applying the to enable risk and compliance to be two lines of defence in managing the risks IMI values, policies and procedures managed by the first line. to IMI. It also includes an element of the and internal controls. divisional audit team’s work carried out under the oversight of Group Assurance. ## 87Introduction Strategic Report Corporate Governance Financial Statements ## Our governance framework The Group operates a ‘top-down, bottom-up’ approach to risk management which allows the Board and the senior leadership team to actively assess strategic risks and monitor the measures used to mitigate, transfer or avoid such risks. It also ensures that operational risks are identified and managed at multiple levels and key information is communicated across the Group. ### Board » Has overall responsibility for ensuring that we manage our risk exposure appropriately to achieve our strategic objectives and build sustainable shareholder value. This involves assessment of principal risks (including climate-related risks and opportunities) and emerging risks » Approves the strategy and determines our risk appetite and reviews the risk management processes we operate » Sets a framework of prudent and effective controls, which enable risk to be assessed and managed and ensures the Group operates responsibly, with effective controls in place » Every six months the Board carry out a robust assessment of the Company’s emerging and principal risks (including climate-related risk and opportunities) and annually, the effectiveness of internal controls » Delegates responsibility for implementing and monitoring internal controls and other elements of risk management to its Committees and the Chief Executive and his executive team ### Board committees » The Audit Committee has oversight of financial reporting, internal financial controls and assurance processes. The Committee keeps under review the effectiveness of internal financial controls and risk management systems and reports to the Board its views and any recommendations for improvement » The Nominations Committee oversees talent and succession risk » The Remuneration Committee oversees and adjusts, where necessary, remuneration and incentive structure risk ### IMI Executive & divisional leadership » Has responsibility for ensuring risk management culture is integrated across the divisions and aligned to the Group’s objectives and risk appetite » Monitors and reviews risk management processes and reviews bi-annually a detailed analysis of the Group’s and divisional risk profiles, breakdown of the key controls, changes in the period and the actions and mitigations and future initiatives designed to manage the risks » During monthly meetings will receive updates from individual risk owners (for example updates on HR, HSE and ESG workstreams) ### Operating businesses » Operational teams provide the first line of defence by following defined policies and ensuring the effective running of key operating systems, local ownership and accountability of risk ownership and mitigation » Local management operates local internal control systems and provides monthly updates on key risks, mitigation and controls through incorporation of risk profile data in monthly management reporting process ## Emerging risks The Board assesses the risks that could impact the Group which have not yet occurred but are at an early stage of becoming known and are expected to become more significant. All divisions monitor and review emerging risks as part of our monthly operational performance reviews and Executive Committee meetings. Consideration of emerging risks also forms part of our strategy review process. Whilst the Board and the Executive Committee did not determine a specific emerging risk, we continue to be vigilant and ensure we have appropriate procedures in place for the early identification and quantification of risks, especially as we continue, through Growth Hub, to design new products and move into new markets. IMI plc Annual Report & Accounts 202288 ## Principal risks and uncertainties ## Our principal risks Our risk appetite The principal risks facing the Group are shown in order of priority Risk appetite rating Definition in the table below. This analysis covers how each risk (net of mitigating controls) could impact our strategy, our risk appetite Very prudent No/very low tolerance to risk, regardless to the particular risk, how our assessment has changed during of the cost of the required controls. 2022 and explains what we are doing to monitor and mitigate each risk area. Prudent A low-risk approach via sufficient and proportional controls and mitigation, in the knowledge this will limit any potential reward. Balanced Applied in circumstances where there is a high chance of success, equal consideration is given to the achievement of strategic objectives and potential negative risk impact. Risk reduction not Elevated levels of risk accepted in carried out in instances the case of opportunities that offer of disproportional cost. improved returns. Receptive Elevated levels of risk accepted in the case of opportunities that offer improved returns. Very receptive High levels of risk accepted in the case of unproven or new projects that offer significant returns or growth potential. Risk rating & appetite, link to strategy Description and change in year Risk mitigation including specific 2022 actions and key elements | 1. Failure to manage the supply chain | Failure to manage the supply chain could | The procurement strategy is to get the optimal | | --- | --- | --- | | | have a material impact on our financial | balance between the use of best cost countries | | Risk rating | performance and reputation. | and having the supply chain localised to | production teams. VERY HIGH The divisional procurement teams continue Impact: High Likelihood: High to perform thorough reviews of our supplier No change base, qualify new materials, sign framework Risk appetite agreements where necessary, utilise tooling Prudent registers, work towards diversification of Whilst global economic demand has reduced in the last twelve months and some pinch- supply chains, and create safety inventory Link to strategy where needed. points within logistic networks have eased, the Customer satisfaction armed conflict in Ukraine, subsequent energy We utilise a compliance partner to ensure the price shocks, severe weather events, scarcity of regulatory compliance of our suppliers on such Complexity reduction some key materials and the lingering disruption matters as conflict minerals, EU Reach, RoHS, Digital caused by COVID-19 lockdowns, still elevates US TSCA etc. the risks associated with receiving materials in Leadership teams also hold regular supply chain Sustainability the right place, at the right quality and at the review meetings deploying escalation meetings right time. with key suppliers where needed. Links to other risk elements Divisional procurement teams assess specific Global macro-economic uncertainty & Supply Chain Code of Conduct risks and audit political instability high risk suppliers for all aspects of supply Business disruption (climate change / chain risk including Modern Slavery. natural disasters) Sites also continue to update their business ESG/Climate Change continuity arrangements for changing production processes with dual sourcing arrangements in place for key components. During the extended lockdown in Shanghai, weekly supply chain meetings were set up to utilise alternative suppliers and production facilities and to monitor logistics. ## 89Introduction Strategic Report Corporate Governance Financial Statements Risk rating & appetite, link to strategy Description and change in year Risk mitigation including specific 2022 actions and key elements | 2. Global economic uncertainty and | The Group operates in diverse global markets | We compile annual strategic plans and maintain | | --- | --- | --- | | political instability | and demand for our products is dependent on | a balanced portfolio operating across a range of | | | economic and sector-specific environments. | markets, sectors and geographies with no single | | Risk rating | A downturn in the global or a regional | dependency. We also have contingency plans | | | economy, brought on by economic cycles, | in place to enable changes in our operational | VERY HIGH political instability, health or environmental footprint should geopolitical changes or other Impact: High Likelihood: High emergencies, could impact end market forms of disruption impact our ability to trade demand and as a result negatively impact between various countries (for example European Risk appetite revenue and our ability to deliver our strategy energy restrictions or further China lockdowns). Balanced and achieve market expectations. Our divisions ensure their forecasting processes include scenario stress testing, reviews of Link to strategy sector metrics and getting closer to the Customer satisfaction customer to receive early indications of reduced Increased customer demand to allow proactive and rapid Complexity reduction management of plant output. Sustainability Due to Russia’s invasion of Ukraine, on 4 Through greater digitisation and integration March 2022, we ended all new business in, of data, divisional management have ongoing and international deliveries to, Russia. On 27 Links to other risk elements reviews of order books, milestones for major May 2022 we completed the divestment of Business disruption (climate change / projects and customer credit ratings. These our Russian subsidiary to local management natural disasters) and other key metrics are fed back into resulting in a loss on disposal for the Group monthly divisional and Executive meetings. of £4.8m. Foreign currency fluctuations We are conscious that significant increases in Predictions of global economic growth in food and energy costs have disproportionately the short to medium-term continue to reduce impacted the most vulnerable and therefore whilst many countries have experienced levels we have targeted pay increases to support our of inflation not seen in decades. IMI Precision’s lower paid employees. business is the most sensitive to economic cycles, whilst IMI Critical continues to face highly competitive markets and faces a structural decline in the new construction fossil power sector. Whilst IMI Hydronic is a shorter-cycle division it has a lower sensitivity to economic conditions but may be impacted by mild European winters. | 3. Competitive markets | Competition in our core markets, from both | We have an M&A strategy which looks to | | --- | --- | --- | | | existing and new competitors could create | apply our expertise in attractive markets, in | | Risk rating | strong pricing pressures, potentially resulting | established and adjacent sectors with a strong | | | in lost sales and reduced profits. | link to our Better World strategy. This has been | HIGH demonstrated through the recent purchases Impact: Medium Likelihood: High of Adaptas, Bahr Modultechnik, CorSolutions and Heatmiser. Risk appetite No change Our Growth Hub aims to create significant Receptive customer-pull and uncover new opportunities This year IMI Critical has seen a significant by solving our customers’ key problems, through Link to strategy increase in Aftermarket orders for parts and advanced applications engineering, helping Customer satisfaction upgrades, however climate change transitional us deliver more competitive products such as risks could see a decline in the Oil & Gas sector Adaptix, Hydrogreen, EroSolve, VIVO Electrolyser Complexity reduction in the medium-term. and TA Smart. Innovation We monitor competition risk monthly by reviewing progress against our strategic growth Sustainability plans and the performance of our peers. Talent & engagement Robust contractual terms ensure material price Digital inflation is passed onto the end customer. The nature of IMI Critical’s long-term projects enables Links to other risk elements efficient hedging of foreign currency and commodity prices. Global macro-economic uncertainty & political instability We maintain strong brands and defend our trademarks and brands and continue to Margin erosion develop our market leading applications Organic growth engineering expertise. ESG/Climate Change Our Value Today initiatives aim to maintain or even strengthen our competitive position through innovative solutions from Growth Hub, continuous process improvement, growth in the Aftermarket and an acceleration of IMI Hydronic’s HVAC solutions due to the greater demand for energy efficiency. IMI plc Annual Report & Accounts 202290 ### Principal risks and uncertainties Risk rating & appetite, link to strategy Description and change in year Risk mitigation including specific 2022 actions and key elements | 4. Talent | The inability to attract talent or retain a | The risk is regularly assessed by the proactive | | --- | --- | --- | | | diverse set of employees with the required | monitoring by HR Business Partners of regretted | | Risk rating | set of skills and experience in the desired | turnover, exit interviews, percentage of vacancies | | | territories. | filled internally, performance objectives, talent | HIGH reviews and succession plans. Impact: Medium Likelihood: High External consultants are used to ensure the appropriateness and competitiveness of Risk appetite No change remuneration. There has also been a greater use Balanced of flexible working and a wider range of voluntary Talent risk was raised to high at the end of 2021 employee benefits. The work on Inclusion & Link to strategy due to the impact of the pandemic, the boost Diversity has now been embedded into the Customer satisfaction on economic growth and employment from divisional leadership teams. the gradual reopening of developed economies, Complexity reduction Employee engagement continues to be a key wage inflation and a potential scarcity in the part of the HR strategy, though Workplace Talent & engagement desired skills for the type of talent IMI seeks. our internal communications platform, the IMI Workstreams on attraction, visibility and Way Day, our new Global Employee Assistance Links to other risk elements development (‘Big Play on Talent’) have Programme, our new Leadership programme and ESG been set up to mitigate the risk and improve the annual One Big Voice survey, which this year IMI’s attractiveness as an employer. Levels of continued to see an overall increase in employee Global macro-economic uncertainty & regretted turnover and very positive employee satisfaction. Where pockets of improvement political instability engagement scores are encouraging. are identified, local management are required to Health & safety draw up action plans for review. Whilst global economic demand may be waning, most economies have been close to historic lows for availability of labour and with most employers unlikely to maintain real wages in the short-term, the pressure to retain key talent remains. | 5. Unauthorised access to our IT | As the digital and security threat environment | We have a well-developed multi layered IT | | --- | --- | --- | | systems | is quickly evolving, we cannot guarantee | security strategy, that is reviewed regularly, and | | | that our actions are keeping pace with the | a formal update is given to the Board annually. | | Risk rating | constantly evolving threat environment. | | The strategy includes the use of next generation HIGH firewalls, multi-factor authentication, internet Unapproved access to our IT systems could result in loss of intellectual property, filtering, endpoint and server protection using Impact: Medium Likelihood: High fraudulent activity, theft and business AI based malware and threat detection, email interruption. security, device control, penetration testing, Risk appetite 24/7 monitoring and rolling security awareness Very prudent programme. Link to strategy We continue to implement improvements to our Increased IT infrastructure to keep abreast of new threats Complexity reduction that inform future security investment planning. Digital We continue to detect, block and remediate We operate a security oversight / approval threats on an ongoing basis with a visible process regularly test our disaster recovery plans, Links to other risk elements increase in the volume and complexity of maintain robust backups throughout the Group threats especially in the wake of the conflict Legal compliance risk and retain the support of specialist consultants / in Ukraine (including malware, ransomware, service providers as required. attempted data theft, credential theft, phishing and external hacking attempts). IMI Hydronic Engineering was the subject of such a disruptive attack in December 2022. Our preventative and mitigation defences, including robust system and data recovery plans, meant that operations were quickly restored and impacts to customers and customer service were limited. We continue to increase our activity and investments in preventative infrastructure, recovery planning, penetration testing, and employee training in order to minimise any impact of these ongoing threats. ## 91Introduction Strategic Report Corporate Governance Financial Statements Risk rating & appetite, link to strategy Description and change in year Risk mitigation including specific 2022 actions and key elements | 6. Organic Growth | Failure to deliver market leading products on | We continue to invest in new leadership talent | | --- | --- | --- | | | time and on budget, could impact our ability | into digital and our Growth Hub, with additional | | Risk rating | to grow. | digital marketing resources promoting our | brand and products. With the use of external HIGH experts, Growth Hub aims to innovate into new, Impact: High Likelihood: Medium sustainable markets solving acute industrial problems. Processes and governance are in place Increased Risk appetite to avoid new product concentration risk, to Receptive ensure projects are scalable and relevant teams Our Better World strategy and increased have the bandwidth to deliver successful new customer intimacy are two of the levers for Link to strategy products/services effectively. us to accelerate profitable organic growth. Customer satisfaction The Growth Hub programmes start with Growth Hub looks at opportunities across all understanding the customer problem and three horizons and all three divisions are looking Complexity reduction allow us to identify, design, refine, and develop, to use more digital tools to enhance customer Innovation the flexible, high performing and sustainable experience. We have established centres of solutions demanded by our customers and design and technological excellence across our Sustainability wider society. businesses. Each division has a new product development strategy which is regularly reviewed, Talent & engagement with divisional engineering teams reporting on Digital the performance of our existing products and new market or competitor developments. Links to other risk elements Competitive pressures Global macro-economic uncertainty & political instability ESG / climate change | 7. Business disruption / Natural | The risk to life or disruption to production | Throughout much of the first part of 2022, | | --- | --- | --- | | disasters | caused by large scale events such as, extreme | supported by a cross-function, cross divisional | | | weather, pandemics, conflicts and disasters | support team, the Executive team continued to | | Risk rating | etc (where not covered by other specific risks, | review IMI’s COVID-19 mitigation measures with | | | for example cyber). | monthly meetings supported by weekly updates. | MEDIUM Management teams continue to review Impact: Medium Likelihood: Medium emergency response and business continuity plans to bolster operational resilience in order Risk appetite Decreased to minimise the impact of large-scale disruption. Very Prudent For example, our Indian operations supported our The risk rating has been reduced from HIGH as Chinese sites during the extended lockdowns. Link to strategy the world continues to be better equipped to We have around the clock access to health and Customer satisfaction deal with the specific threat of COVID-19. security services should a major incident occur. Complexity reduction The risk of disruption still remains elevated due Further work was performed in 2022 to to the ongoing impact of COVID-19 and other Sustainability understand the potential physical risks our sites contagious respiratory illnesses, other pandemic face under various climate change scenarios. threats as well as extreme weather events. Digital Further information can be found on page 77. Links to other risk elements ESG / Climate change Supply-chain Global macro-economic uncertainty & political instability IMI plc Annual Report & Accounts 202292 ### Principal risks and uncertainties Risk rating & appetite, link to strategy Description and change in year Risk mitigation including specific 2022 actions and key elements | 8. Failure to deliver major | The Group is continually evolving and | We have deep and extensive restructuring and | | --- | --- | --- | | transformational projects on | taking opportunities in response to | integration expertise which see restructuring | | time and on budget | external conditions and market pressures. | costs and realised benefits tracked monthly | | | Our current strategy includes large | against target. | | Risk rating | restructuring programmes and complex IT | | We operate robust and proven processes to system installations. Failure to deliver the MEDIUM manage and monitor major projects (for example expected objectives on time and on budget, in 2022 IMI Precision completed the execution Impact: Medium Likelihood: Medium could have an adverse revenue and profit phases of their Fit for Growth and Customer First impact on the Group. projects), including business cases which set out Risk appetite clear and measurable timetables and milestones, Prudent which are reviewed regularly by our Executive Committee and divisional management teams. Link to strategy Decreased Project management and governance processes Customer satisfaction underpin all major IT projects to support efficient All three divisions in recent years have Complexity reduction ERP system roll outs (for example the move onto successfully completed change management JDE version 9.2 by a number of sites during the Digital programmes. year). Upon completion of a significant project, The Group continues to review our operational we undertake a post-investment appraisal to footprint and will ensure knowledge from identify areas for improvement. previous exercises are rolled into any future projects. | 9. Failure to comply with legislation or a | We have an established framework which | Each division assesses its own compliance risk | | --- | --- | --- | | breach of our own high standards of | demands the highest standards of ethics, | and formulates an annual divisional compliance | | ethical behaviour | legal and regulatory compliance across all | plan which is implemented by each of their | | | our businesses. As we deliver sustainable | General Counsel, with results reported to Group | | Risk rating | profitable growth, it is essential that we | on a quarterly basis. | maintain these standards. A breach of MEDIUM Due diligence on third parties, trade sanctions legislative requirements could result in and customers are the subject of standard Impact: High Likelihood: Low financial and reputational damage. operating procedures and carried out by the divisions using Group-wide software. Risk appetite Very prudent Dedicated resources at both the Group and divisional level ensure employees are provided No change Link to strategy with the necessary training, guidelines, access to subject matter experts, and standard Customer satisfaction Except for Russia, we continue to operate in operating policies. similar markets as last year. Complexity reduction In 2022, a revised and more comprehensive Code The invasion of Ukraine saw a significant Sustainability of Conduct was launched, in 13 languages. The increase in export controls and sanctions and Code is supported with high-level guidance for the global privacy landscape continues to Digital all employees followed by detailed training for develop. relevant staff on individual elements of the Code. Links to other risk elements IMI’s legal and compliance teams, supported by We continue to enhance the Group’s data external specialists, worked to ensure IMI was ESG / Climate change privacy framework. fully compliant with international sanctions Health & safety introduced following Russia’s invasion of We operate a confidential independent hotline Ukraine. IMI ended all new business in and to report concerns. Reports are investigated Tax compliance | international deliveries to Russia on 4 March | thoroughly and where required; action is taken | | --- | --- | | 2022 and divested its Russia subsidiary IMI | to resolve issues. The Group’s Ethics & | | International LLC on 27 May 2022. | Compliance Committee meets monthly and | reviews all hotline reports alongside any external We conduct business through agents in IMI complaints or internal referrals of serious Critical Engineering and operate a detailed accusations of breaches of the Code of Conduct. process to ensure agents comply with our high In 2022, the Committee reviewed 32 cases standards of business conduct. compared to 39 cases in 2021. Detailed legal due diligence was conducted on all acquisitions in the year. ## 93Introduction Strategic Report Corporate Governance Financial Statements Risk rating & appetite, link to strategy Description and change in year Risk mitigation including specific 2022 actions and key elements | 10. Quality issues leading to product | | Developing innovative and technologically | Our Quality Management systems, quality | | --- | --- | --- | --- | | | recall, warranty issues, injury, | advanced products is at the heart of IMI. | operating policies, product quality plans, and | | | damage or disruption to | The quality and safety of our products and | escalation processes allow us to continually | | | customers’ business | services is of the highest importance and | improve product quality. | failure to deliver the quality required could Across our operational platform we have Risk rating result in negative financial and well embedded process control, continuous reputational damage. MEDIUM improvement programmes, and Advanced Product Quality Planning processes. Our most Impact: Medium Likelihood: Medium critical projects include extensive testing of the finished product and customer sign-off. Risk appetite No change Very Prudent We have a detailed mapping of our engineering resources across our customers and geographies This area continues to be a key focus for our Link to strategy and elements of our product quality (product businesses, by minimising the cost of quality compliance and elements of our quality Customer satisfaction and warranty claims. management systems) are audited by external Complexity reduction third parties. Our sites often have weekly performance reviews and key statistics over the Innovation cost of quality are included in monthly operational reviews attended by IMI’s Executive team. Should Digital significant issues occur, a process which includes full root cause analysis, creation of action plans Links to other risk elements and lessons learnt debrief is put into action. Health & safety Legal compliance risk | 11. Failure to integrate acquisitions | | Underperforming acquisitions deliver below | We have in-house M&A expertise who operate | | --- | --- | --- | --- | | | successfully and deliver the | expectation synergies and reduced profit. | a proven, structured integration process. | | | required synergies | If material, this can significantly impact | | The strategic review process helps identify value shareholder value. enhancing acquisitions which would align with Risk rating the Group’s strategy. MEDIUM Upon completion, a detailed 100-day process Impact: Medium Likelihood: Medium is used to ensure adequate resources are in No change place, progress is on schedule and the identified Risk appetite synergies (both hard and soft) are being realised. IMI has acquired four companies since Receptive Monitoring of integration progress is reported to December 2021. the Group monthly. The Board receives regular Link to strategy Adaptas Solutions – December 2021 updates on progress and with the assistance of the internal assurance teams, carries out a review Customer satisfaction Bahr Modultechnik – June 2022 in year three after each acquisition. Complexity reduction CorSolutions – October 2022 Digital Heatmiser – December 2022 We track these acquisitions to ensure they Links to other risk elements deliver value; the planned synergies and that IMI Competitive markets provides ongoing support and training for the local management teams. Global macro-economic uncertainty & political instability IMI plc Annual Report & Accounts 202294 ## Viability statement The scenarios considered were as follows: ## Viability statement The directors have assessed the viability of the Group over Scenario 1: A modest global macroeconomic recession in 2023 representing a relevant period, taking into account the Group’s financial a 5% reduction in revenues. and trading position as summarised in this Annual Report, Link to principal risks: Global economic or political instability. the principal risks and uncertainties set out on pages 88 to 93, the Group’s going concern assessment set out on page 95 and Scenario 2: A product recall with a one-off cost of £200m. the five-year business plan reviewed by the Board in September Link to principal risks: Quality issues leading to product recall, warranty 2022. Based on this assessment, and other matters considered issues, injury, damage or disruption to customers’ business. and reviewed by the Board, the directors confirm that they have a reasonable expectation that the Company will be able Scenario 3: A severe global macroeconomic recession in 2023 representing to continue in operation and meet its liabilities as they fall due a 16% reduction in revenues. over the period from the date of this Annual Report to 31 Link to principal risks: Failure to manage the supply chain; global economic December 2027. or political instability; business disruption/natural disasters. The directors determined that the period to 31 December 2027 Scenario 4: This scenario considers the combined impact of scenario 2 and constituted an appropriate period over which to make its 3, both a £200m product recall and a 16% reduction in revenues due to assessment of viability. Whilst the directors have no reason macroeconomic recession. to believe the Company will not be viable over a longer timing Link to principal risks: Quality issues leading to product recall, warranty horizon, the five-year period to 31 December 2027 was chosen issues, injury, damage or disruption to customers’ business; global economic as it was aligned with the Company’s business and strategic or political instability, business disruption/natural disasters. planning timing horizon and is a sensible period for such an assessment. It is believed this period provides readers of the Annual Report with an appropriately long-term view with which to assess the Company’s prospects although future outcomes Finally, the Board considered a reverse stress test which cannot be predicted with certainty. demonstrated that a breach of covenants would not occur unless there was an extreme unforeseen event causing a revenue The directors carried out a robust assessment of the principal reduction of greater than 23% in the 12 months following risks facing the Group, considering those that could threaten its approval of the Annual Report and Accounts. Mitigating actions business model, future performance, solvency or liquidity. considered for this reverse stress test include, but are not limited to, reducing working capital, restricting capital expenditure, The Board has considered the long-term prospects of the reducing overhead spend and employee costs and cutting or Company based on the strategy, markets and business model suspending dividend payments to shareholders. The mitigating as outlined previously within this report. In the Strategic review actions do not assume any special governmental support other of the Group, the Board highlights a number of factors that than normally available schemes such as short-term working in underpin its long-term prospects and viability. These include: certain countries. » Purpose-led strategy Breakthrough Engineering for a The Board considered the Group’s liquidity, available banking better world delivering improved margins and sustainable, facilities and banking covenants, details of which are included profitable growth in Note 1 to the financials statements. The Board also considered » Well-balanced portfolio, bound by world class engineering the Company’s ability to raise capital in the future, as well as capabilities that offers through-cycle resilience both the ongoing actions undertaken to prevent occurrence and the potential actions to mitigate the impact of any particular » Better World purpose aligns the Group to attractive growth risk. In making its assessment, the Board recognised the principal markets, supported by global macro trends risks facing the Company, including those that would threaten » Strong balance sheet offering strategic flexibility alongside its business model, future performance, solvency or liquidity. disciplined financial objectives A summary of these risks can be found on pages 88 to 93. » Differentiated environmental profile – our solutions enable The directors’ assessment also recognised a number of energy efficiency, sustainability, and safety key features of the Group’s operations. The Group’s wide geographical and sector diversification, and the spread of The business plan was used to assess the headroom on the activities across many production sites, help minimise the risk Company’s facilities and to model stress tests for ongoing of serious business interruption. Furthermore, our business model covenant compliance under scenarios where its principal risks is structured so that the Group is not overly reliant on a few large materialise. The analysis considered both ‘running business’ risks, customers. Our largest customer constitutes under 3% of Group such as reducing revenues and margins, as well as one-off ‘event’ revenue and our top 20 customers account for under 14% risks such as product recalls. of Group revenue. In addition, our ability to flex our cost base reduces our exposure to sudden adverse economic conditions. ## 95Introduction Strategic Report Corporate Governance Financial Statements ## Going concern After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and for a period of at least twelve months following the approval of the Annual Report & Accounts. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. Further details are included within Note 1 to the financial statements. IMI Critical Engineering – Pittsburgh, USA IMI plc Annual Report & Accounts 202296 ## Board of Directors Nationality Key external Committee ExpertiseDate of Specific contribution to membership appointment appointments the company’s long-term success | Lord Smith | British | Nominations | 2015 | Significant UK and | Non-executive Chair of | Extensive international | | --- | --- | --- | --- | --- | --- | --- | | of Kelvin | | Committee | | international board | the British Business | business, sector and | | | | – Chair | | experience | Bank plc | board level experience | Chair enables Lord Smith’s Extensive knowledge of valuable leadership of both engineering and the Board and drives manufacturing his commitment to Strong track record in robust corporate private equity, mergers governance and acquisitions Specialist capability in finance Roy Twite British Executive 2019 as Chief Proven organisational and Non-executive director Drawing on his general Committee Executive engineering expertise of Halma plc* management and Chief Executive and 2007 operational experience, Management capability as director Roy brings clear having run all of IMI’s divisions strategic leadership, Extensive knowledge of end- passion for and a deep markets and customer base understanding of the engineering sector, the Group’s divisions and stakeholders to lead and inspire the Group Daniel Shook American Executive 2015 Extensive financial Daniel contributes his British Committee management experience considerable global, Finance Director financial and business Extensive knowledge development experience of complex process from large multinational manufacturing across a companies to drive range of industrial sectors strong financial Strong international leadership and support perspective, having worked in the growth of the Group a number of key geographies during his time with two leading global businesses Thomas Thune Danish Chair of Lloyds Register Nominations 2018 Experienced international Thomas brings a wealth Committee business leader in sectors Group of international business Andersen including oil, energy, marine and board level Senior independent Audit Committee Chair of Orsted A/S* and critical infrastructure experience to his role as non-executive director Non-executive Non-executive director Senior Independent Broad experience as a non- director responsible of Green Hydrogen Director. He draws on executive director of various for employee Systems* his broad knowledge public companies engagement and Member of the Danish and personal interest in ESG matters Special interest in ESG Committee for Good sustainability and matters in particular Corporate Governance culture when performing corporate governance and his designated employee Non-executive director climate change issues engagement and ESG of BW Group Ltd activities, supporting Chair of VRK Holdings the formulation and A/S delivery of our ESG strategy * Listed company directorship. ## 97Introduction Strategic Report Corporate Governance Financial Statements Nationality Key external Committee ExpertiseDate of Specific contribution to membership appointment appointments the company’s long-term success Isobel Sharp British Non-executive director Audit 2015 Considerable accounting, Isobel contributes her Committee audit, governance and and Audit Committee extensive financial Independent non- – Chair transactions experience Chair of The Bankers experience and a strong executive director including time as a member Investment Trust PLC* understanding of the Nominations of the UK Accounting audit, governance, Committee Non-executive director Standards Board and the control and regulatory of Balanced Reporting Review Panel landscape to chair Commercial Property effectively the Audit Worked with many Trust Limited* Committee international businesses Member of the on strategy, risk and International Advisory sustainability matters Board at Edinburgh University Business School Caroline Dowling Irish Nominations 2020 Successful executive career Non-executive Caroline brings substantial, Committee in the technology sector director of DCC plc* global board level Independent non- | | | with an industry-leading | | experience and expertise in | | --- | --- | --- | --- | --- | | executive director | Remuneration | | Non-executive | | | | | Fortune Global 500 | | digital, technology and | | | Committee | | director of Tyndall | | | | | company with operations in | | supply chain management. | | | - Chair | | National Institute | | | | | 30 countries | | Her passion for social and | Non-executive humanitarian matters Senior executive leadership director of CRH plc* provides a valuable insight roles across international Director of UNICEF to ESG considerations. operations including Ireland supporting complex supply Caroline’s experience chains serving on remuneration committees enables her to chair the Remuneration Committee effectively Katie Jackson British Executive Vice Nominations 2018 Senior executive experience Drawing on her broad, Committee in major oil companies and President Acquisition, international business Independent non- investment banking Divestment and New and executive executive director Remuneration Business Development experience, Katie shares Committee Specialist knowledge of the at Shell plc valuable insights on Oil & Gas sector strategy, sustainability, Chair of POWERful Excellent corporate finance M&A and emerging Women experience including markets mergers and acquisitions American Audit 2021 Experienced in international Non-executive director Ajai brings significant Dr Ajai Puri British Committee business of Britannia Industries global business and Independent non- Limited, India* board level experience, executive director Nominations Expert in innovation, as well as expertise in Committee science and technology and Non-executive director driving innovation and marketing of Olam International Remuneration developing new business Limited and member Committee Holds a PhD in Food Science to support delivery of of Audit, Capital and Worked for The Coca-Cola the Group’s strategy Investment, Corporate Company in a variety Responsibility and of roles in research and Sustainability development, innovation, Committee consumer marketing and general management, rising to Senior Vice President Public company board International business ESG Engineering & Finance & Risk M&A manufacturing ### Strong level of Growing new IMI focus business sectors ### experience as ### recorded in our new ### % % % % % % % % ## board skills matrix 75 50 88 50 50 63 38 39 IMI plc Annual Report & Accounts 202298 ## Chair’s Governance Letter ## Financial Performance 2022 was another year of strong performance, our purpose-led strategy Breakthrough Engineering for a better world continues to drive sustainable, profitable growth across the Group. An overview of our results can be found on pages 32 to 36. In 2022 we completed three strategic acquisitions and continued our expansion into attractive growth markets. Further details can be found on pages 8 and 45. ## Political and economic uncertainty In March 2022 we announced our commitment to cease all new business in and international deliveries to Russia. In May 2022, the Board resolved to dispose of our Russian subsidiary to local management, further details of the Board’s considerations regarding the disposal can be found on pages 45 of our s.172 statement. In support of the people of Ukraine, we set up donation points across our sites to collect items which were then shipped to a government coordination centre in Poland. ## Dear Shareholder IMI has also matched all donations across the business to the Ukraine UNICEF appeal. More information can be found on page 59 of the ESG report. ### The Board has worked closely with the Executive ### committee to deliver our strategy in the current ## Purpose, values and culture ### economic and political climate. Guided by our Throughout the financial year we have continued to invest ### purpose Breakthrough Engineering for a better in protecting and nurturing our culture to ensure it is a ### world, the Board has focused on: differentiator for our business. In a world that continues to be volatile, having a strong culture helps us manage through ### » Progressing against our ESG commitments uncertainty. We operate a business where the safeguarding ### » Sustaining our inclusive safety culture, where of our employees is a priority, where we collaborate to create a better world for our customers, communities and each other, ### employees feel engaged and able to speak up and where we adapt to ensure our people, products and ### » Maintaining reliable customer service during processes continue to thrive. ### supply chain pressures ## Our People ### I am confident that we have the right people In the current economic and political landscape it is important ### and governance structures in place to deliver that we remember to prioritise the wellbeing of our employees, ### sustainable, profitable growth. In the Corporate by providing financial stability during the cost of living crisis and supporting their mental health. In the year, we introduced ### Governance Report on pages 100 to 145 of this a global wellbeing programme for all employees. For more ### Annual Report, we describe our governance information on the support we provide to our employees please ### practices and the workings of the Board and see pages 59 and 60. ### its committees. Introduction Strategic Report Corporate Governance Financial Statements 99 ## ESG With the support of our Better World team and Thomas Thune Andersen (our non-executive director with designated responsibility for ESG matters), we continue to make steady progress towards our ESG commitments. During Q³ 2022, an ESG Board engagement session was held where selected members of the Better World team invited questions, comments and discussion on our social initiatives which were presented during the session. Further information on these initiatives and our ESG ambitions can be found in our ESG report on pages 46 to 79, which includes our Scope³ targets and the addition of our women in management target, both of which the Board approved in Q4 2022. During 2021, the Remuneration Committee considered the inclusion of an objective ESG metric in our long-term incentive plan (LTIP). The committee agreed to include a metric which focuses on reduction of our CO₂ emissions intensity ratio which is completely aligned to our wider target of halving our CO₂ intensity by 2020. 2022 was the first LTIP grant to include this new metric, further information can be found on pages 1–1 of our Remuneration Committee report. ## Stakeholder Engagement Throughout the pandemic, virtual meetings worked well and allowed the Board to stay connected. Nonetheless, easing of COVID-19 restrictions across Europe have enabled us to resume a number of physical meetings. I am pleased to report that the Board has also been able to engage with a range of stakeholders in person this year. In October 2022, along with the Board and Executive team, I visited Cagliari in Italy for the opening of our IMI Remosa site. I enjoyed seeing our purpose and culture in action. A number of our employees, suppliers and customers were invited to tour the site and meet the Board. It was a great opportunity for us to hear from our employees directly. Alongside our Chief Executive, I also visited IMI Orton in June 2022. We met with members of the local management team to discuss their customer focus and drive for Better World growth. Please see page 44 of our s.17.1 statement for more information. I look forward to visiting our Adaptas site with the rest of the Board in 2023. On behalf of the Board, Thomas Thune Anderson (our non-executive director with designated responsibility for employee engagement) has attended meetings with our graduates and our European Communications Forum in the year. Thomas’ engagement significantly contributes to the Board’s understanding of how to support our people. Employee engagement over the year is summarised on page 110. This two-way dialogue is enhanced by our annual One Big voice employee survey, results of which can be found on page 58 of our ESG report. On behalf of the Board, I thank all our employees for taking the time to complete the survey, your insight helps the Board assess company culture and identify areas where we can improve. Front and centre of our engagement approach is the IMI Way Day. It provides the opportunity for every site and every team member to down tools and come together for one day to celebrate their part in creating a better world for our customers, our people and our communities. Employees were able to meet in person this year and attend a number of local volunteering activities. For further details please see page 59. ## AGM Our AGM provides the opportunity for our shareholders to engage with our Board of Directors and hold them to account. In May 2022 we held our first physical AGM since the outbreak of the pandemic. We look forward to welcoming shareholders to our in person AGM this year. Further details can be found on page 146. Directors are available to answer shareholders’ questions formally during the AGM or informally afterwards. ## Board effectiveness The Board conducted an internal review of the effectiveness of the Board and its Committees in 2022 using an anonymised questionnaire and Board discussion. Further details of the process and outcome of this evaluation can be found on page 112. **Lord Smith of Kelvin** Chair 2 March 2023 100 IMI plc Annual Report & Accounts 2022 # Corporate Governance Report ## Code Compliance Statement The Board is committed to maintaining good governance and confirms that, throughout the year ended 31 December 2021, it is satisfied the Company has applied the principles contained in the 2018 UK Corporate Governance Code (the 'Code') and complied with its provisions, with the exception of Provision 18. At the time of the introduction of the new Code, the Company had already signed a contract with the Finance Director that entitled him to a pension contribution equal to 20% of his annual salary. This was higher than the pension contribution available to the workforce. However, despite contractual obligations, the Remuneration Committee discussed this issue with the Finance Director and an agreement was reached whereby a phased reduction by 1% every year of the Finance Director's pension would be implemented. Therefore, since the introduction of Provision 18, the Company has been non-compliant for the above reason. During 2020, the Remuneration Committee engaged with principal shareholders, explained the reasons for non-compliance and assured them of the intention to be fully compliant by 2021. During 2021, the Finance Director received a cash allowance of 14% of salary. From 1 January 2021, the Finance Director will receive a cash allowance equivalent to 11% of base salary which is consistent with the average global employee pension opportunity for employees. Please see page 129 for more information. Our reporting on the application of the principles and against the provisions is contained in this Report and key cross references are summarised below. Further details appear in the Directors' Report and other cross-referenced sections of this Annual Report, all of which are incorporated by reference into this Report. A copy of the Code can be found at www.frc.org.uk. | Code | Supporting disclosures and cross-references | | --- | --- | | **Board leadership & Company purpose** | - Good corporate governance is vital to the long-term success of the Company. We work within our governance structure described in the IMI governance Framework, which is summarised on pages 102 to 103 and is located on our website. We have a programme of business which focuses on financial and operational performance, strategic initiatives, our Better World agenda, people and leadership matters and risk management. We hold an annual strategy day. For more information about the Group's strategy, see the Strategic Report from pages 6 to 11 - Our Business Model is displayed on pages 10 and 11. Reporting on our purpose, values, strategy and culture is set out on page 109 - In line with our Inclusion & Diversity policy, our Board is made up of a diverse group of skilled and experienced individuals. Director biographies are shown on pages 96 and 97. Individual role descriptions can be found on page 104 - The Board ensures that the necessary resources are in place for the Company to meet its objectives and measures performance against them. The Board has established a framework of controls which enables risk to be assessed and managed. For more information on risk management and the risks faced by the Group, see the Risk Report on pages 86 to 91 - IMI has multiple stakeholders who are all important to the long-term success of our business. A description of engagement processes in place with shareholders, employees and other key stakeholders is contained on pages 18 to 45. Thomas Thune Andersen is the non-executive director with designated responsibility for employee engagement, which includes gathering the views of the workforce on behalf of the Board. Please see pages 104 and 110 for more information about his role and activities. Where engagement is not direct, it takes place via feedback from individual Directors and members of management. The relevance of each stakeholder group will depend on the particular matter requiring Board decision. Our Section 17(1) Statement is contained on pages 40 to 45. This demonstrates how the Board promotes the long-term sustainable success of the Company - Further information about our Better World strategy and how we impact wider society and contribute to society can be found in the ESG section of the Strategic Report on pages 46 to 79 and page 44 of our Section 17(1) statement - Our Code of Conduct sets out our values and the standards of behaviour we expect from everyone at IMI. The Code was updated, approved and launched in Q4 2021. We encourage people to report any breaches of the Code and other concerns through our IMI hotline. The Board reviews the operation of and reports from the IMI hotline. Details of key policies in place at IMI are listed on page 84. Details of our Speaking Up whistleblowing hotline arrangements are contained on page 51 and 92 - The Board has a formal system in place for Directors to declare a conflict or a potential conflict of interest. All Directors are asked to declare any conflicts at the start of each Board meeting and confirm their interests via an annual declaration. A statement of Directors' interests in Company shares is set out on page 129 | | **Division of responsibilities** | - A description of the different Board roles and responsibilities is set out on page 104. The outcomes of the reviews of independence of the non-executive directors and time commitments are set out on page 108 and page 121 respectively - Board composition (including an assessment of independence) is displayed on pages 96 and 97. No non-executive director has served for more than nine years - A summary of the process and findings of the 2022 Board evaluation can be found on page 112 - Led by the Senior Independent Director, the Chair's performance was reviewed. See page 112 for more information. The performance of all directors was reviewed by the Chair. For more information, please see page 112 - All Directors external appointments are subject to board approval. When considering approving an appointment, the Board takes into account conflicts of interest, the Directors performance and their ability to meet their time commitment to IMI. For more information please see page 112 - The Company Secretary supports the effective and efficient operation of the Board and its Committees. All Directors have access to the Company Secretary for advice, as well as access to independent professional advice at the Company's expense | Introduction Strategic Report Corporate Governance Financial Statements 101 | Code | Supporting disclosures and cross-references | | --- | --- | | **Composition, succession and evaluation** | - » Succession planning for the Board and certain senior management roles is described in the Nominations Committee Report on page 1.0 - » Board composition is presented on page 1.1. Details of the Board skills matrix, to ensure the Board and its Committees have a combination of right skills, experience and knowledge necessary to oversee and support the management team in the execution of the Company's strategy, is on page 1.0 - » The Board has a formal, rigorous and transparent Board appointment process. The Group's induction programme for any newly appointed directors is described on page 1.1 - » A description of the Company's Inclusion & Diversity agenda is described in the Nominations Committee Report on page 1.1 and in the Strategic Report on page 6. Our Board Inclusion & Diversity Policy is summarised on page 1.1 - » The outcome of the 10.1 Board and Committee internally-facilitated annual evaluation, including progress on certain 10.1 evaluation actions and agreed areas of focus for 10.1, are set out on pages 1.1 and 1.1 - » All directors are standing for re-election and further information (including details of their individual contribution to the long-term success of the Company) can be found on page 6 and 7 in the Notes to the AOM Notice | | **Audit, risk & internal control** | - » The Board reviews the main features and effectiveness of the Company's internal control and risk management framework. The Audit Committee's work in relation to internal financial controls is summarised on page 117 - » At least twice a year, with the support of the Head of Group Risk Management & Compliance, the Board reviews the Group's principal and emerging risks. This is to ensure that they remain current and that, to the extent possible, there are mitigations in place to manage those risks in accordance with the Board's risk appetite to support the delivery of the Group's long-term strategic priorities. Reporting on our risk management systems and information about the risks and uncertainties that relate to our business are detailed on pages 86 to 91 of the Strategic Report - » Our Audit Committee Report, describing how it is composed and how it has discharged its responsibilities, is contained on pages 114 to 118. A description of the Group's internal audit function is set out on page 117 and a report on the independence and effectiveness of the external auditors, Deloitte, can be found on pages 117 and 118 - » The 'fair, balanced and understandable statement' is contained on page 149 | | **Remuneration** | - » Our Remuneration Committee Report is contained on pages 1.4 to 145 - » Following consultation with major shareholders, our Directors' Remuneration Policy was approved by shareholders in May 10.1. The full Directors' Remuneration Policy can be found from page 85 of the 10.0 Annual Report - » Page 1.1 of the Remuneration Committee Report describes any discretion applied by the Remuneration Committee in the course of its work. No director or member of senior management is involved in determining his or her own pay - » The views of a cross-section of employees on executive remuneration were obtained by Thomas Thune Andersen, our non-executive director with designated responsibility for employee engagement, during routine engagement activities. Feedback received was shared with the Board and the Remuneration Committee | IMI plc Annual Report & Accounts 2022102 ### Corporate Governance Report ## IMI Governance Framework In accordance with the Code, the Board has delegated certain roles and responsibilities to its principal Board Committees. While the Board retains overall responsibility, the Committees carry out deep dives into their areas of responsibility. Committee Chairs report back to the Board on the matters discussed, decisions taken, and, where appropriate, make recommendations to the Board on matters requiring its approval. Minutes of all Committee meetings are made available to all directors. Details of the oversight of our ESG strategy can be found on page 55. ## Board and Board Committees ## IMI plc Board Membership Roy Twite Lord Smith of Kelvin (Company Chair) Daniel Shook Isobel Sharp Thomas Thune Andersen Katie Jackson Caroline Dowling Dr Ajai Puri Summary of key board activity in 2022 Turn to pages 106 and 107 ### Main responsibilities » Board and committee composition » Oversight of succession plans for the Board and the Executive Committee » Search for and recommendation of candidates for appointment as non-executive directors, Chief Executive and other executive director positions ## Nominations Committee » Inclusion & Diversity policy, promotion of Audit Committee diversity and monitoring of progress Lord Smith of Kelvin (Chair) Isobel Sharp (Chair) Membership Membership Thomas Thune Andersen Thomas Thune Andersen Caroline Dowling Dr Ajai Puri Katie Jackson Dr Ajai Puri Isobel Sharp Nominations Committee Report Audit Committee Report Turn to page 120 Turn to page 114 ## Executive Committee Membership Daniel Shook Roy Twite (Chair) Beth Ferreira Jackie Hu Phil Clifton Liz Rose Executive Committee diversity Louise Waldek Turn to page 109 ## 103Introduction Strategic Report Corporate Governance Financial Statements The IMI Governance Framework sets out the Schedule of Matters Reserved for the Board and the Terms of Reference for each principal Board Committee. The IMI Governance Framework also describes the responsibilities of key positions on the Board and the Company Secretary. A complete copy is located on our website. We review and update the framework regularly to reflect developments in corporate governance and best corporate practice. ### Main responsibilities » Setting and monitoring the Group’s values, » Ensuring the Group is appropriately managed, purpose and strategy and ensuring that these operates responsibly, with effective controls » Promoting the long-term success of the and its culture are aligned in place Company for the benefit of its shareholders » Ensuring that the necessary resources are in » Ensuring that workforce policies and practices » Generating value for shareholders and place for the Group to meet its objectives are consistent with the Group’s values and contributing to wider society and measure performance against them support its long-term sustainable success » Demonstrating ethical leadership, high » Setting a framework of prudent and effective » Reviewing management performance and standards of behaviour and overseeing controls, which enable risk to be assessed the operating and financial performance of good governance and managed the Group » Ensuring effective engagement with and encouraging participation from shareholders and key stakeholders ### Main responsibilities ### Main responsibilities » Define and recommend the Remuneration » Oversight role in relation to financial Policy for the Chair and members of the statements Executive Committee » Reviewing significant areas of judgement » Determine the individual remuneration and accounting policies packages for the Chair and members of » Reviewing the proposed statements on the Executive Committee within the policy going concern and viability to appear in approved by shareholders the Annual Report » Set annual and long-term incentive ## Audit Committee » Advising the Board on whether the draft Remuneration Committee metrics and awards and determine Annual Report is fair, balanced and Isobel Sharp (Chair) Caroline Dowling (Chair) the outcomes for the members of the understandable Executive Committee » Monitoring announcements in respect of » Report on remuneration matters and financial performance constructively engage with shareholders » Monitoring the effectiveness of internal Membership » Assess risk in respect of remuneration financial controls Katie Jackson and incentive structures in particular » Reviewing financial risks including fraud risk Dr Ajai Puri » Oversight of internal audit and other key processes for monitoring internal financial control » Overseeing the external audit process, its objectivity, effectiveness and cost with responsibility for setting the audit fee » Making recommendations to the Board for the appointment of the auditor including Remuneration Committee Report oversight of any audit tender process Turn to page 124 ### Main responsibilities » The Executive Committee is the senior management body for the Group, and takes its authority from the Chief Executive and is not a committee of the Board » The Committee meets monthly and more often as may be required. As part of the broad remit set by the Chief Executive it monitors and manages business performance, reviews progress against strategic objectives and formulates budgets and proposals on strategy and resource allocation for consideration by the Board. It plays a key part in risk assessment, risk management and monitoring processes and receives regular reports on ESG matters, human resources, health and safety, internal audit, compliance, legal, investor relations and other corporate affairs IMI plc Annual Report & Accounts 2022104 ### Corporate Governance Report ## Roles and responsibilities ## Board Chair Chief Executive Lord Smith of Kelvin Roy Twite ### Main responsibilities » Encouraging all Board Main responsibilities » Ensuring that operational members to engage in Board policies and practices drive » Creating the conditions for » Running of the business and and Committee meetings appropriate behaviour overall Board and individual corporate affairs of the Group by drawing on their skills, director effectiveness under the authority delegated » Ensuring that effective business experience and knowledge by the Board and financial controls and risk » Promoting a culture of » Developing a productive management processes are in openness and debate » Proposing Company strategy working relationship with the place and annual budgets » Setting a board agenda Chief Executive, providing » Ensuring management provides primarily focused on strategy, support and advice, while » Delivering the strategy as the Board with accurate, timely performance, value creation, respecting executive agreed by the Board and clear information culture, stakeholders and responsibility » Leading the Executive team accountability » Leading the annual Board » Developing a productive working » Ensuring the Board has evaluation, with support relationship with the Chair effective decision-making from the Senior Independent » Implementing Board decisions processes and applies sufficient Director as appropriate, and challenge to major proposals acting on the results » Communicating to those working for the Group » Fostering constructive relations » Ensuring the Board listens to expectations in respect of the between executive and non- the views of shareholders, the Group’s culture, values and executive directors based on workforce, customers behaviours, and leading by trust, mutual respect and open and other key stakeholders example communications ## Senior Independent Non-executive director Non-executive director ## Director with designated with designated ## Thomas Thune Andersen responsibility for responsibility for ESG ## Employee Engagement matters ### Main responsibilities Thomas Thune Andersen Thomas Thune Andersen » Acting as a sounding board for the Chair » Leading the evaluation of the Chair ### Main responsibilities Main responsibilities » Ensuring an orderly succession planning » Developing a balanced view of the issues » Developing a balanced view of ESG process for the Chair, working with the and concerns of employees related issues and concerns Nominations Committee » Sharing employee views at Board meetings » Providing thought leadership and » Ensuring that the Board take appropriate supporting the Better World team steps to evaluate the impact of proposals » Sharing ESG related views learned in and developments on employees Board meetings » Where relevant and appropriate, providing » Ensuring that the Board take appropriate feedback to employees on board decisions steps to evaluate the impact of proposals and direction during the engagement and developments (including internal and process external market views) on ESG matters » Soliciting the views of employees about and related relevant stakeholder feedback executive remuneration and sharing feedback obtained with the Remuneration Committee ## Company Secretary Main responsibilities » Supporting the Chair Louise Waldek » Ensuring that the Board operates in accordance with good corporate governance under the Corporate Governance Code and relevant regulatory requirements » Acting as secretary to all of the standing committees of the Board » Ensuring that the Board has a recognised procedure for any Director to obtain independent professional advice at the Company’s expense and that all directors have access to the Company Secretary who is a qualified solicitor ## 105Introduction Strategic Report Corporate Governance Financial Statements ## Division of responsibilities There is a clear division of responsibility between the Chair and Chief Executive, which is reflected in the IMI Corporate Governance Framework approved by the Board. The Chair is responsible for the leadership and effectiveness of the Board but does not have any executive powers or responsibilities. The Chief Executive leads the Executive Committee in running the businesses and implementing operational and strategic plans under authority delegated from the Board. The Company’s articles of association set out the Board’s powers. In the IMI Corporate Governance Framework, the Board has clearly defined ‘in writing’ those matters which are reserved to it and the respective delegated authorities of its committees and it has also set written limits of authority for the Chief Executive. The Group has a clear organisational structure and well-established reporting and control disciplines. Managers of operating units assume responsibility for and exercise a high degree of autonomy in running day-to-day trading activities. They do this within a framework of clear rules, policies and delegated authorities regarding business conduct, approval of proposals for investment and material changes in operations and are subject to regular senior management reviews of performance. The Company’s articles of association and the IMI Corporate Governance Framework can be found on our website. ## Board & Committee attendances During the year, the Board met on six occasions to cover scheduled business. A number of unscheduled meetings were held for specific projects. The table below shows the number of scheduled meetings attended and the maximum number of scheduled meetings that the directors could have attended. Only in exceptional circumstances would directors not attend Board and Committee meetings. Scheduled meetings are normally held in person. | Director Board % eligible | | | | Audit | % eligible | Nominations | % eligible | Remuneration | % eligible | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | attendance | Committee | | attendance | Committee | attendance | Committee | attendance | | Thomas Thune Andersen | 6/6 100 4/4 100 4/4 100 n/a n/a | | | | | | | | | | Caroline Dowling | 6/6 100 n/a n/a 4/4 100 3/3 100 | | | | | | | | | | Katie Jackson | 6/6 100 n/a n/a 4/4 100 3/3 100 | | | | | | | | | | Dr Ajai Puri | 6/6 100 4/4 100 4/4 100 3/3 100 | | | | | | | | | | Isobel Sharp | 6/6 100 4/4 100 4/4 100 n/a n/a | | | | | | | | | | Lord Smith of Kelvin | 6/6 100 n/a n/a 4/4 100 n/a n/a | | | | | | | | | | Daniel Shook | 6/6 100 n/a n/a n/a n/a n/a n/a | | | | | | | | | | Roy Twite | 6/6 100 n/a n/a n/a n/a n/a n/a | | | | | | | | | To date in 2023, the Board and each Committee has met once with all members in attendance. IMI plc Annual Report & Accounts 2022106 ### Corporate Governance Report ## Summary of 2022 Board activity Activities Outcomes More Information Strategy: | Considered and challenged the Group’s long-term strategic plans | Reaffirmed IMI’s purpose and values. Approved IMI’s strategy | Pages 10 and 11 of the | | --- | --- | --- | | and priorities | and key milestones | Strategic Report | | Discussed and reviewed better world strategy, progress and | In February 2022, the Board approved our Scope 1 & 2 net | Page 50 sets out our ESG | | proposals to set ESG related targets | zero targets. Throughout the year, the Board received progress | progress in 2022 | | | updates on ESG activity including the development of our ESG | and targets | strategy, our progress against our KPIs and targets and details of our Scope 3 emissions and reduction plans. The Board reviewed analysis of the potential physical climate risks faced by our largest sites (see page 77) and approved our Creating a Better World strategy in December 2022. Please see page 44 for more information Received regular updates about strategic matters such as M&A After careful consideration, the Board approved the proposed Page 45 transactions and business structuring decisions, including the acquisitions of Bahr, CorSolutions and Heatmiser. The Board integration of our recent acquisitions received an update on the integration processes of Bahr and Adaptas which included a summary of feedback from employees at both sites Finance, Risk & Operations: Reviewed financial results during 2022 Approved the 2021 year-end results (including Annual Report & Accounts), 2022 half-year results and related announcements Reviewed dividend proposals Approved final and interim dividends Page 147 Reviewed draft going concern and long-term viability statement Approved the going concern and long-term viability statement Pages 94 and 95 Reviewed budgets and quarterly forecasts Approved the 2023 budget Reviewed and debated the overall risk profile of the Group, including Approved the updates to the principal risks as shown in Pages 88 to 93 the principal risks, emerging risks and risk appetite the Strategic Report including an update on climate risk assessment Conducted a deep dive into IT security and cyber-crime risk Oversight of activities to enhance the effectiveness of the Page 90 Group’s IT security controls Reviewed the effectiveness of risk management systems Risk management and internal control systems were Page 115 and internal controls considered to be effective Reviewed the annual treasury update Approved Treasury Policy Page 115 Reviewed tax strategy Approved Tax Strategy Page 115 Received regular Executive reports Monitored performance and progress Board site visit to IMI Critical’s facility in Cagliari Enhanced the non-executive directors’ knowledge of the Page 99 Group. Engaged with local teams, suppliers and customers. Provided an opportunity to assess culture and learn about IMI’s innovation in Hydrogen Discussed supply chain challenges Received updates on efforts to consolidate spend with key suppliers and dual source where appropriate to provide more supply chain resilience. ## 107Introduction Strategic Report Corporate Governance Financial Statements Activities Outcomes More Information Leadership, People & Culture: Reviewed Health and Safety activities and performance Reviewed health, safety and environmental performance and ongoing Pages 64 and 65 Group-led initiatives to enhance the safety culture and performance of the Group Reviewed progress made to further our Inclusion & Diversity Met the recommendations of the Parker Committee Review on ethnic Page 121 ambitions using culture dashboard of diversity, inclusion and diversity on the Board. Our Inclusion & Diversity policy is outlined on equity indicators page 121 Reviewed living wage in all locations We have accelerated plans for employees to be paid at least in line with Page 124 living wage indices and this has also been factored into our annual pay review process Reviewed a dashboard of cultural indicators and related Monitored and assessed culture and agreed it was aligned with the Page 109 information Company's purpose, values and strategy Reviewed succession plans for the Board, Executive Emergency cover for the Committee chairs and members was agreed, Page 120 Committee and wider leadership group and carried out a taking into account the requirements of the 2018 Code and our Inclusion & | Group wide talent review | Diversity policy | | | --- | --- | --- | | Reviewed the outcome of the new One Big Voice employee | The Board were informed of the key themes from the One Big Voice | Page 58 | | survey and received a report from Thomas Thune Andersen | employee survey | | Page 110 in relation to his activities as the non-executive director with Thomas Thune Andersen reported on his activities as the non-executive designated responsibility for employee engagement director with designated responsibility for employee engagement and contributed relevant insight to boardroom discussions throughout the year Approved budget for humanitarian activities Budget approved for 2022 Investors: Received and discussed investor updates from the Investor Provided the Board with an indirect view of investor priorities and Page 111 Relations team and the Company’s brokers perceptions Governance: Reviewed methods of stakeholder engagement Effective direct and indirect stakeholder engagement confirmed Pages 38 to 45, 111 Reviewed and discussed the internal evaluation of the Board, Identified key findings, focus areas for 2023 and any training needs Page 112 its principal Board Committees and individual directors Reviewed the terms of reference of each principal Board The review resulted in the Board approving a revised IMI Governance www.imiplc.com Committee and the role descriptions of key roles Framework to take effect from 1 March 2023 Reviewed the approach and progress of work to identify Approved the 2022 modern slavery and human trafficking statement www.imiplc.com areas where there is any risk of modern slavery occurring in our supply chains Reviewed the effectiveness of the whistleblowing policies Received an analysis of reports received via the IMI Hotline as well as Page 92 and processes and incidents under investigation and noted comparisons against industry benchmarking data. Concluded that the the activities within the business to prevent and detect fraud whistleblowing policies and processes were effective and noted the activities within the business to protect and detect fraud. Approved updates to the Group’s Code of Conduct Page 53 Reviewed director conflicts of interest, significant external Effective board processes for conflicts of interest and taking on additional Pages 108, 122 appointments and time commitments external appointments were confirmed No concerns were raised regarding director time commitments Page 122 Approved Isobel Sharp’s external appointment Reviewed 2022 AGM notice Approved 2022 AGM notice Received legal and company secretary reports Board apprised of key legal and governance matters across the Group Reviewed fees paid to the non-executive directors The decision to determine fees to be paid to the non-executive directors was Single figure table delegated to the Chair and the Chief Executive to ensure that no director on pages 128 and was involved in decisions in respect of their own remuneration. 138 IMI plc Annual Report & Accounts 2022108 ### Corporate Governance Report ## Board composition Independence of non-executive directors Having the right mix of Board members is key to directing a Company All non-executive directors are asked to confirm their towards continued shareholder value creation. The Board is currently independence, external commitments and ability to commit composed of eight directors: the Chair; the Chief Executive; five sufficient time to their role at IMI as part of an annual declaration. independent non-executive directors and the Group Finance Director. The Nomination Committee considers that all of the non- All directors will stand for re-election at each Annual General executive directors are independent. The Chair was regarded as Meeting. Detailed biographies of each current director, including the independent at the date of his appointment and is considered by specific reasons why the contribution of each director is, and the other members of the board to be objective in his leadership. continues to be, important to the Company’s long-term sustainable success can be found on pages 96 and 97. A summary of key areas of ## Board experience can be found at the bottom of page 97. Dates of appointment Length of tenure at 31 December 2022 ## Board diversity Lord Robert Smith The non-executive directors are a diverse group from different Thomas Thune Andersen backgrounds and nationalities and bring with them a wide range Isobel Sharp of skills and experience in commerce, finance and industry from Caroline Dowling around the world. The Board meets the targets set out in the Parker Katie Jackson Review. Our approach to diversity is set out in more detail on pages Dr Ajai Puri 62, 63 and 121 and our Board Inclusion & Diversity Policy is set out 012345678 in the Nominations Committee Report on page 121. The charts Years below represent the Board membership as at the date of this Annual Report. | | | | Date of first | Date of current letter | | --- | --- | --- | --- | --- | | | | | appointment | of appointment | | Non-executive / | Gender | Thomas Thune Andersen | 1 July 2018 21 February 2023 | | executive directors* Caroline Dowling 1 January 2020 21 February 2023 2 3 | Dr Ajai Puri | 1 March 2021 21 February 2023 | | --- | --- | | Katie Jackson | 1 July 2018 21 February 2023 | | Isobel Sharp | 1 September 2015 21 February 2023 | | Lord Robert Smith | 7 May 2015 21 February 2023 | 5 5 5 Independent non-executive directors 5 Male 2 Executive directors 3 Female * Under the 2018 Code, the Chair is excluded when considering the independent non-executive composition of the Board. Nationality Age 1 4 4 | | 4 | 3 | | --- | --- | --- | | 4 Other | 1 40-49 | | | 4 British born | 3 50-59 | | 4 60+ Ethnicity 1 7 7 White 1 Asian ## 109Introduction Strategic Report Corporate Governance Financial Statements ## Executive Committee Purpose, Values & Culture The Executive Committee is chaired by the Chief Executive The Board endorses our purpose of Breakthrough Engineering and the other members are shown on page 9. It is the senior for a better world and sets the strategy for the Group to align management body for the Group, and takes its authority from with this purpose. IMI’s purpose is at the heart of everything the Chief Executive and is not a committee of the Board. It we do, it is why we exist. We are committed to achieving is well balanced, experienced and diverse. It is 43% female profitable growth on a sustainable long-term basis while (meeting the requirements of the FTSE Women Leaders Review creating a better world for everyone we engage with – our (formerly Hampton-Alexander Review)) and is composed of customers, our employees, the communities we serve and three nationalities. The Executive Committee’s role description operate in, and our shareholders. For more information about can be found on page 103. our purpose, please see pages 10 and 11 of the Strategic Report. Our values are an important part of who we are, as they provide Gender Nationality a culture and collective mindset for our entire organisation. 3 1 These values underpin all that we do, and ensure we maintain the foundations that have enabled IMI’s success throughout its 150-year heritage. For more information, please see page 10 of the Strategic Report. | | 4 | 2 | 4 | | | --- | --- | --- | --- | --- | | 4 Male | | 4 British | | | | 3 Female | | 2 American | | Customer intimacy One big team | 1 Singaporean Ethnicity Age ### 1 Playing to win Integrity 1 Our dashboard of cultural indicators supports the Board in its responsibility to monitor culture and ensure alignment with 3 the Company’s purpose, values and strategy. The dashboard 6 3 comprises more than 20 metrics linked to the IMI values which individually and collectively provide cultural insights. These include 6 White 3 40-49 1 Asian customer net promoter scores, employee engagement scores, 3 50-59 1 60+ regretted turnover information, number of employees involved in our Growth Hub activities and details of hotline reports received. Tenure This year we added a new category, wellbeing. The dashboard is designed to help the Board identify any factors which indicate 3 a negative culture or matters which could impede our ability to deliver our strategic objectives. In addition to the Board’s review of the culture dashboard and 3 related information, there were a number of touchpoints in the annual cycle during which reports and presentations were 1 provided to the Board and its Committees allowing for further 3 0-5 years 1 6-10 years consideration of these cultural indicators. Thomas Thune 3 11 years+ Andersen, in his role as non-executive director with designated responsibility for employee engagement, provided insights into the Group’s culture based on his interactions with employees across the Group. Following a detailed review of culture which included considerations of the Group’s values and insights from our non-executive director with designated responsibility for employee engagement, together with the annual review of our purpose and strategy, the Board affirmed that culture was aligned with IMI’s purpose, values and strategy. We will continue to nurture our culture and ensure monitoring culture plays a key role in Thomas’ employee engagement activities. IMI plc Annual Report & Accounts 2022110 ### Corporate Governance Report ## Board level employee engagement Since March 2020 Thomas Thune Andersen has been the nominated non-executive director with designated responsibility for employee engagement. The purpose of this role is to enhance the Board’s understanding of the views of the IMI workforce, supporting the directors’ collective responsibility to consider a wide range of stakeholder perspectives when arriving at Board decisions. It includes the following responsibilities: ## “ I am pleased to have been able to meet with a number of » Developing a balanced view of the issues and concerns of employees in person this year. Building on Board feedback from employees through various feedback channels such as Board last year, we have engaged our younger employees in focus site visits, employee forum groups, IMI Way Day focus groups groups around a number of topics including communications, and reverse mentoring for example, ensuring feedback is talent attraction and talent development opportunities. obtained from all divisions, all levels and all geographies I would like to thank all those I spoke with for their openness, enthusiasm and transparency. There continues to be strong two » Sharing employee views learned in Board meetings on an way communication between the workforce and the Board. ongoing basis and in written format at least once per year Thomas Thune Andersen » Ensuring that the Board take appropriate steps to evaluate the impact of significant proposals and developments on employees Outcomes of Board level employee engagement: » Where relevant and appropriate, providing feedback to » Feedback from focus groups highlighted that areas of IMI’s employees on board decisions and direction during the Code of Conduct could be improved. During the year we engagement process updated and enhanced our Code of Conduct, for further » Soliciting the views of employees about executive remuneration information please see page 53 of our ESG report and sharing feedback obtained with the Remuneration » There is a strong desire among our employees to understand Committee our efforts towards reducing our carbon emission and This role does not take on the responsibilities of an executive increasing the environment efficiencies of our sites. Our internal director, the Executive Committee, the HR team or act as a communication platform includes a designated ‘Better World’ proxy. Although Board members actively and directly engage group where all 10,000 employees can share their ideas for with our workforce through activities such as site visits and reducing our environmental impact. We will continue to use this attendance at Growth Hub pitches, the Board felt that having platform to communicate our ESG targets and progress made a non-executive director with designated responsibility for towards these employee engagement would enhance its ability to gather the views of the workforce in a more structured way, and enable ## Speaking Up a more focused approach to understanding the culture of the Group. Details of the Group’s speaking up arrangements are contained on pages 53 and 92 of the Strategic Report. The Board monitors In 2022, Thomas attended the following sessions: operation of the Group’s hotline, receives reports on activities » Focus group to explore in greater depth the findings of the and checks that appropriate investigation and follow up is One Big Voice pulse survey launched in February 2022 carried out. » Graduate Induction presentations: our graduates were asked to present their ‘Eureka’ idea to tackle the energy crisis to Thomas, who then provided feedback to each presenter » Whole Board engagement session for ESG matters » Met with our Better World team to provide guidance on Inclusion & Diversity, Health & safety and Investments in CO 2 reduction » Attended and presented at the European Communications Forum (ECF) » Employee lunches: employees designated as talent were invited to meet with the Board for an informal lunch across our UK and Remosa sites » In October 2022 the whole Board and Executive team visited Sardinia for the opening of our IMI Remosa site. A number of our employees, suppliers and customers were invited to tour the site and meet our Board face to face Introduction Strategic Report Corporate Governance Financial Statements 111 ## Shareholder engagement The Board oversees shareholder engagement and maintains a balanced understanding of the issues and concerns of major shareholders. The Chief Executive and Finance Director have primary responsibility at Board level for investor relations and they, and the Head of Investor Relations, report to the Board on shareholder issues at a number of Board meetings during the year. Financial analysts' notes are circulated to the directors and the Board receives regular investor feedback reports from the Company's brokers and public relations advisers as well as from management. The understanding of investor views resulting from this feedback helps inform the Board's decision-making. Dialogue is maintained with the principal shareholders, and the executive directors and/or the Head of Investor Relations meet regularly with institutional investors. Whilst the easing of COVID-19 restrictions has allowed us to resume in-person meetings with shareholders, virtual meetings remain an important tool for engaging with major investors, particularly those based overseas. As in previous years, we maintained a significant programme of such interactions, with existing and potential shareholders, this included a series of in-person meetings held with prospective investors in New York and Toronto. Smaller – often private – investors also have full and timely access to all IMI's presentations via the Group's website. All Directors are available to shareholders as needed. During the year a shareholder asked a specific remuneration question which was addressed by our Remuneration Committee Chair, Caroline Dowling, and another shareholder requested a meeting with selected members of the Better World team to discuss our ESG progress to date. The Chair of the Audit Committee is also available if required. A number of shareholders spoke with our Chief Executive, Group Finance Director and Investor Relations team. Feedback from the discussions was then communicated to the Board. Consultation with our larger investors is very much concerned with the performance and strategy of the Group. Their feedback is shared with the Board so that it can be taken into account in Board discussions. Institutional investors have shown increasing interest in ESG matters and these are becoming a more common theme in investor meetings and information requests. We are also increasingly engaged in completing ESG rating questionnaires and surveys, of particular interest to our investors. More information on ESG matters appears on pages 46 to 79. Due to the relaxation of COVID-19 restrictions we were able to invite shareholders to attend our Annual General Meeting in person. Shareholders can submit questions in advance of the AGM to our Investor Relations team (info@imiplc.com) who will endeavour to respond promptly. All Directors attend the AGM and are available to answer questions. Notice of the Annual General Meeting was issued more than twenty working days in advance of the meeting and the level of votes lodged for and against each resolution, together with details of abstinence, are shown on the IMI website. The Board values the support of shareholders and the poll results for all resolutions proposed at the Annual General Meeting were above 90% in favour in every case except for 88.87% approval of the remuneration report. Please see our Remuneration Committee Report on page 124 for more detail. In addition to the Annual Report, the Company issues preliminary results and half-year results announcements, as well as two interim management statements between results announcements. The IMI website includes recordings of results presentations made by senior management, recent annual and half-year reports, interim management statements, other corporate announcements, and links to the websites of the Group's businesses. ## Outcome of 2022 AGM At the 2022 AGM, votes were cast in relation to approximately 81.64 per cent of the issued share capital (2021: 81.50 per cent; 2020: 84.2 per cent). All 21 resolutions proposed by the Board were passed by the required majority. There were no significant votes cast against the Board's recommendations. Votes cast in favour of the re-appointment of the Board directors were as follows: | Director | Votes | | --- | --- | | Lord Smith of Kelvin | 95.54% | | Roy Twite | 96.66% | | Daniel Shook | 98.66% | | Isobel Sharp | 99.44% | | Thomas Thune Andersen | 96.59% | | Katie Jackson | 99.28% | | Caroline Dowling | 95.87% | | Dr Ajai Puri | 98.79% | IMI plc Annual Report & Accounts 2022112 ### Corporate Governance Report ## Evaluation of the effectiveness of the Board, its principal Committees, ## the Chair & the directors This year, supported by the Company Secretary and in consultation with the Chair and the board committee chairs, an internally facilitated evaluation was carried out. Questionnaires were created to gather information about the effectiveness of the Board and its Committees. Draft conclusions were discussed with the Chair and they were subsequently reviewed with the whole Board at its meeting in December 2022. The directors were satisfied that the Board is fulfilling its responsibilities appropriately, that the Board and its Committees were efficient and effective and that each director demonstrated a valuable contribution and a commitment to their role. The senior independent director, Thomas Thune Andersen conducted a review of the Chair’s performance with the other non-executive directors which found that the Chair’s leadership of the Board was highly efficient and effective. The results of this review were shared with the Chair. The Chair also met with the non-executive directors to review the performance of the Chief Executive. The Chair passed on to the Chief Executive appropriate feedback from the review of his performance. The Chair conducted performance reviews of each individual director. Each director was found to be performing effectively, discharging his or her duties, and making a valuable contribution to the Board. Details of the personal contribution of each board member can be found in the director biographies on pages 96 and 97. In the 2021 Annual Report a small number of evaluation actions were reported, an update on the progress is provided in the table below: Action Update Review the Board agenda to ensure it continued to meet increasing regulatory The Board and its Committee annually review and approve a yearly cycle. Best practice expectations and evolving best practice. Review the timing of key Board and regulatory expectations are considered during the review of each cycle. discussion matters in the annual cycle to ensure such discussions were scheduled most effectively Review Committee scope and membership A full review of the composition of each Committee was carried out in the year. It was found that the appropriate Board members were on each Committee and no changes were recommended at this time. The remit of the Audit Committee will be kept under review until the impact of the BEIS consultation and Draft Audit Reform Bill is clearer. In the 2022 evaluation, progress during the year was described The chairs of the three principal Board Committees each in the following areas: received a report from the internal evaluation exercise, the reports were then reviewed at the respective Committee » The Board recognised improvements in its consideration of meeting in December. All were found to be operating effectively stakeholders and ESG strategy when making decisions and minor suggestions to improve performance were noted. » The Board provided good feedback for Board site visits taken Further information can be found in the evaluation section of in the year, praising opportunities to meet with customers, the Committee Reports. suppliers and key stakeholders » The Board noted improved alignment between the Company’s Approved by the Board and signed on its behalf by: culture and ESG strategy and appreciated increased engagement with the Better World team Louise Waldek Company Secretary Following discussion of the report, the Board considered areas to focus on in 2023 in order to enhance the Board’s operation. 2 March 2023 The main recommendations were: » Maintain its focus on succession planning at Board and senior management level » Continue progress made to ensure meaningful, two way engagement takes place with key stakeholders » Increase the number of Audit Committee meetings in order to meet enhanced regulatory requirements ## 113Introduction Strategic Report Corporate Governance Financial Statements IMI Hydronic Engineering – Ljung, Sweden IMI plc Annual Report & Accounts 2022114 ## Audit Committee Report ### The Committee invested more time in 2022 ### compared to prior years, driven principally ### by business activity. The accounting for the ### exit of Russia, the 2022 acquisitions of Bahr ### Modultechnik, Heatmiser and CorSolutions ### and the December 2021 acquisition of Adaptas ### were on the agenda. We have revisited ### internal control matters to ensure the business ### continues to enhance its overall control ### environment and as preparation for expected ### changes to UK governance requirements. ### In particular, we have reviewed the processes, ### controls and assurance over non-financial risks ### including the risk of material fraud. We have ### seen how new tools such as an automation ## Dear Shareholder ### tool for balance sheet reconciliations are ### I am pleased to present this report on the work strengthening the control environment. ### of the Audit Committee over the last year. We challenged detailed aspects of the Group’s ### The Committee’s principal responsibilities are policy for treatment of adjusting items in ### to monitor the integrity of the Group’s financial Alternative Performance Measures (‘APMs’). ### reporting and financial statements, to review We have reviewed the significant restructuring ### the effectiveness of internal financial controls, activity and the provisions for rationalisation ### to monitor and review the effectiveness of at the year end, satisfying ourselves that ### internal audit, and to make recommendations the treatment of those items disclosed as ### to the Board on the appointment of an adjusting is appropriate. The Committee has ### external auditor. The Committee acts in monitored the audit process to ensure external ### an oversight role for Annual Reports, financial audit effectiveness remains at the highest ### statements and announcements with level and the Committee continues to welcome ### extended financial content, all of which fresh insights and challenges from our ### are prepared by management. The full terms external auditors. ### of reference of the Committee, which were ### reviewed during the year, can be found in the ### IMI Corporate Governance Framework on ### the Company’s website. Introduction Strategic Report Corporate Governance Financial Statements 115 ## Members of the Audit Committee Dr Ajai Puri, Thomas Thune Andersen and I were members of the Audit Committee throughout the year. All of the Committee members are regarded by the Board as independent non-executive directors and details of our experience are included on pages 96 and 97. I have chaired the Audit Committee since 1 October 2017, having become a member on 1 September 2015. In my role as Chair, I have significant interactions throughout the year with the Finance Director, the Company Secretary and other key senior executives, review in advance papers and agendas for meetings of the Committee and meet with our external auditor prior to each Committee meeting. I am a chartered accountant, I spent my early career in the accounting and audit profession and the Committee, and the Board, are satisfied that I have significant recent and relevant financial experience. The Board is also satisfied that the Committee members have experience at Audit Committee level and collectively the Committee has the financial, commercial and auditing skills, experience and objectivity to be an effective Audit Committee. Furthermore, Committee members attend as appropriate external training sessions to update our knowledge and in 2022 Deloitte delivered two technical updates tailored for the Committee, with a particular focus on enhancing TCFD disclosures, the ongoing governmental work on audit and corporate governance matters and the FRC's 'Key matters for 2022/2023 reports and accounts'. The Committee invites the following to join appropriate parts of its meetings: the Chief Executive, the Finance Director, the Group Financial Controller, the Director of Group Assurance and the external auditor. In addition, the Chair and other non-executive directors are welcome to attend, and usually join, the meetings. The Secretary to the Committee is the Group General Counsel and Company Secretary. The Committee meets alone with the external auditor and with the Director of Group Assurance. The Committee has the power to call on any employee to attend. ## Main areas of activity The Audit Committee met four times in 2022. For two meetings the focus was on the forthcoming results reporting. All meetings included a review of current accounting matters within the Group, internal audit reports and external audit matters. These activities are detailed in the following sections. During the year, the Committee reviewed the proposed amendments for the treatment of adjusting items in Alternative Performance Measures ('APMs'). At its meeting in July 2022 the accounting for the exit of Russia was reviewed and approved. The Committee continues to seek out with management constructive opportunities for improvement in the effectiveness of internal financial controls. A number of relevant initiatives were implemented in 2022, including the piloting of an automation tool for balance sheet reconciliations, which facilitates improvements in both external audit efficiency and internal controls. Looking beyond pure financial controls the Committee requested and received a review of the processes, controls and assurance over non-financial risks including the risk of material fraud. In 2022, the Committee performed a deep dive into the control environment of the Group, with a review of the Internal Control Declaration (ICD) and the associated evidence binder which sites maintain. The Committee welcomed the overall improvement in the ICD assessment scores and the actions being taken in those areas where there is scope for improvement. This review helped the Committee gain additional comfort around the quality of the finance function within the Group. Management has worked to strengthen finance teams and refreshed the talent pipeline for succession planning. Key appointments were made within IMI's recent acquisitions to ensure the newly acquired businesses build financial controls in line with IMI's standards. The Committee monitors changes in senior finance roles and challenges management to ensure continuity of financial reporting standards following team changes and in particular this year to consider how particular talent challenges in certain geographies have been met. In 2022, management achieved successful internal transitions of key senior finance roles. An update on tax affairs and compliance from the Head of Group Tax was received by the Committee and the Corporate Tax Strategy which is available on our website was approved by the Committee. This year's discussion with the Group Treasurer focused on the Group's funding relationships and strategy. The Committee reviewed and approved for submission to the Board the statements on going concern and viability, which are on page 95 and 94 respectively. During 2022, this involved regular assessment of the impact of supply chain uncertainties, the Russia / Ukraine war, and inflationary pressures. The Committee was satisfied with the going concern and viability statements taking comfort in particular from the resilience demonstrated by IMI's businesses in recent periods, the relative strength of the Company's balance sheet and the borrowing facilities in place. The Committee reviewed management's approach to preparing the Annual Report and Accounts with the European Single Electronic Format ('ESEF') tagging. Management continues to use an outsourced provider with expertise to complete the initial tagging prior to finalisation internally. Over the years, IMI has always kept a record of the sources of information in the front half of the Annual Report. More recently this was put into an Evidence Binder to be consistent with the binders which sites maintain on internal control matters. For this year end, the Committee carried out a deeper dive into this Evidence Binder and welcomed the assurance gained on the front half information. The Committee advises the Board on the fair, balanced and understandable requirements for the Annual Report and half year results statement. In the Annual Report, the fair, balanced and understandable criteria are also a review area for the external auditor, who has not reported any exceptions. The Statement of directors' responsibilities on page 149 includes confirmation by the Board that it considers this Annual Report, taken as a whole, to be fair, balanced and understandable. Deloitte was reappointed to be the Group's external auditor for the year ended 31 December 2022. 116 IMI plc Annual Report & Accounts 2022 ## Audit Committee Report ### Significant judgements and estimations in the financial statements In preparing the accounts, there are a number of areas requiring the exercise by management of judgement and estimation. These matters were the subject of appropriate detailed analysis and commentary in papers and reports to the Committee from management and the external auditor. The Committee reviewed the significant accounting areas involving such judgements and estimates and these are described below. #### Significant accounting matters ##### Revenue recognition The Committee discussed the timing of revenue recognition on some of the Group's larger contracts. This is an area of focus on which the external auditor reported to the Committee. Having reviewed management's process and the external auditor's comments, the Committee concluded that revenues were appropriately reflected in the financial statements. Note 2 to the financial statements provides further information. ##### Adjusting items The Committee considered both the items treated as adjusting and their application in APMs. In addition, this is an area of focus on which the external auditor reported to the Committee. Management considers adjusting items a critical judgement. The Committee reviewed all adjusting items, in particular the treatment of restructuring costs, the exit of Russia, acquired intangible amortisation and related tax adjustments. It considered both the amounts and appropriateness of restructuring costs of £5.9m and provisions of £17.8m disclosed as being adjusting items, and reviewed them by project, to seek confirmation that they were non-recurring. The Committee reviewed tax related adjusting items, and concluded management's treatment was appropriate. The Committee concluded there had been adherence to the company's adjusting items policy. #### Impairment of goodwill and intangibles arising from acquisitions The Committee considered the level of goodwill and intangible assets held on the Group's balance sheet for recent and past acquisitions and whether, given the future prospects of these businesses, the carrying value in each case remained appropriate. The year end balance sheet includes goodwill of £7.9m and intangible assets arising on acquisitions of £19.3m. During 2022, the Committee considered management's proposed amendments to the methodology used to calculate the discount rate for the purposes of impairment testing and concluded this was appropriate. Due to the complexity and volatility involved in calculating the rates, Evelyn Partners was engaged during the year to perform the calculation and to report to management on this, a move which was welcomed by the Audit Committee. Impairment was also an area of focus for the external auditor who reported its findings to the Committee and also concurred with the assessment that no impairments were required. Note 11 to the financial statements provides details regarding the Group's intangible assets and goodwill. The Committee reviewed the acquisition accounting for the three acquisitions in 2022 (Bahr Modultechnik, Heatmiser and CorSolutions), and one acquisition in December 2021 (Adaptas) for which preliminary numbers were included in the 2021 financial statements and final numbers in the 2022 interim report. It concluded that the fair value accounting for the acquisitions was appropriate. #### Inventory valuation The year end balance sheet includes inventories of £416.3m after £52.5m of provisions. The Committee reviewed the judgements applied to standard costing valuations and provisions against excess and obsolete inventory and concurred with management's assessment. Inventory valuation was a key audit matter for the external auditor, in respect of which it reported to the Committee that inventory valuation across the Group is considered appropriate. Note 15 to the financial statements provides details of inventory valuation. #### Tax The Committee reviewed the adequacy of taxation provisions for uncertain matters. Further details on these areas can be found in Notes 3 and 9 respectively. #### Key sources of estimation uncertainty ##### Pensions The Committee also reviewed the appropriateness of the accounting treatment in respect of pension scheme liabilities, including the actuarial assumptions used, which provide a key source of estimation uncertainty, and the impact of one-off special pension events. The Committee also received a report reflecting appropriate expert input from the external auditor, which concluded that the accounting for pensions proposed by management was not materially misstated. The Committee supported management's ongoing efforts to de-risk the Group's pension obligations, with the UK pension liability now fully bought in. Further details can be found in Note 14. Introduction Strategic Report Corporate Governance Financial Statements 117 ## Control environment The Committee reviewed the overall control environment during the year and considered the different responsibilities for site, region, divisional and Group teams. The Committee welcomed the pilot to automate balance sheet reconciliations, which helped facilitate an improved control environment and risk-based approach to controls. The Internal Control Declaration evaluations for the businesses improved year on year. The Committee considered the existing control framework and continued to support management's efforts to deploy the balance sheet automation tool across the organisation following an initial pilot in 2022. The Committee reviewed non-financial areas such as the establishment of a new business support centre in Poland for the IMI Hydronic division. ## Internal audit The Committee received reports from, and monitored the work of, the Group's internal audit function, known as Group Assurance. Group Assurance has a direct reporting line to the Committee and also reports through the Finance Director to the Chief Executive. Group Assurance work is primarily directed towards financial control audits but also covers other selected areas including project planning and implementation for major business changes and internal control declarations, which cover financial and non-financial controls. In addition to the sites reviewed in the year, the principal projects assured in 2022 were: the Group's increasing use of digital tools and included: central review of the Group-wide travel and expenses system; Price Increase Retention, IT system implementation within the Divisions; Inventory Excess and Obsolete provisions and Capital and Rationalisation project reviews. Group Assurance works closely with the divisions to implement monitoring and review processes to complement the internal and external audit coverage. In 2022, Group Assurance assisted in the integration of Adaptas Solutions into the IMI internal control policies and procedures. Locations to be reviewed each year are selected on a risk assessed basis, discussed and agreed with the Committee and take account of the external audit plan. In 2022, as in any other year, minor adjustments were made to the plan to meet changes in the business with the Audit Committee being consulted on amendments at all of its meetings. The completion of actions arising from internal audits and reviews is monitored by the Committee and the track record for timely completion of actions is excellent. During the year, 17 internal audit reviews were completed with 15 of these supported by divisional finance managers. The majority of the 2022 internal audit plan included a physical visit as part of the review. As in prior years, a flexible approach and use of remote audit procedures were used to improve efficiency and ensure emerging issues were addressed. The involvement of divisional financial managers in the internal audit process continues to enhance the quality of audits and the sharing of best practice. For all audit reviews, Group Assurance maintains the final determination on scoring and actions. The Group Assurance team is led centrally by experienced, senior internal audit professionals and across the Group there are over 100 staff trained to conduct internal financial control audits. The annual plan and resourcing for internal audit were approved by the Committee and take account of the enhanced monitoring and review activity within the divisions. The scope of internal audits covers certain operational and commercial risks in addition to financial controls. Experienced financial managers from the divisions work on combined audits covering financial, operational and commercial matters. Group Assurance has trained divisional finance managers in financial control auditing skills and provided a toolkit to enable them to carry out financial control audits at other sites in their division. Financial control evidence binders are used across the Group to help improve internal controls and to make internal audits more efficient. The binders also support transition and continuity in the event of any changes in finance staff. The Committee reviewed the effectiveness of Group Assurance with management and received input from the external auditor. The Committee supports the co-sourcing model, with the Group Assurance team working together with experienced financial managers from the divisions to enhance the effectiveness of assurance processes. An area for improvement in 2023 which was identified for the Group Assurance team is to develop further its capability to carry out operational and commercial risk reviews. The improvement actions for 2022 were made, most notably with the advancement of electronic evidence binders including sharing of best practice examples for key controls from the best sites. The Committee has welcomed the way in which staff involved in Group Assurance activities have coped not only with some challenging circumstances in 2022 but also with the new acquisitions so that the level of assurance gained from its activities during the year is equivalent to previous years. ## External audit independence and performance review The Committee approved the proposed external audit approach and its scope based on the size and level of risk of the entities concerned. The Group and the external auditor take a risk-based approach to audit and other assurance activity. The key audit matters identified by Deloitte are set out in its report on pages 152 to 161 and were reviewed by the Committee in approving the audit scope and plan. The Committee considered the independence and objectivity of the external auditor to be satisfactory. In assessing auditor independence, the Committee had regard to the Financial Reporting Council's (FRC) best practice guidance for audit committees. In addition, the external auditor confirmed that its ethics and independence policies complied with the requirements of the FRC's Ethical Standard. To maintain the objectivity of the audit process, the external audit partner responsible for the Group is rotated within the audit firm at least every five years and the current Senior Statutory Auditor, Dean Cook, was first appointed for the 2021 audit. 118 IMI plc Annual Report & Accounts 2022 ## Audit Committee Report The policy on the engagement of the external auditor for non-audit work reflects regulatory requirements. It requires approval by the Committee Chair for any non-audit engagement for which the estimated fees exceed £10,000. The Finance Director monitors any proposed non-audit engagements of Deloitte and refers to the Chair for approval as appropriate. The policy does not allow work to be placed with the auditor if it could compromise auditor independence, such as functioning in the role of management. Non-audit fees paid to the auditor were £0.1m (£0.1: £0.1m), which represents 9% of the audit fee and demonstrates the tight control which is maintained in this area. The only significant non-audit engagement during the year was in respect of the interim results review, which is technically not statutory audit work but is typically placed with the audit firm, and was approved by the Committee. The Committee considers the level and nature of non-audit work to be modest and not to compromise the independence of the external auditor. The Committee is satisfied that Deloitte is fully independent from management and free of conflicts of interest. Pursuant to the power granted at the 2022 Annual General Meeting, the Committee reviewed and approved the proposed audit fee payable to Deloitte. The Committee formally reviewed the effectiveness of the 2021 external audit process. As in other years, a questionnaire, sent to over 10 business unit finance directors and interviews with members of the Committee and selected executives were used to review the effectiveness of the external audit process. Based on the results of the questionnaire and feedback received, the Committee believes the 2021 external audit process has been good and effective. To enhance further the external audit process, certain improvement actions were identified, and plans were put in place by Deloitte to address these during the 2022 audit. Deloitte made improvements in key action areas and we are satisfied with the progress made. The Committee also reviewed the FRC's Audit Quality Review report regarding Deloitte. In 2023, the review process will be enhanced to strengthen the focus on how the Group contributes to an effective external audit process. ## Statement of compliance IMI confirms that it was in compliance with the provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitor Tender Processes and Audit Committee Responsibilities) Order 2014 during the year ended 31 December 2022. ## Audit tendering Current legislation will require an audit tender by not later than 2021 and the Company retains the freedom to tender earlier. The Committee considers it would be appropriate to conduct an external audit tender process commencing in the year before any change of auditor is made and therefore not later than 2020 in any event. ## Committee attendance and evaluation | Director | Audit Committee meetings | % attended where eligible | | --- | --- | --- | | Isobel Sharp (Chair) | 4/4 | 100 | | Ajai Puri | 4/4 | 100 | | Thomas Thune Andersen | 4/4 | 100 | The Committee reviewed its own performance and terms of reference. It received positive feedback on its performance from the internally facilitated evaluation exercise carried out for the Board and each of its standing committees. It was agreed to increase the number of Committee meetings to allow consideration for new regulatory requirements, if required. Minor amendments were made to the terms of reference which are available on the Group's website. The Committee is very aware of the current external debates on the roles and responsibilities of auditors and audit committees. It is vigilant in reviewing its work to meeting changing business needs as well as external developments. The Committee approved this report on its work. Yours faithfully Chair of the Audit Committee 2 March 2023 ## 119Introduction Strategic Report Corporate Governance Financial Statements IMI Precision Engineering – Bad Oeynhausen, Germany IMI plc Annual Report & Accounts 2022120 ## Nominations Committee Report ## Composition All members of the Committee are independent non-executive directors of the Board. The Company Secretary and the Group HR Director attend all meetings of the Committee. The Chief Executive is not a member of the Committee but is invited to attend all meetings. Neither the Chair, nor the Chief Executive, would participate in the recruitment of their own successor. ### Attendance In the year the Committee held four meetings. The table below shows the number of meetings each member attended: Director Nomination % attended committee where eligible meetings | Lord Smith of Kelvin (Chair) | 4/4 100 | | --- | --- | | Thomas Thune Andersen | 4/4 100 | | Caroline Dowling | 4/4 100 | | Katie Jackson | 4/4 100 | ## Dear Shareholder Dr Ajai Puri 4/4 100 ### I am pleased to make my report as Chair of Isobel Sharp 4/4 100 ### the Nominations Committee. This report is ### intended to give an account of the Committee ## Main areas of activity ### and its activities. The core responsibilities of ### the Committee include: Succession planning and Board appointments There were no new appointments to the Board in 2022. The ### » Reviewing Board composition Committee has undertaken a comprehensive review of Board composition supported by the development of our skills and ### » Leading the recruitment process and making experience matrix. The Board reviews the Directors skills and ### recommendations for appointments at tenure, taking into account the evolving strategic needs of the ### Board level business. During its review, the Committee identifies any areas where the Board’s composition, diversity, skills and experience ### » Overseeing the development of a diverse could be strengthened and these are taken into account during succession planning. The Committee also agreed changes to ### pipeline for succession to the Board and the Board’s succession plan in emergency situations. ### Executive Committee At the October meeting, the Committee reviewed talent ### » Oversight of appointments to the development and succession planning for the leadership group. The Board also met with some of our high potential talent ### Executive Committee during informal lunches at our UK and Cagliari sites. We have ### » Identifying and developing internal talent seen a steady increase in gender diversity of those individuals considered to be high potential. ### The Committee reviewed and refreshed its ### Terms of Reference, which were approved by ### the Board to take effect from 1 March 2023. ### The full terms of reference of the Committee ### can be found in the IMI Corporate Governance ### Framework on the Company’s website. ## 121Introduction Strategic Report Corporate Governance Financial Statements ### Inclusion & Diversity ### Having the right mix of Board members is key to directing Our Inclusion & Diversity policy IMI towards continued shareholder value creation. In the year The Company acknowledges the value of diversity in its we have reviewed the Board membership to ensure there is a widest sense and its contribution towards effective good mix of relevant skills and experience, as well as diversity Board operations and decisions. Our vision is for IMI to of background, outlook and tenure. Our Board Inclusion & be inclusive and to attract, develop, retain and promote Diversity policy, summarised in the box to the right hand side, a diverse workforce which reflects the best local talent provides a high level indication of our approach to Inclusion & in each location. Diversity in Board and senior management roles. The full policy The Group operates an Inclusion & Diversity Policy which is available on our website. is reviewed each year to ensure we continue to make Last year, the Committee’s oversight role in relation to Inclusion & progress against our objectives. Taking account of its Diversity was enhanced through the development of a culture changing strategic needs, the Board will ensure: dashboard. The dashboard which reports on performance and » The Board and its Committees have the appropriate progress against relevant equity, Inclusion & Diversity targets, is balance, composition and mix of skills, experience, presented to the Committee annually. Indicators independence and knowledge to ensure their continued on the dashboard included gender pay gap metrics, equal pay effectiveness, having regard to external guidance confirmations, and performance against external gender and on diversity ethnicity targets. The dashboard also collated relevant scores from the One Big Voice employee survey which provided insights » A pipeline is maintained promoting diversity for into equality and inclusion. succession to the Board, Executive Committee and leadership group positions The Board is committed to gender and ethnic diversity. The Board meets the targets set out in the Parker Review. At Board » Only executive search consultancies who have signed up level, half the directors are non-British born and there are four to the voluntary code of conduct for executive search nationalities. There is also a broad mix of backgrounds and firms on gender diversity on corporate boards are experience as detailed on pages 96 to 97 and 108. In addition, engaged when seeking appointments to the Board so we are fully compliant with the Parker Review’s target to appoint that the selection processes provide access to a diverse at least one Board member from an ethnic minority background range of candidates and three of the non-executive directors are female. At 37.5%, » Appointments to the Board are made on the basis of we currently fall below FCA guidance that women should hold merit, with regards for suitability for role, Board balance at least 40% of seats on the Board. We also do not currently and composition and the required mix of skills, meet guidance that at least one of the senior board positions background and experience – diversity will be should be held by a woman. The Board recognises the a consideration importance of all diversity and remains committed to driving further progress in this space. We will continue to review the » Policies adopted by the Group promote diversity in composition of the Board and the Executive Committee to the broadest sense support and meet recommendations set out in the FTSE » Adequate and appropriate disclosure of: Women Leaders Review published in February 2022. Our Executive Committee has 43% female membership and – This Policy and Inclusion & Diversity initiatives the includes three nationalities. As at 31 December 2022, 27% Group has in place and the steps it is taking to of direct reports to the Executive Committee were female. promote diversity at Board level and across the Company including a description of progress made During the year, the Board applied our Inclusion & Diversity policy in the following decisions: – The composition and structure of the Board » Determining emergency succession plans for the Committee – The gender balance of those in the Executive chairs and members Committee, their direct reports and the Leadership Group » During the review of the Board and Executive’s short, medium and long-term succession pipeline – The process of appointments to the Board » The percentage of female representation in the Executive This policy is reviewed from time to time to monitor Committee’s direct reports has increased from 18% in 2021 to progress being made to assess its effectiveness. 27%, in 2022. This significant increase shows the application of our Inclusion & Diversity policy across the Group 122 IMI plc Annual Report & Accounts 2022 ## Nominations Committee Report ### Non-executive director induction A formal induction process for new non-executive directors is well established and is the responsibility of the Chair with support from the Chief Executive and Company Secretary. Business familiarisation is at the core of induction and continuing development for non-executive directors at IMI and is centered around gaining an understanding of the business and getting to know the wider management team. In normal circumstances, non-executive directors are expected to visit business units around the Group and to meet face-to-face with senior operating management and key corporate staff. Site visits allow business familiarisation and are also a good opportunity to engage with a wider range of employees. ### Membership & Diversity of Board Committees All Committees have female representation and all members of the Remuneration and Audit Committees are independent non-executive directors. In the year the Committee reviewed and approved emergency cover for the Chair and members of each Committee, with consideration to the requirements of the 2018 Corporate Governance Code and our Inclusion & Diversity policy. ### Review of time commitments and contributions The appointments of the Chair and non-executive directors are made on the basis of a formal letter of appointment including a stated minimum time commitment judged appropriate by the Committee. In accepting their appointment to the Board of IMI, non-executive directors confirm they are able to allocate sufficient time to discharge their duties effectively. No director has raised concerns over the time commitment required of them to fulfil their duties. Details of other significant appointments of each director are contained in the biographies on pages 96 and 97. Prior to accepting additional external positions, non-executive directors are asked to confirm they can continue to meet their time commitment and discharge their obligations to IMI. The Committee considers that the time given to IMI by each non-executive director is sufficient and the Board is satisfied that no director is overcommitted and unable to fulfil his or her responsibilities. The Board is satisfied that I have the necessary time to devote to my role as Chair. In the year the Board approved Isobel Sharp's external appointment to Balanced Commercial Property Trust Limited. The Board reviewed Isobel's other commitments and was satisfied that Isobel can continue to meet her time commitments to IMI. Details of the individual contribution of each director can be found in the biographies on pages 96 and 97. ### Re-election at AGM All of the directors standing are recommended for re-election at the Annual General Meeting, following Board approval of the recommendations made by the Committee in this regard. Further information (including a description of the personal contribution of each director) can be found in the Notes to the AGM Notice or in the director biographies on pages 96 and 97. ### Board continuing development Appropriate training and other continuing professional development is available to all non-executive directors and regular updates are given during the year where relevant to the business arising at Board and Committee meetings. In the year tailored best practice updates were provided, the Audit Committee received a technical update on ESG and TCFD disclosures from our auditors whilst our Remuneration consultants presented a review of the AGM season to the Remuneration Committee. Non-executive directors are encouraged to undertake appropriate external training and most directors did attend external training during the year. ### Committee evaluation The most recent external evaluation was conducted in 2020 by Egon Zehnder, who also facilitated the evaluation exercise carried out in 2017. In 2022, supported by the Company Secretary, the Committee conducted an internal review of its performance using Board discussion and anonymous self-assessment questions. A combination of closed and open questions were used to gather feedback from the Board. Progress made on evaluation actions reported in the 2021 Annual Report is shown in the following table: | Action | Progress | | --- | --- | | **Maintain current levels of gender and ethnic diversity on the Board and Executive Committee** | Our culture dashboard, which reports on performance and progress against relevant equity, Inclusion & Diversity targets, is presented to the Committee annually. | | **Continue emphasis on succession planning in 2022** | At the July meeting the Committee agreed updates to the emergency cover as well as the Board's short to medium-term succession plan. | | **Enhance exposure to high potential individuals across the Group to support the next level of succession candidates and pipeline** | The Board met with some of our high potential talent during informal lunches at our UK and Cagliari sites. | Following discussion of the results of the 2022 Evaluation, the Committee agreed to continue its focus on Board succession plans which take into account greater diversity requirements. In addition the Committee agreed to strengthen the succession pipeline for senior management positions. Details of the evaluation of the Board can be found on page 112. Yours faithfully **Lord Smith of Kelvin** Chair of the Nominations Committee 2 March 2023 ## 123Introduction Strategic Report Corporate Governance Financial Statements IMI Critical Engineering – Piacenza, Italy 124 IMI plc Annual Report & Accounts 2022 # Statement from the Chair of the Remuneration Committee ![img-5.jpeg](img-5.jpeg) On behalf of the Board, I am pleased to present the Annual Directors' Remuneration Report for the year ended 31 December 2022. This is my second report as Remuneration Committee Chair following my appointment on 1 September 2021. ## Remuneration in 2022 ### Context 2022 was Roy Twite's third full year as Chief Executive and we continue to make excellent progress to deliver on our strategy. We are creating value for all of our stakeholders through customer satisfaction, market-led innovation and complexity reduction. The Committee is confident that its decisions have been well judged and meaningful in ways that ensure that the success of the Company fairly cascades down throughout the organisation and aligns the wider workforce with the Chief Executive. The Committee was pleased to see that 88.87% of shareholder votes at the 2022 Annual General Meeting supported the Committee's implementation of the current Remuneration Policy. ### Economic environment Our stretching 2022 annual incentive targets were set with the ambition to achieve significant growth on 2021 results. Whilst 2022 was a year of significant macro-economic disruption, there has been no cause to adjust targets. ## Pay for performance Our focus this year has been to ensure employees are supported during the cost of living crisis, while making sure our remuneration arrangements remain appropriate with a strong pay for performance relationship between the Policy and its implementation. A high proportion of our executive directors' remuneration remains closely tied to business performance. The Committee select performance measures that align to our purpose and strategy, with strong links to our reportable KPIs. More information is provided on page 121. When setting stretching performance targets the Committee takes into account a number of factors, including the strategic plan, annual budget, analysts' forecasts, alignment with the wider workforce and economic conditions. Our objective is always to set stretching targets while ensuring that strong underlying performance, which can sometimes be obscured by external macro-economic conditions, is recognised. When assessing the level of performance achieved, the Committee considers wider circumstances to ensure incentive outcomes are a fair reflection of actual performance. Further information about the process we follow when setting targets and assessing performance is set out on page 12. Key strategic and performance highlights in 2022 include: - » Group revenue of £2,049m increased by 10% and adjusted operating margin increased by 80bps, statutory operating margin increased by 120bps - » Group adjusted profit before tax increased from £107m to £146m, statutory profit before tax increased from £145m to £185m - » Adjusted basic EPS increased from 9.0p to 105.5p The Alternative Performance Measures referred to above are defined in Note 3. ## Cost of living increases We have been concerned about the impact of rising inflation on our employees and have taken steps during the year to focus our resource on those employees most in need of support. These actions include: - » Conducting a mid-year pay review, using living wage indices in each of our main countries to help us assess employee pay against rising cost of living standards. An out of cycle pay increase was awarded to those employees most in need. - » We have already accelerated plans for employees to be paid at least in line with living wage indices and this has also been factored into our annual pay review process. For example, as a minimum, we will meet the recently published UK Living Wage Foundation benchmark of £10.90 per hour from 1 January 2023. - » A key element of our 2023 pay philosophy is to focus our resource to those who may need it most. Our approach to this varies in different geographies but we have been able to support our lowest paid workers by offering supplementary pay awards or utilising a graded pay structure so higher percentage increases can be paid to our lowest paid workers. As a Committee we are happy with the approach the Company has taken with the wider workforce which has resulted in an average UK pay award of 6.1%, which included an average base salary increase of 5.4% plus additional one-off awards to our lowest paid workers. The base salary increases effective from 1 January 2023 for the Chief Executive and Finance Director have been reviewed and agreed at 4.5%, which is below that of the UK average employees. ## 125Introduction Strategic Report Corporate Governance Financial Statements ### Incentive outcomes On 27 May 2022 IMI completed the disposal of its Russian entity IMI International LLC. Group Profit Before Tax outcomes Annual incentives paid to executive directors in respect of were adjusted to include the budget operating profit for the performance in 2022 were based on achievement of stretching remaining months of 2022. This is consistent with the approach targets relating to Group adjusted profit before tax and taken for other disposals. No adjustment has been made to IIP strategic and personal objectives, incorporating ESG metrics. vesting outcomes. The Committee determined annual incentive outcomes ranging between 49.0% and 49.8% of maximum for the executive Group Assurance performed an internal assurance review of directors, which fairly reflects business, individual performance the annual incentive and the 2020 IIP award outcomes. and is aligned with the wider stakeholder experience. The Committee concluded that the above outcomes were a fair The 2020 IMI Incentive Plan (‘IIP’) award was granted on reflection of performance and did not consider it necessary to 16 March 2020 and is due to vest on 16 March 2023. The exercise its discretion to adjust the level of incentives payable Committee is conscious of the guidance from various investor according to the performance targets. Full details on the targets bodies around considering a potential executive benefit or set and performance against them can be found on pages 132 to “windfall” gain arising from share award grants around the time 135 in respect of the annual incentive and page 136 for the 2020 of the stock market dip at the onset of the COVID-19 pandemic IIP award. in March 2020. ## In determining the level of vesting under the award the Remuneration in 2023 Committee has full discretion to adjust the vesting based ### Policy implementation on business performance factors and the share price. The Committee carefully considered the potential for perceived Salary increases effective 1 January 2023 considered a range windfall gains to be made under the 2020 IIP and determined of factors including the increases for the wider workforce, that no adjustment shall be made. In making this determination the financial performance of the Group, prevailing economic the committee considered the historic share price performance conditions and the cost of living crisis. For 2023 the Chief compared to that of the FTSE250 both 12 months prior to the Executive and Finance Director received a 4.5% increase. The 2020 award and during the vesting period. The Committee base salary for the Chief Executive will be increased to £794,200 concluded that the share price at grant was materially higher in 2023, and the Finance Director base salary will be increased to than the lowest share price recorded at the start of the £529,100. The Chair and non-executive director fees (base fees COVID-19 pandemic and that recent share price performance and additional responsibilities fees) were also reviewed and reflects the Company’s performance (which has outperformed increased by 4.5%, with effect from 1 January 2023. that of the FTSE250 and in the opinion of the Committee ### reflects the strong underlying performance of the business) Policy Review and hence does not constitute a windfall. The Committee intends to undertake a review of current policy in 2023, before its expiration at the 2024 AGM when a new policy The 2020 IIP award which was subject to stretching return on will be presented for shareholder approval. At the core of the capital employed, Group adjusted profit before tax (PBT) growth review will be the alignment of policy with our strategic direction, and relative Total Shareholder Return (TSR) targets measured the remuneration related provisions of the Code and evolving over three financial years will vest at 66.8% in March 2023. investor views. The policy review will consider wider workforce As part of its determination of incentive outcomes, the remuneration and policies when making decisions on executive Committee considered the underlying performance of the remuneration and how the policy aligns with ESG considerations business, external factors such as macro-economic conditions and our ambition to deliver a better world. and shareholder experience during the performance period. Yours faithfully ### Acquisitions and Disposals | The Committee also considered the impact of acquisitions and | Caroline Dowling | | --- | --- | | disposals made in 2022 on incentive outcomes. | Chair of the Remuneration Committee | | Bahr Modultechnik GmbH (Bahr) was acquired on 9 June 2022, | 2 March 2023 | CorSolutions LLC was acquired on 27 October 2022, and Heatmiser UK Limited was acquired on 23 December 2022. The 2022 impact to Group PBT of each acquisition was not deemed to be material and so no adjustment was made to annual incentive targets. The Group PBT outcome was adjusted to exclude the impact of these acquisitions. The Committee also considered the impact of the acquisitions on the 2020 IIP award which is due to vest in March 2023. Due to the timing of the acquisition, including Heatmiser in the vesting outcomes would have no impact on Operating Profit, but increases Capital Invested, which would result in a slightly lower ROIC vesting outcome. In line with the principles of our Remuneration Policy relating to corporate transactions, the Committee concluded that the Heatmiser acquisition should not lead to an adverse impact on remuneration outcomes, and have therefore excluded Heatmiser from the 2020 IIP award outcome. Both Bahr and CorSolutions are included in the vesting outcomes. IMI plc Annual Report & Accounts 2022126 ## Annual Directors’ ## Remuneration Report ## On behalf of the Board, the Remuneration The Committee ### Committee (the ‘Committee’) presents the ### Composition ### Annual Directors’ Remuneration Report, which The members of the Committee throughout the year were ### will be put to shareholders for an advisory Caroline Dowling (Chair), Katie Jackson and Dr Ajai Puri. ### (non-binding) vote at the Annual General In accordance with the UK Corporate Governance Code, all members are independent non-executive directors. ### Meeting to be held on 4 May 2023. The report Caroline Dowling meets the requirements of the UK Corporate ### includes details of the work of the Committee, Governance Code having more than 12 months’ previous ### the pay received during the year in accordance experience on a remuneration committee before being ### with our current Directors’ Remuneration appointed Remuneration Committee Chair. ### Policy, approved by shareholders at the Annual The remaining members of the Board, the Group Human Resources Director, the Head of Group Reward and the Company’s ### General Meeting in May 2021. A copy of the independent remuneration consultants also attend meetings by ### approved Directors’ Remuneration Policy is invitation. The Company Secretary attended each meeting as ### included in the 2020 Annual Report which Secretary to the Committee. No director participates in any ### can be found on the IMI website and is discussion relating to their own remuneration. ### summarised on pages 143 to 145 of this ### Responsibility ### Annual Report. The Committee determines the Remuneration Policy and rewards for the executive directors and other members of the Executive Committee and the Chair. The Committee also considers the levels of pay and benefits across the Group. A copy of the Committee’s terms of reference (which were reviewed and refreshed in 2022) are included in the IMI Corporate Governance Framework and are available on our website. ### External advisers to the Committee Independent remuneration consultant, Willis Towers Watson, is formally appointed by the Committee and provided advice on executive remuneration to the Committee in 2022. The Committee noted that the firm are actuaries and administrators for IMI’s UK Pension arrangements. The Committee is comfortable that these activities do not represent a conflict of interest and that objective and independent advice continues to be received by the Committee from the dedicated team servicing it at Willis Towers Watson. The fees charged by Willis Towers Watson in respect of advice and services to the Committee totalled £72,000 in 2022. Willis Towers Watson are signatories to the Remuneration Consultants’ Code of Conduct in the UK. ## 127Introduction Strategic Report Corporate Governance Financial Statements ## A summary of the Committee’s activities Attendance ## during 2022 | | Director Remuneration | | | % attended where | | | --- | --- | --- | --- | --- | --- | | The Committee held three formal meetings during the year; | | Committee meetings | | | eligible | | attendance can be viewed in the table adjacent. The principal | Caroline Dowling (Chair) | | 3/3 100 | | | agenda items were as follows: Katie Jackson 3/3 100 » A review of total compensation packages of the members of Dr Ajai Puri 3/3 100 the Executive Committee taking into account wider workforce remuneration and related policies ## Annual General Meeting voting outcomes » Approval of achievements and outcomes under the incentive plans The following table summarises the details of votes cast for and against the 2021 Annual Directors’ Remuneration Report along » Consideration of the fees for the Chair with the number of votes withheld. The Committee will continue » Approval of the 2022 share awards to members of the to consider the views of, and feedback from, shareholders when Executive Committee determining and reporting on remuneration arrangements. » Prospective review of the performance metrics and targets Voting item Votes for Votes against Votes withheld for the 2023 incentive cycle » Consideration of prevalence of ESG within strategy and current Directors’ 88.87% 11.13% 0.19% Remuneration linkage to incentives*, paying particular attention to clarity, Report (2022 simplicity, risk, predictability, proportionality and alignment AGM) to culture Directors’ 93.40% 6.60% 1.0% Remuneration » Consideration of the guiding principles used by the Committee Policy (2021 AGM) when applying discretion to remuneration outcomes » Approval of the reintroduction of the All-employee US Stock Purchase Plan in 2022 » Review of wider workforce pay and equal pay » Review of IMI’s gender and ethnicity pay gap data for 2022 » Review of IMI’s pay ratio of the Chief Executive to UK employees » Consideration of how Director pay aligns with that of the wider workforce » Review of remuneration policies and practices to ensure they remain compatible with the Company’s purpose, values and strategy » Review of the performance of the independent remuneration consultants to the Committee » Review of risks as they relate to executive compensation » Review of the Committee’s own performance, constitution and terms of reference » Review of executive director’s service agreements * There is an Environmental, Social & Governance (ESG) underpin included in the annual bonus to provide discretion for the Committee to take into account any relevant ESG matters when determining bonus outcomes and an ESG specific metric in the long-term incentive plan. These mechanisms ensure that the incentive structures include ESG in both the short and long-term strategy and reward Executives for positive ESG actions and appropriate outcomes. IMI plc Annual Report & Accounts 2022128 ### Annual Directors’ Remuneration Report ## Executive single figure table (audited) | | | | | Annual | Long-term | Other items in the nature | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Fixed pay | | variable pay | | variable pay | | of remuneration | | | | | | | | | (£000) | | | (£000) | (£000) | | | (£000) | | | | | | | | | | | | | | | | | | Total | | Total | | | | | | | | | | | | | fixed | variable | | | Base | | Taxable | Annual incentive | | IMI Incentive | | | | All-employee | Total | pay | | pay | 1 Director salary Pension benefits bonus Plan (‘IIP’) share plans (£000) (£000) (£000) See page Page 129 Page 129 Page 129 Pages 132 to 135 Page 136 Page 138 2022 760 84 32 757 2,073 4 3,709 876 2,833 Roy Twite 2021 731 80 25 1,427 1,709 6 3,978 836 3,142 2022 506 71 52 372 791 4 1,795 629 1,166 Daniel Shook 2021 465 79 47 681 948 7 2,227 591 1,636 1 Daniel Shook’s pension allowance will reduce as per the following schedule: from 1 January 2021: 17% of salary; from 1 January 2022: 14% of salary; and from 1 January 2023: 11% of salary. Roy Twite served on the Board of Halma plc during the year and received fees of £75,000 in respect of this appointment, which he retained. Daniel Shook served on the Board of Ultra Electronics Holdings plc until 1 August 2022, during this period he received fees of £40,515 in respect of his appointment, which he retained. These figures have been calculated as follows: Base salary and fees: the actual salary receivable for the year. Share price assumptions: for shares vesting in 2023, that related to performance in the three years to 31 December 2022, the average Pension: the cash allowance paid in lieu of pension. share price over the final three months of 2022 (1,305.38 pence) is used to estimate the value of Taxable benefits: the gross value of all taxable benefits (or benefits that shares on vesting. The value attributed to share price would be taxable for a person tax resident in the UK) appreciation in respect of the 2020 award (based on received in the year. the three month average share price at 31 December Annual incentive bonus: the value of the annual incentive payable for 2022) was £789,204 for Roy Twite and £300,971 for performance in respect of the relevant financial year Daniel Shook. This equates to 38% of the total award (up to half is automatically delivered in the form of vested for both Executive Directors. deferred bonus share awards, when the executive All-employee share plans: the value of free shares at award and dividends under director does not meet their share ownership the Employee Share Ownership Plan in the relevant requirement), however, the plan rules permit financial year and the intrinsic value of Save as You payments to be made wholly in cash. Earn share options on the date of grant in the relevant IMI Incentive Plan (‘IIP’): the value on vesting of the nil cost options that were financial year (applying a 10% discount as permitted subject to performance conditions over the three-year under the Save as You Earn Share Plan). period ending on 31 December in the relevant financial Total fixed pay: Sum of fixed pay columns. year (see share price assumptions to the right). Total variable pay: Sum of annual incentive bonus, IMI Incentive Plan (‘IIP’), all-employee share plans, and dividend equivalent payments (if applicable). Introduction Strategic Report Corporate Governance Financial Statements 129 ## Executive remuneration received in respect of 2022 ### Base salary Consistent with prior years, salary increases effective 1 January 2022 considered a range of factors including the increases for the wider workforce, the financial performance of the Group and prevailing economic conditions. The average increase for UK employees in 2022 was 4%. For 2022 the Chief Executive received 4%. Consistent with the approach taken for other high performing employees, the Committee awarded the Finance Director a 9% base salary increase in recognition of his outstanding performance in role and taking into account the competitiveness of salary and total package relative to peers. Base salary levels were set at £760,000 for the Chief Executive and £506,100 for the Finance Director. ### Pension Effective from the date of his appointment as Chief Executive, Roy Twite received a cash allowance equivalent to 11% of base salary which is consistent with the average global employee pension opportunity for employees. Daniel Shook, Finance Director received a cash allowance of 14% of salary. His allowance reduced by 3% on 1 January 2023 to 11% of base salary which is consistent with the average global employee pension opportunity for employees. For further information please see page 100 of the Corporate Governance Report. ### Pension benefits for past service Roy Twite was previously an active member of the defined benefit IMI Pension Fund, the assets and liabilities under which were transferred to either the IMI 2014 Pensioner Fund or the IMI 2014 Deferred Fund ('the Fund') in 2014. He opted out with effect from 1 February 2007, before he became an executive director, and as a result he retains past pensionable service up to that date in the Fund. The key elements of the benefits in the Fund are summarised below: - The normal retirement age under the Fund is 62 and Roy Twite may retire from employment with IMI any time after age 60 without an actuarial reduction applied to his pension - On death after retirement, a dependant's pension is provided equal to 50% of the member's pension - Should he die within the first five years of retirement, the dependant's pension is increased to 100% of the member's pension for the remainder of the five-year period - Pensions in payment more than any guaranteed minimum pension, are increased each year in line with price inflation up to a maximum of 5% in respect of pension built up before 1 January 2006, and 5.5% in respect of pension built up after 1 January 2006 | | Accrued pension in the Fund as at 31 December 2022 £000pa | Accrued pension in the Fund as at 31 December 2021 £000pa | | --- | --- | --- | | Roy Twite | 83 | 79 | ### Benefits During the year the executive directors received several benefits, which are summarised below. | | Roy Twite | | Daniel Shook | | | --- | --- | --- | --- | --- | | | 2022 | 2021 | 2022 | 2021 | | Non-cash benefits (£000) | 15 | 5 | 18 | 39 | | Company car and fuel allowance (£000) | 20 | 20 | 14 | 14 | | Allowances and reimbursement (£000) | - | - | - | - | | **Total** | **32** | **25** | **52** | **47** | In addition to the above benefits and allowances that are included in the single figure table (refer to table on page 128), the executive directors are also beneficiaries of company policies that have no taxable value, including directors' and officers' insurance, death in service cover, travel insurance and personal accident cover. IMI plc Annual Report & Accounts 2022130 ### Annual Directors’ Remuneration Report ## How our remuneration policy aligns to the factors set out in the UK Corporate ## Governance Code 2018 The table below shows how our policy addresses the remuneration factors set out in provision 40 of the 2018 UK Corporate Governance Code. Remuneration factors How IMI addresses these factors Clarity Our policy is designed to ensure pay for performance, be aligned to our strategy and be transparent. We believe this is clearly communicated to our stakeholders and understood by them. Simplicity Executive Director remuneration is comprised of distinct elements: fixed pay, annual bonus award and the long-term incentive award. Risk A number of features within the Remuneration Policy exist to manage different kinds of risks; these include: » Malus and clawback provisions » Post-employment shareholding requirement » Deferral of remuneration and holding periods » Remuneration Committee discretion to override formulaic outturns to ensure incentive outcomes reflect underlying business performance and shareholder experience » Limits on awards specified within the policy and plan rules Predictability Target ranges and potential maximum payments under each element of remuneration are disclosed in our policy and to the participants. The Committee regularly reviews the performance of inflight awards, so it understands the likely outcomes. Proportionality Poor performance should not be rewarded. Therefore, a key portion of remuneration is linked to performance and requires achievement against challenging and stretching targets. Alignment to Culture The Committee believes our remuneration structure is appropriately aligned to our values as demonstrated by the table opposite. ## 131Introduction Strategic Report Corporate Governance Financial Statements ## IMI Incentive Plans Our remuneration Policy is aimed at enabling our business model and aligned to the delivery of the strategy. The table below sets out our KPIs and how these incentivise and reward our executives for achievement of the KPIs. KPI Why it is important and how is it incentivised? Annual bonus IIP Organic sales growth* » Important part of building sustainable value for shareholders √ » Fundamental to achieving sustainable profitable growth ### Customer » Growth hub bookings / revenue targets included in personal objectives ### intimacy Adjusted operating profit* » Generates value for our shareholders and create more opportunity to √ invest further » Group PBT is a core annual bonus performance metric Cash conversion* » Supports investment in our business and enables IMI to provide returns to √ shareholders through dividends » Ensures a strong balance sheet, giving customers and suppliers confidence ### Playing in the future of IMI ### to win » Free cash flow management will be considered by the Remuneration Committee when determining the annual bonus performance Return on invested capital » Indication of IMI’s ability to deploy capital effectively √ » ROIC is a core IIP performance metric Adjusted earnings per share » Creating consistent long-term value for shareholders √ » EPS is a core IIP performance metric Employee engagement* » Key to retaining the existing skills and promoting and attracting employees √ who bring new ideas and capabilities » Employee engagement targets are explicitly included in Directors personal ### One big objectives for the annual bonus plan ### team Total Recordable Incident » The health and safety of all who work at IMI is paramount √ Frequency Rate* » Closely linked to our business success, including attracting and retaining the best talent ### Integrity » Each director has a specific Total Recordable Incident Frequency Rate personal objective for the annual bonus plan » The annual bonus plan has an ESG underpin which could result in reduced vesting outcomes if IMI underperform CO 2 Intensity* » Our purpose Breakthrough Engineering for a better world drives our √ √ strategy and our ambition, including our commitment to halve our total CO 2 intensity by 2030 (based on 2019 Scope 1 & 2 emissions) » Each director has a specific CO 2 intensity target included as a personal objective for the annual bonus plan » CO 2 Intensity reduction (Scope 1 & 2) is a core IIP performance metric * Whilst these measures are not explicit annual incentive bonus metrics, they contribute significantly towards adjusted profit before tax, a core annual incentive bonus metric. IMI plc Annual Report & Accounts 2022132 ### Annual Directors’ Remuneration Report ## Annual incentive bonus In setting targets and assessing performance the following process is adopted by the Committee: | 1. Set performance | 2. Set stretching | 3. Assess | | 4. Take account | 5. Apply discretion | | --- | --- | --- | --- | --- | --- | | measures aligned | performance | | performance | of wider | if required | | with strategy | targets | | | circumstances | | and budget As per the Policy, the Committee reviews and selects performance measures, targets and ranges annually, which take account of the economic conditions, strategy and the priorities of IMI at the time. ### 1. Set performance measures aligned with 3. Assess performance ### strategy and budget Results were ahead of expectations: The Committee reviewed and selected performance » Group revenue of £2,049m increased by 10% and adjusted measures for 2022 that were fully aligned to the business operating margin increased by 80bps, statutory strategy and the annual budget as approved by the Board in operating margin increased by 120bps December 2021. The 2022 annual incentive bonus focused on » Group adjusted profit before tax increased from £307m just one financial metric and non-financial metric. to £346m, statutory profit before tax increased from | These included: | | £245m to £285m | | --- | --- | --- | | » Group adjusted profit before tax (80%) | » Adjusted basic EPS increased from 92.0p to 105.5p | | | » Strategic and personal objectives (20%) | The Alternative Performance Measures referred to above | | are defined in Note 3. Free cash flow was also monitored and, if it materially underperformed against budget, the Committee ### 4. Take account of wider circumstances may consider applying downward discretion. The Committee believes that the range of measures used There was also an Environmental, Social & Governance (ESG) to assess performance of the annual incentive bonus ensures underpin to provide discretion for the Committee to take that performance is assessed using a balanced approach, into account any relevant ESG matters when determining that is fully aligned with the business strategy. bonus outcomes. The Committee also considers the wider workforce For 2023, see page 143 for information regarding the remuneration and policies when making decisions on financial metric. executive remuneration. Given the performance noted above and wider operational achievements, the Committee ### 2. Set stretching performance targets is comfortable that the 2022 annual incentive bonus outcomes represent a fair reward for performance delivered. In setting stretching performance targets the Committee considered a range of influencing factors that included the ### 5. Discretion to override formulaic outcomes strategic plan, the annual budget, analysts’ forecasts, ### and to apply malus and clawback economic conditions including the ongoing impact of COVID-19, individuals’ areas of responsibilities and the Depending on the circumstances, the Committee may Committee’s expectations over the relevant period. exercise judgement in assessing performance and Notwithstanding stretching targets are set at the outset, determining the level of achievement. the Committee will also consider the application of discretion The Committee has full discretion to override formulaic at the end of the performance period if relevant. outcomes, reduce the amount of any annual bonus, reduce The performance target range itself was established the number of shares (subject to any form of share award) based on the annual budget and required significant and/or to require a repayment to the Company in the event outperformance for executive directors to achieve it is discovered that the Company has misstated its financial the maximum. results, there has been an error or miscalculation in respect of an award, there has been gross misconduct, there is erroneous or misleading data or in any other circumstances as the Committee sees fit. Such other circumstances may include, but are not limited to, serious reputational damage or corporate failure. The Committee has considered the position and determined that for 2022 it is not appropriate for any reason to exercise the discretion to override formulaic outcomes or recover amounts previously awarded. ## 133Introduction Strategic Report Corporate Governance Financial Statements Summarised in the table below is the achievement against Group targets applicable for Roy Twite and Daniel Shook. | Director Measure Maximum | | | Performance targets Actual | | | | Actual | Actual performance as | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | opportunity | | | performance | | performance | | a percentage of metric | | | | (% of bonus | Threshold Target Maximum | | | (£m) | (% out of 100) | | | weighting | opportunity) All executive Group adjusted 80% £304.4m £338.2m £355.1m £330.4m 38% 31% 1 directors profit before tax Strategic and 20% See table on pages 134 and 135 personal objectives 100% 1 Adjusted Group profit before tax, as set out in the Consolidated Income Statement on page 162, adjusted for the impact of foreign exchange, acquisitions and disposals. ### Strategic and personal objectives As part of the strategic growth plan, the Committee sets each executive director several strategic and personal objectives each year. Performance against these objectives is assessed using a combination of quantitative and qualitative reference points to ensure a robust assessment process. Mid-way through the year the executive is reviewed against their progress towards achieving the strategic and personal objectives with a full review undertaken by the Committee at the end of the performance period. As well as performance against strategic and personal objectives, the Committee considers the wider performance of the Group. IMI plc Annual Report & Accounts 2022134 ### Annual Directors’ Remuneration Report A summary of the strategic and personal objectives set for 2022 and the performance against them is provided in the table below. | Director 2022 Strategic and personal objectives Commentary Weighting | | Performance | | --- | --- | --- | | | (% of | achieved | | | maximum) | (% of | maximum) Roy Strategic growth: Fully deploy the agreed » The IMI strategy continues to be deployed successfully. Profits have increased 20% 95% Twite strategy, executing the major strategic by 13% to £346m despite challenging market conditions projects on time, and to budget. Continue to develop acquisition options and relationships » Revenues have increased by 10%, and IMI Critical Engineering Aftermarket across all three divisions, ensuring successful orders have grown by 16%, accelerated by the upgrade valve strategy acquisitions have robust integration planning, » Growth Hub orders have substantially increased to £52m in 2022 compared financial controls and resourcing. to £23m in 2021. Our innovation capability in all three divisions is building as momentum grows » Three acquisitions were completed in 2022: Bahr, CorSolutions and Heatmiser. All three acquisitions have robust integration plans and resourcing in place » Complexity-reducing rationalisation projects as communicated to the Board and City are delivering ahead of schedule Strengthen organisation: Continue to » The IMI Executive team continues to operate effectively with a strong culture of build the IMI Executive team and accelerate collaboration and supportiveness, resulting in effective talent deployment and its performance. Build succession to the best practice sharing Executive including the Chief Executive and drive succession depth across the » Internal succession plans are in place, with strong candidates for Chief organisation. Executive and Executive team members Deliver projects: Focus the entire » IMI continues to win new Better World business in Life Sciences, Energy, Energy management team on key strategic Efficient buildings and zero/ low emission trucks, with organic sales growth projects, delivering profitable growth of 4% through Breakthrough Engineering for a better world, and delivering at pace four » The focus on our Customer First project in IMI Precision Engineering allowed workstreams focused on talent: attraction, us to streamline the organisation around key market segments including the visibility, development and retention. APAC region, to facilitate the drive for profitable growth » Wide ranging improvements made to the IMI talent processes have unified our external recruitment messaging under the IMI brand, improved talent visibility by redesigning the talent review process and introduced a brand new Leadership Development Programme in conjunction with IMD » Leadership group retention remained very strong across IMI Environment: Focus on elevating the » IMI’s carbon intensity improved (Scope 1 & 2) from 2.30CO 2 e in 2021 to visibility of IMI’s progress, and developing our 2.09tCO2e per 1,000 hours worked in 2022 tangible metrics and targets. Continue to monitor and review that HSE, quality and risk » Plans have been developed in 2022 for Scope 3 emission reductions, targeting improvement plans are robust and delivered a 25% reduction by 2030 (from a 2019 base) and a net zero target by 2050 across the three divisions. » IMI’s CDP climate rating improved to B and we maintained AA for MSCI » IMI’s health and safety culture continues to improve. In 2022 79% of employees said they felt comfortable challenging any behaviour that may be unsafe compared to 70% in 2021. Over 30,000 hazards were identified by our workforce (up 29%) and 93% of them were closed out within 30 days » The accident rate per hour worked across the Group improved to 0.35 from 0.56 in 2021 Social: Further improve communication and » The IMI employee engagement score has increased from 77% to 80% in 2022 engagement and drive a culture of wellbeing » Many wellbeing activities were supported across our businesses including by enabling employees to understand and embrace our wellbeing strategy and how it mental health first aiders, mental health awareness sessions, unconscious bias aligns to IMI’s core values. training and celebrating major religious and cultural events Governance: Ensure that quality and risk » Customer focus and service remained good across the divisions, despite the improvement plans are robust and delivered global supply chain disruptions. Risk mitigation actions in the supply chain, across the three divisions. Achieve positive including our own factories and warehouses, have proved to be effective momentum in the key metrics in each case. » Product quality improved again with IMI’s overall cost of quality as a percentage of sales falling ## 135Introduction Strategic Report Corporate Governance Financial Statements | Director 2022 Strategic and personal objectives Commentary Weighting | | Performance | | --- | --- | --- | | | (% of | achieved | | | maximum) | (% of | maximum) Daniel Strengthen organisation: Support and » IMI continues to have a strong and committed finance team. In 2022 we 20% 91% Shook continue to develop the finance leadership identified and hired a strong candidate for the IMI Hydronic Engineering team. Successfully transition Adaptas into CFO role, and continued to advance the development of our finance the IMI Finance control environment. Drive leadership team a culture of wellbeing at IMI. » Robust integration plans for Adaptas have been established and are progressing well » The IMI Wellbeing programme is now established globally and employee awareness is growing Deliver projects: Successfully deliver key » The new finance process automation project pilot was completed strategic projects. Advance the finance successfully, and full implementation is being carried out across the process automation project through the divisions pilot phase, engage and support Growth Hub initiatives to deliver at least £50m of » Growth Hub orders have substantially increased to £52m in 2022 orders in 2022, and deliver at pace four » All four Talent workstreams were delivered successfully, serving to unite workstreams focused on talent: attraction, IMI as One Big Team and deliver meaningful improvements to the visibility, development and retention. talent process Environment: Ensure ESG activity and » A strong team is now established with responsibility for environmental reporting is delivered to a high standard. data reporting. Reporting has been enhanced to include Scope 3 emission Develop a targeted action plan for optimal reductions, targeting a 25% reduction by 2030 (from a 2019 base) and ESG index recognition. Avoid any Lost Time a net zero target by 2050 Accidents at IMI HQ in 2022. » IMI’s CDP climate rating improved to B and we maintained AA for MSCI » We achieved zero Lost Time Accidents at IMI HQ in 2022 Social: Improve overall diversity and » We have developed a strong talent pipeline of diverse candidates within succession pipeline within the Finance the Finance function function. Governance: Deliver improved internal » Our internal financial controls scores have further improved in 2022 with financial controls scores and maintain a all but two sites meeting target scores, demonstrating clear progress robust controls framework. Ensure Deloitte since last year are fully embedded as IMI’s external auditor. » Deloitte are now fully embedded Performance under the financial metric (80% of the total annual incentive bonus achievement) and the strategic and personal objectives (20% of the total annual incentive bonus achievement) and the total achievement (% of maximum) is set out below: Director Actual performance of Performance achieved under the 2022 maximum bonus achieved financial metrics (%) strategic and personal objectives (%) (% of maximum) Roy Twite 30.8% 19.0% 49.8% Daniel Shook 30.8% 18.2% 49.0% Based on the performance described above, the annual incentive bonus outcomes for 2022 are set out below: | Director 2022 maximum | | | 2022 maximum | Total bonus | | Total bonus | Achievement of share | | | Bonus delivered | | Bonus delivered | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | bonus opportunity | | bonus achieved | | awarded | awarded | ownership guidelines | | | in form of cash | | in form of share | | | | | | | | | | | | 1 | | | | 1 | | | | (% of salary) | (% of maximum) | | (£000) | (% of salary) | | at 31 Dec 2022 | | | (£000) | awards (£000) | | Roy Twite 200% 49.8% 757 99.5% 174% 757 - Daniel Shook 150% 49.0% 372 73.5% 159% 372 - 1 Deferred bonus share awards are made where the executive director is yet to reach their share ownership guidance. Details of the share ownership guidelines can be found on page 137. 136 IMI plc Annual Report & Accounts 2022 ## Annual Directors' Remuneration Report ### Awards vesting under the IIP In March 2020, performance share awards were made to the executive directors under the IIP. The vesting of the awards was subject to the achievement of three independent performance conditions as described below, measured over the three-years ended 31 December 2022. The 2020 IIP award will vest in March 2023 at 66.8% of maximum. | Director | Initial award | Value on date of award^{1} (£000) | Number of initial shares vesting | Additional dividend equivalent shares | Total shares vesting | Value of shares on vesting^{2} (£000) | | --- | --- | --- | --- | --- | --- | --- | | Roy Twite | 100,660 | 1,800 | 148,798 | 10,060 | 158,800 | 2,071 | | Daniel Shook | 84,917 | 686 | 56,744 | 3,896 | 60,560 | 791 | $^{1}$ The three-day average mid-market price on the date of award was 808.40 pence $^{2}$ The price on vesting is unknown at this time and so the total number of shares vesting is valued at the average price over the last quarter of 2020 which was 1,705.18 pence ### Return on invested capital (ROIC) This metric is the same as that presented in 2020, however it was previously referred to as Return on Capital Employed and has been renamed to Return on Invested Capital to better describe the metric. References to capital employed have also been updated to capital invested. One third of the award was subject to the achievement of ROIC. This measure is defined as adjusted operating profit as a percentage of the average invested capital during the financial year ended 31 December 2022. Invested capital being net assets adjusted to remove net debt (including lease liabilities recognised under IFRS 16), derivative assets and liabilities, restructuring provisions, employee benefit assets and liabilities and deferred tax on employee benefits, and to reverse historical impairments of goodwill and amortisation of acquired intangible assets. It compares the earnings of the Group with the capital employed. ROIC was chosen as a measure as it represents how well the Group has used its investment made by shareholders and capital from creditors to generate a profit. The portion of the share award that will vest related to ROIC performance in the final year of the performance period. For ROIC of less than 11.5% no award under this element will vest. 25% of the award will vest for ROIC of 11.5%, rising on a straight-line basis to full vesting for ROIC of 14.5%. At the end of the performance period return on invested capital was 13.1%, which excludes the invested capital of Heatmiser which completed on 31 December 2022, resulting in this element vesting at 21.4%. ### Total Shareholder Return (TSR) One third of the award was subject to the achievement of a relative TSR performance measure against a defined group of companies adjusted during the performance period, to take account of merger and acquisition activity during the performance period in line with the Committee's established guidelines. TSR is defined as the movement in share price during the performance period, measured in local currency, with adjustment to take account of changes in capital structure and dividends, which are assumed to be reinvested in shares on the ex-dividend date. TSR was chosen as a measure as it is an external, relative benchmark for performance that aligns executives' rewards with the creation of shareholder value. The portion of the award that will vest related to TSR depends on where IMI ranks in the comparator group. For a TSR rank that is below median, no award under this element will vest. 25% of the award will vest for median TSR, rising on a straight-line basis to full vesting for upper quartile TSR. At the end of the three-year performance period, the Group ranked 9th of the peer group. The resultant vesting outcome for this element of the award is 12.0%. ### Adjusted earnings per share (EPS) One third of the award was subject to the achievement of the adjusted EPS growth measure. This measure is defined as the compound annual growth rate in adjusted EPS over three financial years, adjusted for any exceptional items, including significant acquisition and disposal and foreign exchange movements, at the Committee's discretion. Adjusted EPS growth is a key measure for IMI as it gives an indication of the strength of the Group's financial performance and shows the amount available to reinvest into the business and pay a return to shareholders through dividends. For growth of less than 3% per annum, no award under this element will vest. 25% of the award will vest for growth of 3% per annum rising on a straight-line basis to full vesting for growth of 10% per annum. Over the three-year performance period ended 31 December 2022, IMI delivered Group profit before tax growth of 13.0%. The resultant vesting outcome for this element of the award is 33.3%. ### Deferred bonus share awards In March 2020, deferred bonus share awards were also made under the IIP which vest in March 2023. These are in the form of share awards used for mandatory bonus deferral into shares of up to 50% of annual bonus payable, where the executive director is yet to reach their share ownership guideline. Introduction Strategic Report Corporate Governance Financial Statements 137 ## Discretion to override formulaic outcomes and to apply malus and clawback Depending on the circumstances, the Committee may exercise judgement in assessing performance and determining the level of achievement. The Committee has full discretion to override formulaic outcomes and to reduce the amount of any IIP award, to reduce the number of shares subject to any form of share award and/or to impose an obligation to make a payment to the Company in the event that: - The Company misstated financial results - The Company suffers serious reputational damage - There was an error or miscalculation in determining the size of the award - There was gross misconduct by an executive; and/or - The Remuneration Committee has made decisions using erroneous or misleading data; or - In such other circumstances as the Committee sees fit The Committee has considered the position and determined that for 2022 it is not appropriate for any reason to exercise the discretion to override the formulaic outcome of the 2020 IIP awards or recover amounts previously awarded. ## Share ownership guidelines It is a requirement of the Policy that executive directors are subject to guidelines which require them to build a shareholding in IMI worth at least 50% of salary for Roy Twite and 100% of salary for Daniel Shook. The Policy permits the Committee discretion to determine that up to 50% of any annual bonus earned is deferred into shares until the share ownership guideline is achieved together with 50% of any vested share awards. Each executive is then required to maintain this share ownership guideline (subject to allowances for share price fluctuations and changes in base salary thereafter). When assessing compliance with this guideline the Committee reviews both the level of beneficial share ownership and vested but unexercised share incentive awards on a post-tax basis. The Committee has determined that as both Roy Twite and Daniel Shook have met their guidelines (as at 1 December 2022) as outlined above, their entire 2022 bonus will be delivered in cash. ## Post-employment shareholding guidelines Our policy (approved by shareholders at the 2021 AoM) includes post-employment shareholding requirements which require executive directors to hold 100% of their shareholding requirement (or if less, all shares held) for two years following departure. This is implemented by signed agreement. The Committee will have discretion to allow sale where there are exceptional circumstances. ## Share interests granted to executive directors during 2022 (audited) ### Grants made under the IIP Performance share award grants under the IIP were made on 11 March 2022 in the form of nil-cost options. Awards are due to vest on 11 March 2025, subject to the performance metrics described in the 2021 Annual Report: Adjusted EPS growth (10%), relative TSR (10%), ROIC (10%), and total CO₂ intensity (Scape 1 & 2) reduction against the 2019 base figure (10%). After vesting, a holding period of two years applies subject to the sale of shares as required to meet tax liabilities arising on vesting. The performance targets, which consider the Group's approach to implementing accounting changes under IFRS 16, and vesting scale that apply to the 2022 IIP awards are as follows: | | Relative TSR | Adjusted EPS | ROIC | Total CO₂ intensity | Level of vesting | | --- | --- | --- | --- | --- | --- | | **Threshold** | Median | 1% | 11% | 2019 base -17% (1.71 tCO₂, e per 1,000 hours worked) | 5% | | **Maximum** | Upper quartile | 10% | 1% | 2019 base -1% (1.89 tCO₂, e per 1,000 hours worked) | 100% | | **Weighting** | 10% | 10% | 10% | 10% | | The following performance share award grants were approved and made in 2022: | | IIP shares awarded | Value on date of award^{1} (£000) | Award as a percentage of salary | | --- | --- | --- | --- | | **Roy Twite** | 141,144 | 1,900 | 50% | | **Daniel Shook** | 57,216 | 759 | 150% | $^{1}$ The three day average mid-market price on the date of award was 1,57.7$^{1}$ pence. The IIP is also used to grant deferred bonus awards exercisable after three years to satisfy bonuses delivered in the form of shares. Details of these additional IIP awards made in 2022 are shown in the table on page 1$^{9}$ under the 'without performance conditions' column. No performance conditions apply to these awards. IMI plc Annual Report & Accounts 2022138 ### Annual Directors’ Remuneration Report For share awards granted in 2022 the TSR group included 18 companies to ensure 2022 alignment with our peers and comparison to companies with similar products, customers and global spread. The 2022 peer group includes the following companies which is consistent with our 2021 peer group, and in line with the Committee’s guidelines: TSR comparator group companies Belimo Ingersoll-Rand US Inc SMC Circor ITT Smiths Group Curtiss-Wright Morgan Advanced Materials Spectris Eaton Parker-Hannifin Spirax Sarco Emerson Electric Rockwell Automation SPX Flowserve Rotork The Weir Group ### All-employee share plans Executive directors are eligible to participate in the all-employee share plans on the same terms as other eligible employees at IMI. All-Employee Share Ownership Plan IMI Sharesave Scheme | Number of shares | | Value of free | | | Number of options | | Value of | | | Total value under the | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 1 | | | | 2 | | | | | | awarded | share award | | | | awarded | options | | Dividends | all-employee share | | | | | | (£000) | | | | (£000) | | (£000) | | plans (£000) | 2022 279 4 - - - 4 Roy Twite 2021 259 4 1,542 2 - 6 2022 279 4 - - - 4 Daniel Shook 2021 259 4 2,571 3 - 7 1 In 2022 free shares were awarded at a share price of 1,290.00 pence (1,389.33 pence in 2021). 2 In 2021 SAYE awards were made at a 10% discount and the value shown is the intrinsic gain at the date of grant, calculated in accordance with the single figure requirements (on page 128). ## Chair’s and non-executive directors’ single figure table (audited) The following table summarises the total fixed fees and benefits paid to the Chair and non-executive directors in respect of the financial years ended 31 December 2022 and 31 December 2021. | Director | | 2022 (£000) 2021 (£000) | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Base fees Additional | | Taxable | | Total Base fees Additional | | Taxable | | Total | | | | | | 1 | | | | 1 | | | | | fees | benefits | | | fees | benefits | | | 7 Lord Smith of Kelvin 380 - 7 387 311 - 3 314 2 Carl-Peter Forster - - - - 45 19 - 64 4 Isobel Sharp 71 17 5 93 68 17 2 87 6 Thomas Thune Andersen 71 22 10 103 68 14 5 87 Katie Jackson 71 - 5 76 68 - 2 70 3 Caroline Dowling 71 17 6 94 68 6 3 77 5 Dr Ajai Puri 71 - 5 76 57 - 6 63 1 6 Taxable benefits includes travel and hotel expenses plus tax costs associated Includes fee for Senior Independent Director (pro-rated in 2021 following with Board meetings held at IMI HQ. appointment as Senior Independent Director on 1 September 2021) and 2 non-executive director with responsibility for employee engagement and for Includes fee for Senior Independent Director and Remuneration Committee ESG matters. Chair (pro-rated in 2021 following departure from the Board on 31 August 7 2021). As a consequence of the Company being near to its Articles’ of Association limit 3 on payments it may make to Directors, the Chair, Lord Smith of Kelvin agreed to Includes fee for Remuneration Committee Chair (pro-rated in 2021 following a £27,778 underpayment of his £338,500 fee in 2021. The Chair was repaid in appointment as Remuneration Committee Chair on 1 September 2021). 2022 and the total 2022 fee of £380,000 reflects this repayment. However, the 4 Chair’s total 2022 fees (excluding this repayment) were £352,000, reflecting Includes fee for Audit Committee Chair. the 4.0% applied to the 2021 full year fee, as detailed in the 2021 Annual Report. 5 Dr Ajai Puri was appointed to the Board on 1 March 2021. 2021 fees represent Shareholder approval was obtained at the 2022 AGM to increase the payment pro-rated amount. limit within our Articles’ of Association. Introduction Strategic Report Corporate Governance Financial Statements 139 ## Directors' shareholdings and share interests (audited) The following table summarises the share interests of any director who served during the year as at 31 December 2022 or at the date of leaving the Board. During the period 31 December 2022 to 2 March 2023 there were no changes in the interests of any current director from those shown save for purchases within the IMI All-Employee Share Ownership Plan on 10 January 2023 of 10 shares on behalf of Roy Twite and 9 shares on behalf of Daniel Shook at 1,420.00 pence per share, and 14 February 2023 of 10 shares on behalf of Roy Twite and 8 shares on behalf of Daniel Shook at 1,552.50 pence per share. | Director | Total interests | Beneficial interests | Scheme interests | | | | All-employee share plans | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Nil-cost options | | | | | | | | | With performance conditions | | Without performance conditions (deferred bonus share awards) | | | | | | | Unvested | Vested but unexercised | Unvested | Vested but unexercised | | | Roy Twite | 800,482 | 241,878 | 527,644 | - | 21,186 | - | 9,574 | | Daniel Shook | 36,247 | 121,027 | 207,895 | - | 8,185 | - | 3,140 | | Lord Smith of Kelvin | 14,300 | 14,300 | - | - | - | - | - | | Isobel Sharp | 3,000 | 3,000 | - | - | - | - | - | | Thomas Thune Andersen | 2,625 | 2,625 | - | - | - | - | - | | Katie Jackson | 2,846 | 2,846 | - | - | - | - | - | | Caroline Dowling | 3,014 | 3,014 | - | - | - | - | - | | Dr Ajai Puri | 3,000 | 3,000 | - | - | - | - | - | 1 Vesting dates of share awards are shown in Note 6, page 180. ## Relative importance of spend on pay The following information is intended to provide additional context regarding the total remuneration for executive directors. | | 2022 (£m) | 2021 (£m) | Change | | --- | --- | --- | --- | | Dividends | 62.2 | 61.8 | 1% | | Total employment costs for Group (see Note 5 on page 179) | 602.6 | 591.7 | 1% | 140 IMI plc Annual Report & Accounts 2022 ## Annual Directors' Remuneration Report ### Historical performance and remuneration In addition to considering executive remuneration in the context of internal comparisons, the Committee reviews historical outcomes under the variable pay plans. The graph compares IMI's TSR to the FTSE100 and FTSE50 over the last ten years. We compare performance to the FTSE100 as IMI has been included in the index in the past and it is a position where IMI aspires to be. TSR measures the returns that a company has provided for its shareholders, reflecting share price movements and assuming reinvestment of dividends (source: CapIQ), with data averaged over the final 10 days of each financial year. As the graph adjacent illustrates, IMI's absolute and relative TSR performance has been robust over the last ten years. The following table summarises the total remuneration for the Chief Executive over the last ten years, and the outcomes of short and long-term incentive plans as a percentage of maximum. | Financial year ended 31 December | 2013^{1} | 2014^{2} | 2015^{2} | 2016^{2} | 2017^{2} | 2018^{2} | 2019^{2} | 2020^{2} | 2021^{2} | 2022^{2} | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Total remuneration (single figure, £000)** | 6,688 | 1,567 | 1,667 | 1,901 | 1,771 | 1,047 | 1,707 | 1,455 | 1,978 | 1,709 | | **Annual variable pay (% of maximum)** | 6% | 16% | 40% | 50% | 95% | 75% | 41% | 77% | 98% | 50% | | **Long-term variable pay (% of maximum) - Share Matching Plan** | 100% | - | - | - | - | - | - | - | - | - | | **Long-term variable pay (% of maximum) - Performance Share Plan** | 8.6% | - | - | 1.5 | - | - | - | - | - | - | | **Long-term variable pay (% of maximum) - IMI Incentive Plan** | - | - | - | - | - | 19.1% | 47.1% | 58.8% | 75.1% | 66.8% | $^{1}$ Represents remuneration for Martin Lamb, who was Chief Executive from before 2010 until 11 December 2011. $^{2}$ Represents remuneration for Mark Selway, who was appointed Chief Executive on 1 January 2014. $^{3}$ Represents remuneration for Roy Twite, who was appointed Chief Executive on 9 May 2019. ![img-6.jpeg](img-6.jpeg) ## 141Introduction Strategic Report Corporate Governance Financial Statements ## Annual percentage change in remuneration of directors and employees The Committee actively considers any increases in base pay for the Chief Executive and other directors relative to the broader IMI employee population. Benefits and bonus payments are not typically comparable given they are driven by a broad range of factors, such as geographical location, local practices, eligibility, individual circumstances and role. The following table summarises the annual percentage change of each director’s remuneration compared to: » The annual percentage change of the average remuneration of the Group’s employees, calculated on a full-time equivalent basis » The performance of the Group over the same preceding financial year During 2020 the Board accepted a 20% cut in annual salary/fees for three months owing to the pandemic. This impacts both the 2020 and 2021 comparison. The annual salary/fee increase applied to the Board in 2021 was 1.5%. 2020 2021 2022 | | | | | | | | 6 | | | | | 6 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Annual | Benefits Annual | | | Annual | Benefits | | Annual | | Annual | Benefits | | Annual | | Salary/Fees | | | bonus | Salary/Fees | | | | bonus | Salary/Fees | | | | bonus | Executive Directors 1 Roy Twite 7.5% -23.3% 103.7% 6.9% 8.7% 35.8% 4.0% 28.0% -47.0% Daniel Shook -3.1% -14.6% 101.6% 6.9% 34.3% 36.2% 9.0% 10.6% -45.4% Chair 2 Lord Smith of Kelvin -3.1% -85.7% -1.9% 200.0% 22.2% 133.3% Non-executive directors Isobel Sharp -3.7% -50.0% 7.6% 100.0% 4.0% 150.0% Thomas Thune 1.5% -87.5% 22.4% 400.0% 13.5% 100.0% 3 Andersen Katie Jackson -4.5% -75.0% 7.9% 100.0% 4.0% 150.0% 4 Caroline Dowling 17.5% 20.0% 100.0% 5 Dr Ajai Puri 24.8% -16.7% Average Pay of 3.75% 0.1% 92.0% 4.40% 3.6% 68.8% 8.3% 3.9% -44.0% UK HQ employees 1 Roy Twite was appointed as Chief Executive in May 2019. The percentage change in 2020 is a result of the 2019 Directors single figure table which includes income earned before Roy was appointed as Chief Executive. 2 As a consequence of the Company being near to its Articles’ of Association limit on payments it may make to Directors, the Chair, Lord Smith of Kelvin agreed to a £27,778 underpayment of his £338,500 fee in 2021. The Chair was repaid in 2022 and the total 2022 fee of £380,000 reflects this repayment. However, the Chair’s total 2022 fees (excluding this repayment) were £352,000, reflecting the 4% applied to the full year fee, as detailed in the 2021 Annual Report. Shareholder approval was obtained at the 2022 AGM to increase the payment limit within our Articles’ of Association. 3 Senior Independent Director fee pro-rated in 2021 following appointment on 1 September 2021. 4 Chair of the Remuneration Committee fee pro-rated in 2021 following appointment on 1 September 2021. 5 Dr Ajai Puri was appointed to the Board on 1 March 2021. Fees represented pro-rated amounts. 6 Benefits include travel to board meetings held at IMI plc Head Office. In 2021 board meetings were held remotely. All UK head office employees. This comparison excludes our international workforce which we feel would not provide a true comparison given differing local market factors. There have been no payments to past directors. 142 IMI plc Annual Report & Accounts 2022 ## Annual Directors' Remuneration Report ### Pay ratio reporting Pay ratio legislation requires quoted companies with >50 or more employees to publish information on the pay ratio of the Group Chief Executive to UK employees. In line with the new regulatory requirements, the table below sets out the ratio at median, >5th and 75th percentile of the total remuneration received by the Group Chief Executive compared to the total remuneration received by our UK employees – as well as comparing to base salary only. Total remuneration reflects all remuneration received by an individual in respect of the relevant years, and includes salary, benefits, pension, and value received from incentive plans. | Financial year | Methodology | Total remuneration | | | | --- | --- | --- | --- | --- | | | | P5 (Lower Quartile) | P50 (Median) | P75 (Upper Quartile) | | 2022 | Option C | 11.1 | 86.1 | 50.1 | | 2021 | Option C | 116.1 | 95.1 | 63.1 | | 2020 | Option C | 85.1 | 67.1 | 45.1 | | 2019 | Option C | 83.1 | 61.1 | 45.1 | - » The >0.2% Chief Executive single figure is calculated considering the Chief Executive's remuneration calculation includes base salary, fees, pension, taxable benefits, annual bonus and shares paid during >0.2% - » As is permitted by Option C of the regulations, the Gender Pay Gap data for >0.2% based on a snapshot in April >0.2% was used to identify our three quartile employees, P5, P50 and P75. Having identified P5, P50 and P75, we chose to review the single figure data for an additional ten employees at each of the quartiles for the full year ended on 31 December >0.2% - » The remuneration calculation included base salary, allowances, pension, taxable benefits, annual bonus and shares. This method provides a like-for-like comparison with the Chief Executive's single figure total for the >0.2% calendar year. Gathering data on more than three employees provides a better opportunity to capture all pay and benefits of employees to get a true median value at each of the three bandings - » Our principles for pay setting and progression in our wider workforce are the same as for our executives – total reward being sufficiently competitive to attract and retain high-calibre individuals without over-paying and providing the opportunity for individual development and career progression, to attract and retain great talent. The pay ratios reflect how remuneration arrangements differ as accountability increases for more senior roles within the organisation and the ratios reflect the weighting towards long-term value creation and alignment with shareholder interests for the Chief Executive - » We are satisfied that the median pay ratio reported this year is consistent with our wider pay, reward and progression policies for employees. All IMI employees receive competitive pay and benefits and have the opportunity for annual pay increases and career progression and development opportunities - » Changes to the ratio in >0.2% compared to >0.1% are largely attributable to the impact of variable pay The total pay and benefits and base salary component of the total pay and benefits figures are as follows: | 2022 | Base salary (£) | Total pay and benefits (£) | | --- | --- | --- | | Chief Executive remuneration | 760,000 | 1,708,566 | | 25th Percentile employee | 10,050 | 11,076 | | 50th Percentile employee | 10,761 | 41,916 | | 75th Percentile employee | 55,988 | 74,111 | Introduction Strategic Report Corporate Governance Financial Statements 143 ## Implementation of the Policy for 2023 | Summary of Policy | Implementation in the year to 31 December 2023 | | --- | --- | | **Base salary** Reviewed annually with changes normally effective from January. The Committee takes into account the level of increase for the wider workforce, market data, business performance, external economic factors, the complexity of the business and the role, cost, and the incumbent's experience and performance. | Consistent with prior years, salary increases effective 1 January 2023 considered a range of factors including the increases for the wider workforce, the financial performance of the Group and prevailing economic conditions. For 2023 the Chief Executive and Finance Director received a 4.5% base salary increase which, given the context of the cost of living crisis and considering how we direct our resources, is 1.6% lower than the general pay award applied to UK employees of 6.1%. The base salary for the Chief Executive will be increased to £794,000 in 2023, and the base salary for the Finance Director will be £529,100 in 2023. | | **Pension** A cash allowance in lieu of pension is paid monthly. To the extent required by law, part of this allowance will be paid into a defined contribution pension arrangement. With the Committee's approval the executive directors may redirect all or part of the balance of this allowance into a defined contribution pension arrangement. Pension for any newly hired executive to be linked to average workforce levels (currently 11%). Legacy obligations for executive directors receiving pension above workforce levels will be brought in line with workforce by 1 January 2023. | From 1 January 2023, all Executive Directors will receive 11% of salary which is aligned to that of the average employee and that of the Investment Association guidelines. | | **Benefits** The policy provides a normal range of benefits to executive directors. The value of benefits vary year-on-year depending on the age and health of the individual, the cost of providing them and the geography in which the executive is based. However, the range of benefits is not expected to change from year to year. | In line with the Policy, each Executive Director receives: + Car allowance + Life insurance + Private health insurance including medical screen as appropriate + Other ancillary benefits including tax advice | | **Annual Bonus** Based on annual performance relative to set targets. Drives and rewards performance against annual financial, strategic and operational goals, which are consistent with the medium to long-term strategic goals of IMI. Considers individual behaviours and contributions. If the executive has not achieved their share ownership guideline, up to half of any bonus shall be invested into IMI shares for at least three years. Once the share ownership guideline is met, an executive can then elect to receive their bonus in cash and/or shares. Dividends (or equivalent value payments) accrue and are payable in cash or shares when shares are released. Recovery provisions are included in the plan rules allowing for malus and clawback. | During 2024 the Committee reviewed the appropriateness of continuing with the metrics that applied to the 2024 annual bonus to ensure alignment with IMI's strategy. The Committee determined that the 2023 annual bonus will be contingent on a Profit Before Tax growth target alongside strategic and personal objectives for each executive director. There will be a weighting of 80% to financial metrics and 20% to strategic and personal objectives. Free cash flow will be considered by the Committee when determining annual bonus outcomes. The E50 underpin will continue to be considered to allow the Committee to take into account any relevant E50 matter when determining remuneration outcomes. The Committee will continue to monitor the underlying performance of the business when determining bonus outcomes. Due to the commercially sensitive nature of the financial targets and strategic and personal objectives, they will be disclosed retrospectively in next year's report along with performance against them. The maximum bonus opportunity will be set at 200% of salary for Ray Twite. The annual bonus opportunity for Daniel Shook will be set at 150% of base salary. On-target bonus is set at 50% of maximum bonus opportunity. | IMI plc Annual Report & Accounts 2022144 ### Annual Directors’ Remuneration Report ## Implementation of the Policy for 2023 (continued) Summary of Policy Implementation in the year to 31 December 2023 Performance shares awarded under the IMI Incentive Plan At the same time as the review of annual bonus metrics, the Committee also reviewed those attached to Incentivises long- term value creation, aligning the interests of IIP awards. executives and shareholders through share awards. The Committee continues to believe that this will ensure that executives are only rewarded if underlying Performance metrics support the long-term strategy of IMI earnings are increased over the performance period and shareholder returns outperform peers. and the vehicle and time horizon provides a retention tool for 2023 awards will be set at 250% for Roy Twite and 150% for Daniel Shook and will be subject to a two-year key executives. post-vesting holding period, extending the total time horizon to five years from grant. The Committee can make annual share-based awards. The Committee considered whether the performance metrics for LTIP awards remain appropriate before Dividends (or equivalent value payments) accrue and are concluding that the existing metrics of TSR, EPS and Return on Invested Capital (ROIC*), and CO 2 intensity payable in cash or shares in respect of vested awards. remain aligned with strategy. Consistent with the previous year, TSR, EPS and ROIC will each have a 30% Any vested performance share awards will be subject to a sale weighting, and CO 2 intensity will have a 10% weighting. restriction for a period of 2 years from the date of vesting, TSR metrics remain unchanged but having taken into account internal budgets and analyst consensus subject to the executive being permitted to sell such number estimates available at the time the targets were set the Committee decided that the maximum target of shares as may be required to settle tax liabilities as they may for EPS will remain unchanged at 10.0% in 2023. The Committee feels that given economic uncertainty, arise. In addition the share ownership guidelines apply. EPS threshold will remain the same as 2022 at 3.0%. In addition, the Committee decided that both the Recovery provisions are included in the plan rules allowing for maximum and threshold target for ROIC should remain unchanged at 11.0% to 13.0%. Further, the malus and clawback. Committee retains discretion to determine, should the 2023 LTIP vest, whether the formulaic outcome is a fair reflection of underlying business performance and consistent with the shareholder experience over the performance period and if not, to adjust the formulaic outcome accordingly. The performance targets that will apply to the 2023 IIP awards are as follows: | | Relative | | Adjusted | | ROIC Total | | | | Level of | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | TSR | | EPS | | CO | 2 intensity | | vesting | | | Threshold Median 3% 11% 2019 base -21% | | | | | | | | | | 25% | | | | | | | | (2.18 tCO | | 2 e | | | per 1,000 hours worked) Maximum Upper 10% 13% 2019 base -36% 100% quartile (1.77 tCO 2 e per 1,000 hours worked) Weighting 30% 30% 30% 10% Share ownership guidelines The share Ownership Guidelines are: It is a requirement of the remuneration policy that executive » Chief Executive – 250% of base salary directors are subject to guidelines which require them to build a shareholding in IMI worth at least 250% of salary for the » Finance Director – 200% of base salary Chief Executive, and 200% of salary for the Finance Director (and other executive directors if applicable). Policy permits the Post-employment shareholding guidelines Committee to determine that up to 50% of any annual bonus Our policy (approved by shareholders at the 2021 AGM) includes post-employment shareholding earned may be deferred into shares until the share ownership requirements which require executive directors to hold 100% of their shareholding requirement guideline is achieved together with up to 50% of any vested (or if less, all shares held) for two years following departure. This will be implemented by signed performance share awards. Each executive is then required to agreement. The Committee will have discretion to allow sale where there are exceptional reasons. maintain at least this share ownership guideline level (subject to allowances for share price fluctuations and changes in base salary thereafter). When assessing compliance with this guideline the Committee reviews both the level of beneficial share ownership and vested but unexercised share incentive awards on a post-tax basis. ## 145Introduction Strategic Report Corporate Governance Financial Statements Summary of Policy Implementation in the year to 31 December 2023 Malus and Clawback The Committee has the power to operate malus and/or clawback provisions in the event that: The provisions enable the Committee to reduce future annual » The Company misstated financial results bonus payments, reduce the number of shares under any form of share award, and/or require the individual to make » The Company suffers serious reputational damage a payment to the Company on terms deemed to be fair and » If there was an error or miscalculation in determining the size of the award reasonable by the Committee. » Gross misconduct by an executive; and/or » The Remuneration Committee has made decisions using erroneous or misleading data Other policy items For a description of policy items such as: » Appointments to the Board » Loss of office (including change of control) Please refer to the Directors’ Remuneration Policy published in the 2020 Annual Report. Service contracts The unexpired terms of the non-executive directors’ service contracts can be reviewed in the Board’s Corporate Governance Report on page 108. Fees for the Chair and non-executive directors The Chair and non-executive directors’ remuneration increased by 4.5% with effect from 1 January 2023 which, given the context of the cost of living crisis and considering how we direct our resources, is lower than the general increase applied to both UK employees and that of the whole Group. Committee evaluation The Committee reviewed its own performance and terms of reference and received positive feedback, with no recommended changes, from the evaluation exercise carried out in respect of the Board and each of its committees. Details of the internal evaluation can be found on page 112 of the Corporate Governance Statement. The Committee approved this report on its work. Caroline Dowling Chair of the Remuneration Committee for and on behalf of the Board 2 March 2023 146 IMI plc Annual Report & Accounts 2022 # Directors' Report ## Statutory & Other Information The directors present their management report, including the Strategic Report, together with the audited financial statements of IMI plc (the Company) and its subsidiaries (together, the Group), for the year ended 31 December 2022. | **Amendment of Articles of Association** | The Company's Articles of Association may only be amended by special resolution of the Company at a general meeting of its shareholders. | | --- | --- | | **Annual General Meeting** | The Annual General Meeting will be held on 4 May 2022. Full details of the resolutions to be proposed to our shareholders, and accompanying explanatory notes are contained in our Notice of the Annual General Meeting, a copy of which will be published on our website. At our 2022 AOM, resolutions will be proposed, among other matters: » to receive the Annual Report & Accounts » to approve the Directors' Remuneration Report » to declare a final dividend » to reappoint Deloitte LLP as auditor and set the auditor's remuneration » to approve the directors' general authority to allot shares » to grant the authority to issue shares without first applying statutory rights of pre-emption » to authorise the Company to make market purchases of its own shares » to authorise the making of limited political donations by the Company and its subsidiaries » to enable the Company to continue to hold general meetings on not less than 14 clear days' notice | | **Branches** | The Company does not have any branches outside the UK. | | **Business relationships** | A summary of how the Company has engaged with suppliers, customers and other third parties can be found on pages 18 to 40. Details of how the directors have had regard to the need to foster the Company's business relationships with suppliers, customers and others, and the effect of that regard on the principal decisions taken by the Company during the financial year are contained in the section 17(1) statement on pages 43 to 45. Further information on our payment practices with suppliers can be found on the government's reporting portal. Our statement on slavery and human trafficking can be found on our website at https://www.imiplc.com/sites/imi-corp-revs/files/modern-slavery-act-statement-2022.pdf. | | **Change of control** | The Company and its subsidiaries are party to a number of agreements that may allow the counterparties to alter or terminate the arrangements on a change of control of the Company following a takeover bid, such as commercial contracts and employee share plans. Other than as referred to in the next paragraph, none of these are considered by the Company to be significant in terms of its likely impact on the Group as a whole. In the event of a change of control of the Company, the Group's main funding agreements allow the lenders to renegotiate terms or give notice of repayment for all outstanding amounts under the relevant facilities. The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment specifically resulting from a takeover, although the provisions of the Company's share schemes include a discretion to allow awards granted to directors and employees under such schemes to vest in those circumstances. | | **Corporate Governance Statement** | The Corporate Governance report on pages 100 to 145 is hereby incorporated by reference into this Directors' Report and includes details of our application of the principles and reporting against the provisions of the UK Corporate Governance Code. Our statement includes a description of the main features of our internal control and risk management systems in relation to the financial reporting process and forms part of this Directors' Report. A copy of the 2018 version of the UK Corporate Governance Code, as applicable to the company for the year ended 31 December 2022, can be found at the Financial Reporting Council's website frc.org.uk. | | **Directors** | The names and biographies of our directors who served during the financial year ended 31 December 2022 can be found on pages 96 and 97. The rules for the appointment and replacement of directors are set out in the Company's Articles of Association. Each new appointee to the Board is required to stand for election at the next Annual General Meeting following their appointment. In addition, the Company's Articles of Association require each director to stand for re-election every year. | | **Directors' indemnities and insurance** | The Company maintains directors' and officers' liability insurance and all directors of the Company benefit from qualifying third party indemnity provisions which were in place during the financial year. At the date of this Annual Report there are such indemnity arrangements with each director in respect of the costs of defending civil, criminal and regulatory proceedings brought against them, as a director or employee, subject always to the limitations set by the Companies Act 2006. The Group operates pension schemes in the UK which provide retirement and death benefits for employees and former employees of the Group. The corporate trustee of the pension schemes is IMI Pensions Trust Limited, a subsidiary of the Company. Qualifying pension scheme indemnity provisions, as defined in section 15 of the Companies Act 2006, were in force for the financial year ended 31 December 2022 and remain in force for the benefit of each of the directors of the corporate trustee of the pension schemes. These indemnity provisions cover, to the extent permitted by law, certain losses or liabilities incurred as a director or officer of the corporate trustee of the pension schemes. The Group also has in place third party qualifying indemnity provisions, as defined in section 14 of the Companies Act 2006, in favour of certain employees who discharge responsibilities for various wholly-owned subsidiary companies and these indemnities are given on a similar basis to the above. | | **Directors' interests** | Details of the interests in the Company's shares held by our directors and persons connected with them (including interests under share option and incentive schemes), are shown in the Directors' Remuneration Report on page 19 and are hereby incorporated by reference into this Directors' Report. | ## 147Introduction Strategic Report Corporate Governance Financial Statements Directors’ powers The powers of the directors are determined by UK legislation and the Articles of Association of the Company in force from time to time. The directors were authorised to allot and issue ordinary shares and to make market purchases of the Company’s ordinary shares by resolutions of the Company passed at its Annual General Meeting held on 5 May 2022. The current authorities will expire at the conclusion of the next Annual General Meeting to be held on 4 May 2023, at which new authorities will be sought. Further details of authorities the Company is seeking for the allotment, issue and purchase of its ordinary shares will be set out in the separate Notice of Annual General Meeting. Disclosure of Each director confirms that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware information to and each director has taken all the steps that he or she ought to have taken as a director to make himself or herself aware of the auditor any relevant audit information and to establish that the Company’s auditor is aware of that information. Dividends The directors recommend a final dividend of 17.4p per ordinary share for the year ended 31 December 2022. Subject to shareholder approval by our shareholders at our Annual General Meeting on 4 May 2023, the final dividend will be paid on 12 May 2023 to shareholders on the register at the close of business on 11 April 2023. Together with the interim dividend of 8.3p per ordinary share paid on 16 September 2022, this gives a total dividend for the 2022 financial year of 25.7p per ordinary share. The interim and final dividends paid in respect of the 2021 financial year were 7.9p per ordinary share and 15.8p per ordinary share respectively (2021 total dividends paid of 23.7p). Employee matters Details of how we engage with our workforce, how we provide them with relevant information and take account their interests in decision-making can be found in our on pages 38 to 45. Our Section 172(1) statement can be found on pages 43 to 45. A description of how our directors have engaged with the workforce is set out on page 110. Our approach to investing in and rewarding the workforce is set out on pages 59 to 60. Details of employee share schemes are set out in Note 6 of the financial statements on page 180. Details of the arrangements in place under which employees can raise any matter of concern are set out on pages 53 and 92. Every effort is made to ensure that applications for employment from disabled employees are fully and fairly considered and that disabled employees have equal opportunity in training, succession planning and promotion. Further disclosures relating to employee diversity, employee engagement and related policies are set out on pages 62 to 63. Our Board Inclusion & Diversity policy is summarised on page 121. Environmental Information on our greenhouse gas emissions energy consumption and energy efficiency actions required to be disclosed by the Companies matters Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008/410 is set out in the Sustainability report on pages 70 to 79. Such information is incorporated into this report by reference and is deemed to form part of this Directors’ Report. Events occurring after There have been no important events affecting the Company or any member of the Group since 31 December 2022. the reporting period Financial instruments Our risk management objectives and policies in relation to the use of financial instruments can be found in Note 17 on pages 207 and 208. Information required Listing Rule statement Detail Note reference of financial by UK Listing Rule statements/page number 9.8.4 as appropriate to the Company 9.8.4R (12) Shareholder waiver page 148 of future dividends 9.8.4R (4) Long-term incentive pages 143 and 144 schemes 9.8.4R (5) Directors’ waiver of pages 128 and 138 emoluments Major shareholdings Information provided to the Company pursuant to the Disclosure Guidance and Transparency Rules is published on a regulatory information service and on the Company’s website. As at 31 December 2022, the following voting interests in the ordinary share capital of the Company, disclosable under the Disclosure Guidance and Transparency Rules, had been notified to the Company: Name of shareholder Percent of issued share capital Direct or indirect nature of holding | Massachusetts Financial Services Company | 9.89 Indirect | | --- | --- | | Ameriprise Financial Inc. | 5.04 Indirect | | Standard Life Investments (Holdings) Limited | 4.97 Indirect | | BlackRock, Inc. | 4.99 Indirect | | Legal & General Group plc | 3.03 Direct | Between 31 December 2022 and the date of this Annual Report, no changes in the voting interests have been notified to the Company in accordance with the Disclosure Guidance and Transparency Rules save for notifications received from BlackRock, Inc on 9 January 2023 that its interests totalled 5% and on 18 January 2023 that its interests totalled below 5% and Ameriprise Financial, Inc. on 25 January 2023 that its interests totalled below 5%. 148 IMI plc Annual Report & Accounts 2022 ## Directors' Report | **Political donations** | No political donations were made during the year. | | --- | --- | | **Purchase of own shares** | The Company was granted authority at the Annual General Meeting held on 5 May 2020 to purchase up to 26,000,000 of its ordinary shares. This authority will expire at the conclusion of the next Annual General Meeting to be held on 4 May 2021, where shareholders will be asked to give a similar authority, details of which will be given in the Notice of Annual General Meeting. We did not purchase any shares under this authority during the year. | | **Related party transactions** | Details of related party transactions are in Note 26 on page 21. | | **Research and development** | See Note 5 to the financial statements on page 179 for an indication of research and development activities of the Group. More information about our investment in Growth Hub projects can be found on page 61. | | **Share Capital** | As at 31 December 2020, the Company's issued share capital was £78,585,129.14 divided into 75,047,950 ordinary shares of 8.4/7p each. Details of the share capital of the Company are set out in Note 20 to the financial statements on page 19. The Company's ordinary shares are listed on the London Stock Exchange. During the year 17,261 shares were issued in respect of options exercised under employee share schemes. Details of these schemes are summarised in Note 6 to the financial statements. Shares acquired by employees under employee share schemes rank equally with the other shares in issue and have no special rights. As at 31 December 2020, 408,756 shares were held in an employee trust for use in relation to certain executive incentive plans representing 0.9% of the issued share capital (excluding treasury shares) at that time. The independent trustee of the trust has the same rights as any other shareholder other than as specifically restricted in the governing trust deed. The trust has agreed to waive any right to all dividend payments now and in the future. Participants in option schemes do not hold any voting rights on the shares until the date of exercise. The rights and obligations attaching to the Company's ordinary shares are set out in the Company's Articles of Association, copies of which can be obtained from Companies House in the UK, from the Company's website or by writing to the Company Secretary. Changes to the Articles of Association must be approved by a special resolution of the shareholders (75% majority required) in accordance with the legislation in force at the time. Subject to applicable statutes, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide or (if there is no such resolution or so far as it does not make specific provision) as the Board may decide. Holders of ordinary shares are entitled to receive the Company's report and accounts, to attend, speak and vote at general meetings of the Company, and to appoint proxies to exercise their rights. Holders of ordinary shares may receive a dividend and in a liquidation, may share in the assets of the Company. Subject to meeting certain thresholds, holders of ordinary shares may requisition a general meeting of the Company or propose resolutions at Annual General Meetings. Voting rights for ordinary shares held in treasury are suspended and the treasury shares carry no rights to receive dividends or other distributions of assets. There are no restrictions on the transfer of ordinary shares in the Company other than: » Certain restrictions as may from time to time be imposed by laws and regulations (for example insider trading laws, in accordance with the Companies Act 2006, Listing Rules or the City Code on Takeover and Mergers) » Pursuant to the Company's share dealing code whereby the directors and certain employees of the Company require approval to deal in the Company's shares The Company is not aware of any arrangements between shareholders that may result in restrictions on the transfer of ordinary shares or on voting rights. None of the ordinary shares carry any special rights with regard to control of the Company. The only restrictions on voting rights are those that apply to the ordinary shares held in treasury. Electronic and paper proxy appointments and voting instructions must be received by the Company's registrars not later than 48 hours (excluding any non-working days) before a general meeting, or (subject to the Company's Articles of Association) any adjournment thereof. | | **Strategic report** | Certain information required to be included in the Directors' Report has been set out in the Strategic report. The Strategic report required by the Companies Act 2006 can be found on pages 6 to 95. The report sets out the business model (pages 10 and 11), strategy (pages 10 and 11) and likely future developments (pages 16 to 25). It contains a review of the business and describes the development and performance of the Group's business during the financial year and the position at the end of the financial year. It also contains a description of the principal risks and uncertainties facing the Group (pages 88 to 91). Such information is incorporated into this report by reference and is deemed to form part of this Directors' Report. | | **Treasury shares** | As at 31 December 2020, 14,248,876 ordinary shares (nominal value £4,071,096) were held in treasury representing 5% of the issued share capital (excluding treasury shares) at that time. The number of shares held in treasury during the year ended 31 December 2020 was constant. | Approved by the Board and signed on its behalf by: Company Secretary 2 March 2023 IMI is registered in England No. 714175 ## 149Introduction Strategic Report Corporate Governance Financial Statements ## Statement of directors' responsibilities ## Statement of directors’ responsibilities in respect of the Annual Report and ## the financial statements. ### The directors are responsible for preparing the Annual Report, Directors’ responsibility statement under which includes the Directors’ Report, the Strategic Report, ### the Disclosure and Transparency Rules Remuneration Report and Corporate Governance Statement, and the Group and parent company financial statements in We confirm that to the best of our knowledge: accordance with applicable law and regulations. » The Group and parent company financial statements in this Company law requires the directors to prepare financial Annual Report, which have been prepared in accordance with statements for each financial year. Under that law the applicable UK law and with the applicable set of accounting directors are required to prepare the group financial statements standards, give a true and fair view of the assets, liabilities, in accordance with United Kingdom adopted international financial position and profit of the Group accounting standards. The financial statements also comply » The Annual Report (which includes the Directors’ Report with International Financial Reporting Standards (IFRSs) as and the Strategic Report) includes a fair review of the issued by the IASB. The directors have chosen to prepare the development and performance of the business and the position parent company financial statements in accordance with of the Company and the Group taken as a whole, together United Kingdom Generally Accepted Accounting Practice (United with a description of the principal risks and uncertainties Kingdom Accounting Standards and applicable law), including that they face FRS 101 ‘Reduced Disclosure Framework’. Under company law the directors must not approve the financial statements The directors are responsible for preparing the Annual Report unless they are satisfied that they present fairly the financial in accordance with applicable laws and regulations. Having taken position, financial performance and cash flows for that period. advice from the Audit Committee, the Board considers the In preparing those financial statements, the directors are report and accounts, taken as a whole, are fair, balanced required to: and understandable and provide the information necessary for shareholders to assess the Group’s performance, business » Select suitable accounting policies and then apply model and strategy. them consistently » Make judgements and estimates that are reasonable By order of the Board » Present information, including accounting policies, | in a manner that provides relevant, reliable, comparable | Roy Twite Daniel Shook | | | --- | --- | --- | | and understandable information | Chief Executive Group Finance Director | | | » State whether applicable UK Accounting Standards have been | 2 March 2023 | 2 March 2023 | followed, subject to any material departures disclosed and explained in the financial statements » State for the parent company financial statements whether applicable International Accounting Standards in conformity with the requirements of the Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006 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 the 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 Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. IMI plc Annual Report & Accounts 2022150 IMI Precision Engineering – Shanghai, China ## 151Introduction Strategic Report Corporate Governance Financial Statements ## Financial Statements contents 152 Independent Auditor’s Report to 205 15. Inventories the Members of IMI plc 206 16. Trade and other receivables 162 Consolidated income statement 207 17. Financial assets and liabilities 163 Consolidated statement of 209 18. Financial risk management comprehensive income 213 19. Net debt 163 Consolidated statement of | | changes in equity | 217 20. Provisions | | --- | --- | --- | | 164 Consolidated balance sheet | | 218 21. Trade and other payables | | 165 Consolidated statement of | | 219 22. Share capital | cash flows 220 23. Acquisitions 222 24. Disposals 166 1. Basis of preparation 222 25. Contingent liabilities 168 2. Significant accounting policies 223 26. Related party transactions 171 3. Alternative Performance Measures 223 27. Subsequent events (‘APMs’) & adjusting items 174 4. Segmental information 224 Company balance sheet 179 5. Net operating costs 225 Company statement of changes 180 6. Share-based payments in equity for the year 183 7. Earnings per ordinary share 226 Company notes to the | 184 8. Net financing costs | | financial statements | | --- | --- | --- | | 185 9. Taxation | 229 Subsidiary undertakings | | | 189 10. Dividends | 233 Geographic distribution | | of employees 190 11. Intangible assets 234 Five year summary 194 12. Property, plant and equipment 236 Shareholder and general 195 13. Leases information 198 14. Retirement benefits IMI plc Annual Report & Accounts 2022152 ## Independent Auditor’s Report ## to the Members of IMI plc ## Report on the audit of the financial statements ## 1. Opinion In our opinion: • the financial statements of IMI 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 2022 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 income statement; • the consolidated statement of comprehensive income; • the consolidated and parent company statements of changes in equity; • the consolidated and parent company balance sheets; • the consolidated cash flow statement; • the related Notes 1 to 27 for the consolidated financial statements; and • the related Notes C1 to C10 for the parent company. 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 5 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. ## 153Introduction Strategic Report Corporate Governance Financial Statements ## 3. Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: • overstatement of revenue throughout inappropriate cut-off in the IMI Critical Engineering division; and • valuation of inventory. Whilst we identified the classification of adjusting items as an audit risk, we did not consider it a key audit matter in the current year. Our key audit matter in relation to inventory in the current year is in respect of the risk of valuation. In the prior year our inventory key audit matter focussed on the provision for excess and obsolete inventory in the IMI Critical Engineering and IMI Precision Engineering divisions. The broader scope in the current year in reflects the increase in the carrying value of inventory to £416.3 million (FY21: £335.2 million). Materiality The materiality that we used for the Group financial statements was £15.0 million (2021: £13.0 million) which was determined on the basis of 5% of forecast pre-tax profit adjusted for restructuring costs. Scoping Full scope audit work was performed on 3 (2021: 8) reporting components, and audits of specified balances and specified audit procedures were undertaken on a further 45 (2021: 39) reporting components. These in-scope components account for 70% (2021: 73%) of Group revenue. Certain components are loss making, including those which are solely cost centres. When considering the absolute value of each component's profit or loss for the period, the in-scope components accounted for 76% (2021: 77%) of total pre-tax absolute results. ## 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: • obtaining an understanding of the Group’s financing facilities including the nature of facilities, repayment terms, covenants and expected renewal of financing arrangements; • challenging the assumptions used in the Board approved forecasts by reference to historical performance and other supporting evidence such as market data; • recalculating the amount of headroom in the forecasts (in liquidity terms and against the relevant covenant limits); • assessing the appropriateness of the sensitivity analysis and reverse stress tests performed by management; and • assessing the appropriateness of the disclosures made by management. 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. 154 IMI plc Annual Report & Accounts 2022 ## Independent Auditor's Report to the Members of IMI plc ### 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. Overstatement of revenue through inappropriate cut-off in the IMI Critical Engineering division | **Key audit matter description** | The Group recognised revenue of £2,049 million (FY21: £1,866 million), principally through the provision of goods and services accounted for under IFRS 15, as described in the Audit Committee Report and Note 2c to the financial statements. We have performed a risk assessment of the Group's revenue streams to understand the revenue cycles across each business. We identified a key audit matter in relation to the risk, due to either fraud or error, of inappropriate cut-off of revenue in the IMI Critical Engineering division (see Note 4) owing to the fact that more revenue is generated in December as compared to other months in the year. | | --- | --- | | **How the scope of our audit responded to the key audit matter** | We have performed the following procedures to address this key audit matter: • obtained an understanding of the relevant controls over revenue, and controls that specifically address the cut-off risk; • assessed the level of credit notes and statutory adjustments raised post year-end (both in FY22 and FY23 to date) to look for evidence of significant reversals of revenue in the subsequent period; and • tested a sample of transactions around the year end to assess whether revenue was being recognised in the correct period. | | **Key observations** | We consider the year-end cut-off of revenue recognised in the IMI Critical Engineering division is appropriate. | #### 5.2. Inventory valuation | **Key audit matter description** | The Group's inventory balance as at 31 December 2022 was £416.3 million (FY21: £335.2 million). As described in the Financial Review on page 35 the Group has increased inventories to maintain service levels to customers in light of supply chain challenges. Inventory valuation is considered a significant accounting matter by the Audit Committee on page 116. As such, we have identified a key audit matter to focus on the inventory valuation risk, including: consideration of the provision for excess or obsolete (E&O) inventory; judgements relating to the manufacturing costs of inventory and overhead absorption; and physical verification of inventory. As disclosed in Note 15, the provision for E&O inventory as at 31 December 2022 was £52.5 million (FY21: £46.2 million). The Group's provision policy for E&O inventory is determined by considering expected usage levels of inventory, based on historical sales, as well as forward looking judgements such as forecast sales associated with new products. Where local management judgement is applied, Group level review and approval is required. Judgement is applied to the cost of inventories, in order to accurately reflect the manufacturing costs incurred in bringing them to their current condition and location. The manufacturing cost primarily relate to the assessment of direct labour costs incurred, manufacturing overheads to be absorbed and other relevant production costs. | | --- | --- | | **How the scope of our audit responded to the key audit matter** | We have performed the following procedures to address this key audit matter: • obtained an understanding of the relevant controls relating to the E&O provision; • challenged the assumptions underpinning the judgements applied in determining the E&O provision, and assessed whether the policy is being applied consistently across the Group; • challenged the key assumptions concerning overhead absorption by assessing the appropriateness of absorbed costs against the requirements of IAS 2; and • attended physical inventory counts at 24 locations to test, on a sample basis, the existence of inventory and assess for any indicators of impairment. | | **Key observations** | Based on our procedures performed, we are satisfied that the carrying value of inventory as at 31 December 2022 is appropriate. | Introduction Strategic Report Corporate Governance Financial Statements 155 ## 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** | £15.0 million (2021: £13.0 million) | £10.6 million (2021: £10.9 million) | | **Basis for determining materiality** | 5% of forecast pre-tax profit adjusted for restructuring costs (2021: same). | 2% of net assets (2021: same). | | **Rationale for the benchmark applied** | Profit before tax is a key metric for users of the financial statements and reflects the way business performance is reported and assessed by external users of the financial statements. The Group has incurred significant restructuring costs as an adjusting item therefore we believe it is appropriate to adjust for these costs in determining an appropriate level of materiality. | The parent company does not generate external sales therefore we have determined net assets to be the appropriate basis. | PBT adjusted for restructuring costs Group materiality PBT adjusted for restructuring costs £311m ![img-7.jpeg](img-7.jpeg) ### 6.2. Performance materiality We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. | | Group financial statements | Parent company financial statements | | --- | --- | --- | | **Performance materiality** | 70% (2021: 70%) of Group materiality | 70% (2021: 70%) of parent company materiality | | **Basis and rationale for determining performance materiality** | In determining performance materiality for the Group and parent company, we considered the following factors: • the control environment in place across the Group; • the level of oversight at both a Group and divisional level over the local entity financial reporting processes; • the low level of corrected and uncorrected misstatements identified in the prior year audit; and • the stability and experience of key management personnel in senior roles at Group and divisional levels. | | ### 6.3. Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £500,000 (2021: £260,000), 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. IMI plc Annual Report & Accounts 2022156 ### Independent Auditor’s Report ### to the Members of IMI plc ## 7. An overview of the scope of our audit 7.1. Identification and scoping of components The Group operates in over 50 locations across the world. 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 and component level. Based on that assessment, we focused our Group audit scope across all three divisions: IMI Critical Engineering, IMI Precision Engineering and IMI Hydronic Engineering. These three divisions comprise of many individual reporting components, which represent the lowest level at which management prepares financial information that is included in the Financial Statements. The parent company is located in the UK and is audited directly by the Group audit team. We have considered reporting components based on their contribution to Group revenue and profit, as well as qualitative considerations such as results of recent internal audit reviews undertaken by the Group Assurance function, and an understanding of any recent or projected restructuring or relocation activities in specific locations. Full scope audit work was completed on 3 (2022: 8) components and audits of specified balances or specified audit procedures were undertaken at a further 45 (2022: 39) components. Each reporting component in scope was subject to an audit materiality level between £3 million (2022: £2million) and £9 million (2022: £6 million). These in-scope components account for 70% (2021: 73%) of Group revenue. Certain components are loss making, including those which are solely cost centres. When considering the absolute value of each component's profit or loss for the period, the in-scope components accounted for 76% (2021: 77%) of total pre-tax absolute results. At a Group level, further substantive audit work was performed over the consolidation and analytical review procedures were performed over all components not in scope. Revenue Pre-tax absolute results 7% 3% 30% Review at Group level 24% Review at Group level Full audit scope Full audit scope 63% 73% Specified audit procedures Specified audit procedures 7.2. Our consideration of the control environment The Group uses a number of different IT systems across the reporting components and we worked with our IT specialists to obtain an understanding of the general IT controls for relevant systems. Following this, we focused our testing on the three core financial IT systems that underpin the three divisions and which the majority of entities either utilise or plan to migrate to in the future. Our approach was principally designed to inform our risk assessment and, as such, we obtained an understanding of relevant IT controls and tested the operating effectiveness of general IT controls across the three core systems. During the year management remediated control deficiencies identified in the prior year. In regard to the unauthorised access to the IT systems reported in the Strategic report on page 90, we evaluated the significance of the breach and the impact on our audit approach. Given the disaggregated nature of the Group, we continue to adopt a largely substantive audit approach. ## 157Introduction Strategic Report Corporate Governance Financial Statements 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. As noted on page 88 the Group has assessed the risk and opportunities relevant to climate change and whilst the Group has not identified a separate principal risk in relation to the potential risk of climate change, it is incorporated into several existing principal risks. We have obtained management’s climate-related risk assessment 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. Whilst the directors have acknowledged the risks posed by climate change, they have assessed that climate change does not represent a key source of estimation uncertainty in the financial statements as at 31 December 2022. We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and classes of transactions 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. 7.4. Working with other auditors The audit work on all components was performed by Deloitte member firms. The component work was performed under the direction and supervision of the Group audit team. The extent of our involvement which commenced from the planning phase included: • setting the scope of the work to be performed by the component auditors and assessment of their independence; • designing the audit procedures for all significant risks to be addressed by the component auditors and issuing Group audit instructions detailing the nature and form of the reporting required by the Group engagement team; • hosting a webinar for all component auditors at the planning stage of the audit to highlight key aspects of the audit instructions and expectations of the Group audit team; • providing direction on instructions specific to individual components during visits by senior members of the Group audit team to 10 sites during the year; • providing direction on enquiries made by the component auditors through online and telephone conversations; • attendance at audit planning and close calls at components selected through a risk-based approach; and • a risk-based approach to the review of specific component auditors’ engagement files by senior members of the Group engagement team. IMI plc Annual Report & Accounts 2022158 ### Independent Auditor’s Report ### to the Members of IMI plc ## 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. ## 159Introduction Strategic Report Corporate Governance Financial Statements ## 11. Extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 11.1. Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: • the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets; • results of our enquiries of management, Group Assurance, 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; and – 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: overstatement of revenue through inappropriate cut-off in the IMI Critical Engineering division and classification of adjusting items. 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, the Listing Rules in the UK, pensions legislation and tax legislation in all relevant jurisdictions where the Group operates. 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 overstatement of revenue through inappropriate cut-off in the IMI Critical Engineering division 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 the key audit matter. In addition to the above, our procedures to respond to the 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; • in addressing the risk of incorrect classification of adjusting items, reviewing the Group’s policy for adjusting items, assessing the nature and quantum of the items identified, and evaluating the appropriateness of the classification against the Group’s policy; 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 component audit teams and internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. 160 IMI plc Annual Report & Accounts 2022 Independent Auditor's Report to the Members of IMI plc # 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 95; - 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 94; - the directors' statement on fair, balanced and understandable set out on page 149; - the Board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 88; - the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on page 86; and - the section describing the work of the Audit Committee set out on page 114. # 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. ## 161Introduction Strategic Report Corporate Governance Financial Statements ## 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 Board of Directors at the Annual General Meeting on 6 May 2021 to audit the financial statements for the year ended 31 December 2021 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is two years, covering the year ended 31 December 2022. 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). This auditor’s report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. Dean Cook MA FCA Senior statutory auditor For and on behalf of Deloitte LLP, Statutory Auditor London, United Kingdom 3 March 2023 162 IMI plc Annual Report & Accounts 2022 # Consolidated income statement For the year ended 31 December 2022 | | 2022 | | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Notes | Adjusted £m | Adjusting items (Note 3) £m | Statutory £m | Adjusted £m | Adjusting items (Note 3) £m | Statutory £m | | **Revenue** | 4 | **2,049** | | **2,049** | 1,866 | | 1,866 | | Cost of sales | | **(1,110.9)** | **(1.2)** | **(1,112.1)** | (1,004.3) | (0.3) | (1,004.6) | | **Gross profit** | | **938.1** | **(1.2)** | **936.9** | 861.7 | (0.3) | 861.4 | | Net operating costs | 5 | **(574.3)** | **(64.4)** | **(638.7)** | (543.6) | (67.3) | (610.9) | | **Operating profit** | | **363.8** | **(65.6)** | **298.2** | 318.1 | (67.6) | 250.5 | | Financial income | 8 | **4.6** | | **4.6** | 2.4 | | 2.4 | | Financial expense | 8 | **(23.8)** | | **(23.8)** | (14.5) | | (14.5) | | Gains on instruments measured at fair value through profit or loss (Note 1) | | | **4.9** | **4.9** | | 5.2 | 5.2 | | Net financial income relating to defined benefit pension schemes | 14 | **1.5** | | **1.5** | 1.0 | | 1.0 | | Net financial (expense)/income | | **(17.7)** | **4.9** | **(12.8)** | (11.1) | 5.2 | (5.9) | | **Profit before tax** | | **346.1** | **(60.7)** | **285.4** | 307.0 | (62.4) | 244.6 | | Taxation | 9 | **(73.7)** | **14.6** | **(59.1)** | (61.4) | 13.1 | (48.3) | | **Profit after tax** | | **272.4** | **(46.1)** | **226.3** | 245.6 | (49.3) | 196.3 | | **Earnings per share** | 7 | | | | | | | | Basic – from profit for the year | | | | **87.6p** | | | 73.5p | | Diluted – from profit for the year | | | | **87.2p** | | | 73.2p | All activities relate to continuing operations and are all attributable to the owners of the Company. Introduction Strategic Report Corporate Governance Financial Statements 163 # Consolidated statement of comprehensive income For the year ended 31 December 2022 | | Notes | 2022 | | 2021 | | | --- | --- | --- | --- | --- | --- | | | | £m | £m | £m | £m | | **Profit for the year** | | | **226.3** | | 196.3 | | **Items that will not subsequently be reclassified to profit and loss** | | | | | | | Re-measurement (loss)/gain on defined benefit plans | 14 | (82.7) | | 70.9 | | | Related taxation effect | 9 | 20.4 | | (18.4) | | | Effect of taxation rate change on previously recognised items | 9 | - | | 15.8 | | | | | | **(62.3)** | | 68.3 | | **Items that may be reclassified to profit and loss** | | | | | | | (Loss)/gain arising on hedging instruments designated in hedges of the net assets in foreign operation | 17 | (7.5) | | 20.0 | | | Gain/(loss) on exchange differences on translation of foreign operations net of funding revaluations | | 40.9 | | (33.8) | | | Gain on exchange differences reclassified to income statement on disposal of operations | | 0.6 | | 0.1 | | | Related tax (charge)/credit on items that may subsequently be reclassified to profit and loss | 9 | (0.3) | | 1.2 | | | | | | **33.7** | | (12.5) | | **Other comprehensive (loss)/income for the year, net of taxation** | | | **(28.6)** | | 55.8 | | **Total comprehensive income for the year, net of taxation** | | | **197.7** | | 252.1 | | Attributable to: | | | | | | | Equity holders of the parent | | | **197.7** | | 252.1 | # Consolidated statement of changes in equity For the year ended 31 December 2022 | | Notes | Share capital | Share premium account | Capital redemption reserve | Translation reserve | Retained earnings | Total equity | | --- | --- | --- | --- | --- | --- | --- | --- | | | | £m | £m | £m | £m | £m | £m | | As at 1 January 2021 | | 81.8 | 14.3 | 174.4 | 22.6 | 506.4 | 799.5 | | Profit for the year | | | | | | 196.3 | 196.3 | | Other comprehensive (expense)/income excluding related taxation effect | | | | | (13.7) | 70.9 | 57.2 | | Related taxation effect | | | | | 1.2 | (2.6) | (1.4) | | Total comprehensive (expense)/income | | | | | (12.5) | 264.6 | 252.1 | | Issue of share capital | 22 | - | 0.9 | | | | 0.9 | | Dividends paid | 10 | | | | | (61.8) | (61.8) | | Share-based payments (net of tax) | 6 | | | | | 15.0 | 15.0 | | Cancellation of Treasury shares | 22 | (3.2) | | 3.2 | | | - | | Shares acquired for: | | | | | | | | | employee share scheme trust | | | | | | (26.6) | (26.6) | | share buyback programme | | | | | | (200.0) | (200.0) | | As at 31 December 2021 | | 78.6 | 15.2 | 177.6 | 10.1 | 497.6 | 779.1 | | **Changes in equity in 2022** | | | | | | | | | Profit for the year | | | | | | 226.3 | 226.3 | | Other comprehensive income/(expense) excluding related taxation effect | | | | | 34.0 | (82.7) | (48.7) | | Related taxation effect | | | | | (0.3) | 20.4 | 20.1 | | **Total comprehensive income** | | | | | **33.7** | **164.0** | **197.7** | | Issue of share capital | 22 | - | 1.2 | | | | 1.2 | | Dividends paid | 10 | | | | | (62.2) | (62.2) | | Share-based payments (net of tax) | 6 | | | | | 9.8 | 9.8 | | Shares acquired for: | | | | | | | | | employee share scheme trust | | | | | | (20.0) | (20.0) | | As at 31 December 2022 | | 78.6 | 16.4 | 177.6 | 43.8 | 589.2 | 905.6 | 164 IMI plc Annual Report & Accounts 2022 # Consolidated balance sheet At 31 December 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Assets** | | | | | Goodwill | 11 | **733.7** | 533.6 | | Other intangible assets | 11 | **270.5** | 234.5 | | Property, plant and equipment | 12 | **299.2** | 267.7 | | Right of use assets | 13 | **107.0** | 91.5 | | Employee benefit assets | 14 | **28.5** | 129.0 | | Deferred tax assets | 9 | **24.5** | 39.7 | | Other receivables | | **2.6** | 1.9 | | **Total non-current assets** | | **1,466.0** | 1,297.9 | | Inventories | 15 | **416.3** | 335.2 | | Trade and other receivables | 16 | **484.9** | 414.0 | | Derivative financial assets | 17 | **15.7** | 10.0 | | Current tax | | **2.0** | 14.2 | | Investments | 17 | **2.0** | 2.9 | | Cash and cash equivalents | 19 | **133.0** | 94.6 | | **Total current assets** | | **1,053.9** | 870.9 | | **Total assets** | | **2,519.9** | 2,168.8 | | **Liabilities** | | | | | Trade and other payables | 21 | **(437.7)** | (400.4) | | Bank overdraft | 19 | **(93.8)** | (65.5) | | Interest-bearing loans and borrowings | 19 | **(150.1)** | (127.7) | | Lease liabilities | 13 | **(25.8)** | (23.9) | | Provisions | 20 | **(27.2)** | (38.1) | | Current tax | | **(70.1)** | (66.0) | | Derivative financial liabilities | 17 | **(13.8)** | (6.3) | | **Total current liabilities** | | **(818.5)** | (727.9) | | Interest-bearing loans and borrowings | 19 | **(595.4)** | (430.3) | | Lease liabilities | 13 | **(79.9)** | (70.0) | | Employee benefit obligations | 14 | **(47.4)** | (66.5) | | Provisions | 20 | **(15.3)** | (18.3) | | Deferred tax liabilities | 9 | **(47.9)** | (70.2) | | Other payables | 21 | **(9.9)** | (6.5) | | **Total non-current liabilities** | | **(795.8)** | (661.8) | | **Total liabilities** | | **(1,614.3)** | (1,389.7) | | **Net assets** | | **905.6** | 779.1 | | Share capital | 22 | **78.6** | 78.6 | | Share premium | | **16.4** | 15.2 | | Other reserves | | **221.4** | 187.7 | | Retained earnings | | **589.2** | 497.6 | | **Total equity** | | **905.6** | 779.1 | Approved by the Board of Directors on 2 March 2023 and signed on its behalf by: **Lord Smith of Kelvin** Chair Introduction Strategic Report Corporate Governance Financial Statements 165 # Consolidated statement of cash flows For the year ended 31 December 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Cash flows from operating activities** | | | | | Operating profit for the year | | **298.2** | 250.5 | | Adjustments for: | | | | | Depreciation and amortisation | 11, 12, 13 | **122.2** | 99.5 | | (Reversal of impairment)/impairment of property, plant and equipment and intangible assets | 11, 12, 13 | **(1.6)** | 5.5 | | Loss on disposal of subsidiaries | 24 | **4.8** | 3.8 | | Loss/(profit) on sale of property, plant and equipment | 12 | **1.7** | (1.3) | | Equity-settled share-based payment expense | 6 | **11.7** | 12.0 | | Increase in inventories | 15 | **(47.6)** | (37.3) | | Increase in trade and other receivables | 16 | **(38.8)** | (44.0) | | Increase in trade and other payables | 21 | **1.3** | 30.7 | | Decrease in provisions (Note 1) | 20 | **(16.0)** | (1.2) | | Increase in employee benefits (Note 1) | 14 | **2.2** | 3.0 | | Settlement of transactional derivatives | 17 | **(2.3)** | 5.9 | | **Cash generated from operations** | | **335.8** | 327.1 | | Income taxes paid | 9 | **(48.6)** | (50.9) | | **Cash generated from operations after tax** | | **287.2** | 276.2 | | Additional pension scheme funding | 14 | **(3.5)** | (7.0) | | **Net cash from operating activities** | | **283.7** | 269.2 | | **Cash flows from investing activities** | | | | | Interest received | 8 | **4.6** | 2.4 | | Proceeds from sale of property, plant and equipment | 12 | **2.9** | 4.6 | | Settlement of effective net investment hedge derivatives | 17 | **(6.3)** | 20.5 | | Acquisitions of subsidiaries net of cash | 23 | **(201.2)** | (202.1) | | Acquisition of property, plant and equipment and non-acquired intangibles | 11, 12 | **(71.3)** | (57.5) | | Proceeds from disposal of subsidiaries net of cash | 24 | **(2.1)** | 0.1 | | **Net cash from investing activities** | | **(273.4)** | (232.0) | | **Cash flows from financing activities** | | | | | Interest paid | 8 | **(23.8)** | (14.5) | | Proceeds from shares issued from employee share scheme trust (Note 1) | 22 | - | 3.4 | | Shares acquired for employee share scheme trust (Note 1) | 22 | **(20.0)** | (30.0) | | Share buyback programme including acquisition expenses | 22 | - | (200.0) | | Proceeds from the issue of share capital for employee share schemes | 22 | **1.2** | 1.0 | | Drawdown of borrowings | 19 | **259.1** | 208.0 | | Repayment of borrowings | 19 | **(121.3)** | - | | Principal elements of lease payments | 13 | **(32.3)** | (30.0) | | Dividends paid to equity shareholders | 10 | **(62.2)** | (61.8) | | **Net cash from financing activities** | | **0.7** | (123.9) | | Net increase/(decrease) in cash and cash equivalents | 19 | **11.0** | (86.7) | | Cash and cash equivalents at the start of the year | 19 | **29.1** | 134.4 | | Effect of exchange rate fluctuations | | **(0.9)** | (18.6) | | **Cash and cash equivalents at the end of the year** | | **39.2** | 29.1 | | **Reconciliation of cash and cash equivalents** | | | | | Cash and cash equivalents | | **133.0** | 94.6 | | Bank overdraft | | **(93.8)** | (65.5) | | **Cash and cash equivalents at the end of the period** | | **39.2** | 29.1 | Notes to the cash flow appear in Note 19. 166 IMI plc Annual Report & Accounts 2022 # Notes to the consolidated financial statements ## 1. Basis of preparation ### Introduction IMI plc (the 'Company') is a company incorporated and domiciled in the United Kingdom. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the 'Group'). The Company financial statements present information about the Company as a separate entity and not about the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the UK. The Company financial statements have been prepared in accordance with International Accounting Standards (IAS) in conformity with the requirements of the Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006 and these are presented on pages 224 and 225. The financial statements were approved by the Board of Directors on 2 March 2023. ### Basis of accounting The financial statements are presented in Pounds Sterling (which is the Company's functional currency), rounded to the nearest hundred thousand, except revenues, which are rounded to the nearest whole million. They are prepared on the historical cost basis except for derivative financial instruments; financial assets classified as fair value through profit and loss or other comprehensive income; assets and liabilities acquired through business combinations, which are stated at fair value and retirement benefits. Non-current assets and liabilities held for sale are stated at the lower of their carrying amounts and their fair values less costs to sell. The accounting policies described in the notes to the financial statements have been applied consistently throughout the Group for the purposes of these consolidated financial statements. #### (i) New or amended UK Endorsed Accounting Standards adopted by the Group during 2022 Noted below are the amended and new International Financial Reporting Standards which became effective for the Group as of 1 January 2022, none of which have a material impact on the financial statements: - Amendments to IAS 16: Property, Plant and Equipment – proceeds before intended use - Annual Improvements to IFRS Standards 2018-2020 (May 2020) - Amendments to IFRS 3 (May 2020): Reference to the Conceptual Framework - Amendments to IAS 37 (May 2020): Onerous Contracts – costs of fulfilling a contract #### (ii) New accounting standards in issue but not yet effective New standards and interpretations that are in issue but not yet effective are listed below: - Amendments to IFRS 16: Covid-19 related rent concessions beyond 30 June 2021 - Amendments to IFRS 17: Insurance contracts - Amendments to IAS 1: Classification of liabilities as current or non-current - Amendments to IAS 1: Classification of liabilities as current or non-current – deferral of effective date - Amendments to IFRS 4: Extension of the temporary exemption from applying IFRS 9 - Amendments to IAS 1 and IFRS practice statement 2: Disclosure of accounting policies - Amendments to IAS 12: Deferred tax related to assets and liabilities arising from a single transaction - Amendments to IAS 8: Definition of accounting estimates - Amendments to IFRS 17: Initial application of IFRS 17 and IFRS 9 – Comparative Information - Amendments to IFRS 16: Lease liability in a sale and leaseback The adoption of the above standards and interpretations is not expected to lead to any changes to the Group's accounting policies or have any other material impact on the financial position or performance of the Group. Introduction Strategic Report Corporate Governance Financial Statements 167 ## Going concern Accounting standards require that directors satisfy themselves that it is reasonable for them to conclude whether it is appropriate to prepare financial statements on a going concern basis. The Group's business activities, together with the factors likely to affect its business development, performance and position are set out in the Strategic Report. Principal risks are detailed on pages 88 to 93. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition, Note 18 includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. Note 14 to the financial statements addresses the management of the funding risks of the Group's employee benefit obligations. After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and for a period of at least twelve months following the approval of the Annual Report & Accounts. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The directors have considered the current macroeconomic conditions. The Group is well diversified and maintains a balanced portfolio operating across a range of markets, sectors and geographies with no single dependency. Performance in each of IMI's three divisions has been robust during the year. Across the Group, supply chain disruptions have been well managed and alternative suppliers or contingency stocks have addressed the few instances of part shortages. During this period of uncertainty, the Group continues to maintain a robust financial position. At 31 December 2022, the group had cash and cash equivalents of £39.2m and undrawn committed facilities of £200m in the form of Revolving Credit Facilities (RCF), of which £110m is due for renewal in 2023 (£50m already renewed in February 2023), £84m in 2024 and £6m in 2025. Forecasts indicate that the Group can operate within the level of facilities in place without the need to obtain any new facilities in the twelve-month period following the approval of the Annual Report & Accounts. The directors have assessed the viability of the Group (page 94) and reviewed detailed cash flow forecasts for a period of at least twelve months following the date of approval of the Annual Report & Accounts. After applying a reverse stress test on the Group's banking covenants and making comparisons to the detailed forecasts, the directors have a reasonable expectation that the financial headroom will not be exhausted during this period. Covenant compliance reviews are undertaken to ensure that the Group remains fully within the covenant limits. Funding covenants currently require EBITDA to be no less than 4.0 times interest and net debt to be no more than 3.0 times EBITDA. Those covenant ratios, at 31 December 2022, were 23.8 times and 1.8 times, respectively. A reverse stress test shows that for there to be a breach of covenants during the twelve-month period following the approval of the Annual Report & Accounts, forecast revenue would need to fall by 23% and forecast EBITDA by 39% after taking into account the mitigating actions that would be undertaken in these circumstances. The mitigating actions include, but are not limited to, reducing working capital, restricting capital expenditure, reducing overhead spend and employee costs, cutting or suspending dividend payments to shareholders. ## Re-presentations The following re-presentations have been included in the following financial statements in the current year and as a result, 2021 comparatives have been re-presented accordingly: ### Consolidated income statement 'Net financial income/(expense) relating to financial instruments' which was previously recorded within 'Financial income' or 'Financial expense' is now disclosed as 'Gains/(losses) on instruments measured at fair value through profit or loss'. Prior year comparatives have been re-presented. ### Consolidated statement of cash flows The 'Increase/(decrease) in provisions and employee benefits' within 'Cash flows from operating activities' are now disclosed separately as 'Increase/(decrease) in provisions' and 'Increase/(decrease) in employee benefits'. Prior year comparatives have been re-presented. The 'Proceeds/(expenditure) for shares acquired for employee share scheme trust' within 'Cash flows from financing activities' is now split into 'Proceeds from shares issued from employee share scheme trust' and 'Shares acquired for employee share scheme trust'. Prior year comparatives have been re-presented. IMI plc Annual Report & Accounts 2022168 Where appropriate, the significant accounting policies are presented in the note to which it applies to aid the reader’s understanding of their application. Set out below are the significant accounting policies which do not have a specific note. A. Subsidiaries The Group financial statements consolidate the financial statements of IMI plc and the entities it controls (its subsidiaries) for the year to 31 December 2022. The Group has no significant interests which are accounted for as associates or joint ventures. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights, currently exercisable or convertible potential voting rights or by way of contractual agreement. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intragroup balances and transactions, including unrealised profits arising from them, are eliminated in full. A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • derecognises the assets (including any goodwill relating to the subsidiary) and liabilities of the subsidiary; • derecognises the carrying amount of any non-controlling interest; • derecognises the cumulative translation differences recorded in equity; • recognises the fair value of the consideration received; • recognises the fair value of any investment retained; • recognises any surplus or deficit in profit or loss; and • reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. Taxation on the above accounting entries would also be recognised, where applicable. B. Use of critical judgements and key sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. i. Critical judgements The critical judgements are the selection of the Alternative Performance Measures and lease term determination disclosed in Notes 3 and 13 respectively. ii. Key sources of estimation uncertainty The Group bases its assumptions and estimates on information available when the consolidated financial statements are prepared. Market changes or circumstances arising beyond the control of the Group are reflected in the assumptions and estimates when they occur. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. 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 disclosed in Note 14 ‘Retirement benefits’. iii. Changes in critical judgements and key sources of estimation uncertainty Management has reassessed the critical judgements and key sources of estimation uncertainty presented in the 2021 Annual Report & Accounts and concluded that, in the current year, no changes are required in the consideration of what constitutes key judgements and estimates. C. Revenue recognition Revenue is recognised when obligations under the terms of a contract with our customer are satisfied. This generally occurs when the goods are transferred, or the services are provided, to our customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes collected from customers are excluded from revenue. The nature of the equipment, valve and other contracts into which the Group enters means that: • the contracts usually contain distinct performance obligations, each of which transfers control of the goods to the customer. Where such distinct performance obligations are present, revenue is recognised on each element in accordance with the policy on the sale of goods; and • the service element of the contract is usually insignificant in relation to the total contract value and is often provided on a short-term or one-off basis. Where this is the case, revenue is recognised when the service is complete. As a result of the above, the significant majority of the Group’s revenue is recognised on a sale of goods basis. Each of the divisional revenue streams set out in Note 4 can consist of the sale of goods, the provision of services or a combination of the two. The specific methods used to recognise the different forms of revenue earned by the Group are set out below: i. Sale of goods Revenue from the sale of goods is recognised in the income statement net of returns, trade discounts and volume rebates when control has been transferred to our customer. No revenue is recognised where recovery of the consideration is not probable or there are significant uncertainties regarding associated costs, or the possible return of goods. In IMI Hydronic, the amount of consideration received and the revenue recognised varies in line with discounts and promotions offered to our customers and their customers. The level of estimation uncertainty associated with variable consideration is minimal, as discounts and rebates are accounted for at the point of sale and adjusted as required at each financial year end. The timing of the transfer of control to our customer varies depending on the nature of the products sold and the individual terms of the contract of sale. Sales made under internationally accepted trade terms, Incoterms 2020, are recognised as revenue when the Group has completed the primary duties required to transfer control as defined by the International Chamber of Commerce Official Rules for the Interpretation of Trade Terms. Sales made outside Incoterms 2020 are generally recognised on delivery to the customer. In limited instances, a customer may request that the Group retains physical possession of an asset for a period after control has been transferred to the customer. In these circumstances, the Group provides this storage as a service to the customer and therefore revenue is recognised prior to delivery of the asset. 2. Significant accounting policies ## 169Introduction Strategic Report Corporate Governance Financial Statements ii. Rendering of services Servicing relates to repairs and maintenance activity that is completed at our customer sites within our installed base. Revenue from the rendering of services is usually insignificant in relation to the total contract value and is generally provided on a short-term or one-off basis. Accordingly, revenue is usually recognised when the service is complete. Where this is not the case, revenue from services rendered is recognised in proportion to the stage of completion of the service at the balance sheet date. The stage of completion is assessed by reference to the contractual performance obligations with each separate customer and the costs incurred on the contract to date in comparison to the total forecast costs of the contract. Revenue recognition commences only when the outcome of the contract can be reliably measured. Installation fees are similarly recognised by reference to the stage of completion on the installation unless they are incidental to the sale of the goods, in which case they are recognised when the goods are sold. iii. Combined services and goods When a transaction combines a supply of goods with the provision of a significant service, distinct performance obligations are identified and recognised in line with the applicable policy. Revenue from a service that is incidental to the supply of goods is recognised at the same time as the revenue from the supply of goods. D. Foreign currencies i. Foreign currency transactions Monetary assets and liabilities denominated in foreign currencies have been translated into sterling at the rates of exchange ruling at the balance sheet date. Foreign exchange differences arising on translating transactions at the exchange rate ruling on the transaction date are reflected in the income statement. Non- monetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rates at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into sterling at foreign exchange rates ruling at the balance sheet date. ii. Foreign operations The income statements of overseas subsidiary undertakings are translated at the appropriate average rate of exchange for the year and the adjustment to year end rates is taken directly to reserves. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated at foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on retranslation are recognised directly as a separate component of equity. Since 1 January 2004, the Group’s date of transition to IFRS, such differences have been recognised in the translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss. E. Financial instruments and fair value hedging Financial instruments are initially recorded at fair value plus directly attributable transaction costs unless the instrument is a derivative not designated as a hedge (see below). Subsequent measurement depends on the designation of the instrument, which follows the categories in IFRS 9: • short-term borrowings and overdrafts are classified as financial liabilities at amortised cost; • derivatives, comprising interest rate swaps, foreign exchange contracts and options, metals futures contracts and any embedded derivatives, are classified as ‘fair value through profit or loss’ under IFRS 9, unless designated as hedges. Derivatives not designated as hedges are initially recognised at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, changes in fair value of such derivatives and gains or losses on their settlement are recognised in net financial income or expense; • long-term loans and other interest bearing borrowings are generally held at amortised cost using the effective interest rate method. Where the long-term loan is hedged, generally by an interest rate swap, and the hedge is regarded as effective, the carrying value of the long-term loan is adjusted for changes in fair value of the hedge; • trade receivables are stated at cost as reduced by appropriate impairment allowances for expected irrecoverable amounts; • trade payables are stated at cost; • financial assets and liabilities are recognised on the balance sheet only when the Group becomes a party to the contractual provisions of the instrument; and • fair value through other comprehensive income (FVTOCI) financial instruments are carried at fair value with gains and losses being recognised in equity, and represent investments. i. Derecognition of financial instruments The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all of the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in an equity instrument which the Group has elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. IMI plc Annual Report & Accounts 2022170 2. Significant accounting policies (continued) When the Group exchanges with the existing lender one debt instrument into another one, with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. If the modification is not substantial, the difference between: (1) the carrying amount of the liability before the modification; and (2) the present value of the cash flows after modification is recognised in profit or loss as the modification gain or loss within other gains and losses. ii. Derecognition of hedging arrangements The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the cash flow hedge reserve is reclassified immediately to profit or loss. F. Other hedging i. Hedge of monetary assets and liabilities, financial commitments or forecast transactions Where a derivative financial instrument is used as an economic hedge of the foreign exchange or metals commodity price exposure of a recognised monetary asset or liability, financial commitment or forecast transaction, but does not meet the criteria to qualify for hedge accounting under IFRS 9, no hedge accounting is applied and any gain or loss resulting from changes in fair value of the hedging instrument is recognised in net financial income or expense. Where such a derivative is a formally designated hedge of a forecast transaction for accounting purposes, movements in the value of the derivative are recognised directly in other comprehensive income to the extent the hedge is effective. The Group assesses the effectiveness of the hedge based on the expected fair value of the amount to be received and the movement in the fair value of the derivative designated as the hedge. For segmental reporting purposes, changes in the fair value of economic hedges that are not designated hedges, which relate to current year trading, together with the gains and losses on their settlement, are allocated to the operating profit of the relevant business segment. ii. Hedge of net investment in foreign operations Where a foreign currency liability or derivative financial instrument is a formally designated hedge of a net investment in a foreign operation, foreign exchange differences arising on translation of the foreign currency liability or changes in the fair value of the financial instrument are recognised directly in equity via other comprehensive income, to the extent the hedge is effective. The Group assesses the effectiveness of its net investment hedges based on fair value changes of its net assets, including relevant goodwill designated as foreign currency assets, and the fair value changes of both the debt designated as a hedge and the relevant financial instrument. G. Investments not held for trading Investments that are designated as being not held for trading are initially recognised at fair value. Subsequently, the fair value of the investment is reassessed at each balance sheet date with movements in the fair value recognised in other comprehensive income. In contrast, on derecognition of an investment in an equity instrument which the Group has elected on initial recognition to measure at fair value through other comprehensive income, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings. H. Discontinued operations When the Group has assets and liabilities that have been sold in the year or are likely to be sold rather than being held for continuing use, these assets and liabilities are included in current assets and liabilities and denoted ‘held for sale’ rather than in their usual categories. They are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on the initial classification of assets held for sale are included in the income statement, even for assets measured at fair value, as are impairment losses on subsequent remeasurement and any reversal thereof. Once classified as held for sale, assets are no longer depreciated or amortised. If they represent a significant enough proportion of the Group, they are also treated as discontinued operations. A discontinued operation is a component of the Group’s business that represents a separate major line of business that has been disposed of, is held for sale or is a subsidiary acquired exclusively with a view to re-sale. This means that their trading performance, i.e. their revenues, costs and other items of income and expense, are no longer reported within the headline figures in the income statement and are instead reported in a separate line, net of tax, called ‘discontinued operations’. These amounts no longer form part of continuing earnings per share. Comparative figures are re-presented to be shown on the same basis. This enables the income statement for the current and prior year to be presented on a consistent basis and to convey a more forward-looking version of the results for the year. ## 171Introduction Strategic Report Corporate Governance Financial Statements ## 3. Alternative Performance Measures (‘APMs’) ## & adjusting items Accounting policy The Group’s policy is to exclude items from underlying performance that are considered to be significant in nature (i.e. outside of the normal course of business) and/or quantum and where treatment as an adjusting item provides stakeholders with additional useful information to assess period-on-period trading performance of the Group. The Group believes APMs, which are not considered to be a substitute for, or superior to, IFRS measures, provide stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board and Executive Committee. Some of these measures are also used for the purpose of setting remuneration targets and for banking covenants. The adjusting items in the income statement and the reasons these are considered to be adjusting items are detailed below: • Costs associated with major restructuring projects – these costs are reported as adjusting items on the basis that they are significant in quantum, relate to specific, approved strategic initiatives following reviews of our organisation structure during the period and to provide stakeholders with comparability of underlying results from one period to the next. Restructuring costs which are not considered to be major or one-off are included within underlying results in the consolidated income statement. • Impairment losses – impairment losses treated as adjusting items include those which are large in quantum or one-off in nature and as a result are not considered to be usual operating costs of the Group. In addition to this, impairment losses associated with major restructuring projects are considered to be part of the overall project and therefore follow the same treatment as restructuring projects, as described above. Impairment losses incurred, which are not significant or do not form part of a major restructuring project are recorded as adjusted items. All impairment losses recorded as adjusting items in the current and prior period relate to restructuring projects treated as adjusting items. • Gains and losses on property disposals – significant quantum gains and losses on property disposals are not considered to relate to the underlying trading of the business and are therefore treated as adjusting items. All gains and losses on property disposals associated with major restructuring projects are considered to b e part of the overall project and therefore follow the same treatment as restructuring projects, as described above. • Acquired intangible amortisation – the amortisation charge is not considered to be related to the underlying performance of the Group and can fluctuate materially period-on-period as new businesses are acquired. All acquired intangible amortisation is treated as an adjusting item due to its nature. The trading results of acquired businesses are included in the adjusted results. • Gains and losses on disposal of subsidiaries – due to their one-off nature and large quantum, gains and losses on disposals are treated as adjusting items. If these gains or losses are not considered to be one-off or material, these amounts would be included within underlying results. This also includes the impact from the exit from Russia – the loss on disposal of the Group’s Russian subsidiary and impairment of assets related to Russian contracts. • The reversal of gains and losses on economic hedges – gains and losses on economic hedges are treated as an adjusting item on a qualitative basis. The adjusting item reverses the treatment taken locally by the Group’s businesses, where the impact of foreign currency forwards and commodity hedges are booked at the hedged rate in the adjusted results of the local businesses. In compliance with IFRS 9 ‘Financial Instruments’, these do not meet the requirement of an effective hedge and are therefore adjusted to be booked at the spot rate. The recognition of the gain and losses on the hedged items is recorded as a financing item, including any unrealised gains and losses. • Other acquisition costs – for an acquired business, the acquisition costs which are primarily advisor and legal fees and the one-off write-off of the inventory uplift to fair value do not reflect trading performance and so are treated as adjusting items to ensure consistency between periods. • Special pension events – due to their one-off nature and typically large quantum, special pension events are treated as adjusting items. Special pension events which are not significant are recorded as adjusting items. There are no special pension events recorded as adjusting items in the current or prior period. • Tax effect on adjusting items above – any tax effect of the above items is treated as an adjusting item. • Other tax items – an assessment is made, on a case-by-case basis, for one-off tax items which significantly impact the Group’s results to determine whether the item should be treated as an adjusting item. The policies outlined above are consistent with the policies adopted in the previous period. Movements in revenue and adjusted operating profit are given on an organic basis (see definition below) so that performance is not distorted by acquisitions, disposals and movements in exchange rates. The directors’ commentary discusses these APMs to remove the effects of items of both income and expense that are considered different in nature from the underlying trading and normal quantum and where treatment as an adjusting item provide stakeholders with additional information to assess period-on-period trading. Critical judgement Management have applied judgement in the selection of the APMs used in the Annual Report & Accounts. The APMs presented are used in discussions with the investment analyst community and by the Board and management to monitor the trading performance of the Group. IMI plc Annual Report & Accounts 2022172 The table below details the definition of each APM and a reference to where it can be reconciled to the equivalent statutory measure. APM Definition Reconciliation to statutory measure Adjusted profit before tax Adjusted net interest cost Adjusted earnings per share Adjusted effective tax rate Adjusted EBITDA Adjusted profit before tax is statutory profit before tax before adjusting items as shown on the income statement. Adjusted net interest cost is statutory net interest costs before adjusting items as shown on the income statement. Adjusted earnings per share is defined within the table in Note 7. The adjusted effective tax rate is the tax impact on adjusted profit before tax divided by adjusted profit before tax. This measure reflects adjusted profit after tax before interest, tax, depreciation, amortisation and impairment. See income statement on page 162. See income statement on page 162. See Note 7. See Note 9. See Note 19. Adjusted operating profit Adjusted operating margin Adjusted net financing costs Organic revenue growth Organic adjusted operating profit Adjusted operating profit is statutory operating profit before adjusting items as shown on the income statement. Adjusted operating margin is adjusted operating profit divided by revenue. Adjusted net financing costs is interest received and interest paid including the impact on interest costs on leases before gains on instruments measured at fair value through profit or loss (other economic hedges) and net financial income relating to defined benefit pension schemes. These two measures remove the impact of adjusting items, acquisitions, disposals and movements in exchange rates and are reconciled in Note 4. See income statement on page 162 and segmental reporting in Note 4. Adjusted operating cash flow This measure reflects cash generated from operations as shown in the statement of cash flows less cash spent acquiring property, plant and equipment, non-acquired intangible assets and investments; plus cash received from the sale of property, plant and equipment, the sale of investments less the repayment of principal amounts of lease payments excluding the cash impact of adjusting items. See Note 19. Net debt Net debt: adjusted EBITDA Free cash flow before corporate activity Net debt is defined as the cash and cash equivalents, overdrafts, interest-bearing loans and borrowings and lease liabilities. Net debt divided by adjusted EBITDA as defined above. This measure is a sub-total in the reconciliation of adjusted EBITDA to net debt and is presented to assist the reader to understand the nature of the current year’s cash flows excluding dividends, share buybacks and the purchase and issuance of own shares. See Note 19. See Note 19. 3. Alternative Performance Measures ('APMs') & adjusting items (continued) Introduction Strategic Report Corporate Governance Financial Statements 173 Outlined below are the adjusting items impacting the current and prior year results. | | Key | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Recognised in arriving at operating profit** | | | | | Reversal of net economic hedge contract losses/(gains) | a) | **3.0** | (6.0) | | Restructuring costs and associated impairment losses* | b) | **(25.9)** | (39.7) | | Loss on disposal of subsidiary | c) | - | (3.8) | | Acquired intangible amortisation and other acquisition costs | d) | **(33.7)** | (18.1) | | Exit from Russia | e) | **(9.0)** | - | | | | **(65.6)** | (67.6) | | **Recognised in net financial expense** | | | | | Gains on instruments measured at fair value through profit or loss | a) | **4.9** | 5.2 | | **Recognised in taxation** | | | | | Tax impact of adjusting items above | f) | **14.6** | 15.1 | | Change in UK tax rate | f) | - | (18.6) | | Resolution of tax authority audit | f) | - | 16.6 | | | | **14.6** | 13.1 | **(a) Reversal of net economic hedge contract losses/gains** – for segmental reporting purposes, changes in the fair value of economic hedges which are not designated as hedges for accounting purposes, together with the gains and losses on their settlement, are included in the revenue and adjusted operating profit of the relevant business segment. The adjusting items at the operating level reverse this treatment. The financing adjusting items reflect the change in value or settlement of these contracts with the financial institutions with whom they were transacted. **(b) Restructuring costs and associated impairment losses** – the restructuring costs of £25.9m primarily relate to IMI Precision Engineering and were for the Customer First project (across a number of businesses) and the rationalisation of four facilities. These ongoing significant restructuring projects are due to be completed in 2023, with the overall programme expected to be largely complete during 2024, although the Group will always seek and execute projects that improve its competitive position. Restructuring costs and associated impairment losses of £39.7m were recognised in 2021. These included costs of £35.6m, of which £4.6m related to impairment losses within IMI Precision Engineering, primarily for the rationalisation of a factory in Europe, which was under consultation with the Works Council, and the Customer First project, which both simplify the structure of the division and ensures the business structure is aligned to our customer base. In IMI Critical Engineering there were costs of £0.8m relating to the finalisation of the ongoing projects announced in 2020. In IMI Hydronic Engineering there were costs of £3.3m for the finalisation of the ongoing projects announced in 2020 and a new project announced in 2021 to simplify finance processes through a shared service centre in Poland. **(c) Loss on disposal of subsidiary** – following the disposal of IMI Interativa in July 2021, the Group recorded a loss on disposal of £3.8m. Further details are included in Note 24. **(d) Acquired intangible amortisation and other acquisition items** – of the total £33.7m, the acquired intangible amortisation charge was £29.5m (2021: £15.0m) which largely relates to the amortisation of the intangible assets recognised on the acquisitions of Adaptas and Bahr. Other acquisition costs of £4.2m primarily related to professional fees associated with the acquisition of Heatmiser and Bahr and the Adaptas IFRS 3 release of the fair value uplift to inventory, recognised to cost of sales. Other acquisition costs of £3.1m for 2021 primarily related to professional fees associated with the acquisition of Adaptas in December 2021. **(e) Exit from Russia** – the Group's decision to end all new business in Russia resulted in a charge of £9.0m. The Group recorded a loss on disposal of its Russian subsidiary of £4.8m. In addition, the exit resulted in a £4.2m impairment of assets related to Russian contracts. **(f) Taxation** – the tax effect of the above items has been recognised as an adjusting item and amounts to £14.6m (2021: £15.1m). The UK Government announced an increase in the corporation tax rate from 19% to 25%, with an effective date of April 2023, which was substantively enacted on 24 May 2021. In 2021, the impact of this on the Group's deferred tax liabilities of £18.6m was recorded as an adjusting item. A credit of £16.6m due to the release of provisions in respect of exposures related to prior years which are no longer expected to arise, including the closure of open years with tax authorities was also recorded as an adjusting item within the income statement in 2021. * 'Restructuring costs and associated impairment losses' were previously reported separately as 'Restructuring costs' and 'Impairment losses'. These amounts are now reported together as they relate to the same projects. 174 IMI plc Annual Report & Accounts 2022 ## 4. Segmental information Segmental information is presented in the consolidated financial statements for each of the Group's operating segments. The operating segment reporting format reflects the Group's management and internal reporting structures and represents the information that was presented to the chief operating decision-maker, being the Executive Committee. As described on page 10, each of the Group's three divisions has a number of key brands across its main markets and operational locations. For the purposes of reportable segmental information, operating segments are aggregated into the Group's three divisions, as the nature of the products, production processes and types of customer are similar within each division. Inter-segmental revenue is insignificant. ### IMI Precision Engineering IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the processes in which they are involved. ### IMI Critical Engineering IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, cleanly, reliably and more efficiently. Our products control the flow of steam, gas and liquids in harsh environments and are designed to withstand temperature and pressure extremes as well as intensely abrasive or corrosive cyclical operations. ### IMI Hydronic Engineering IMI Hydronic Engineering is a leading provider of technologies that deliver operational and energy efficient water-based heating and cooling systems for the residential and commercial building sectors. Performance is measured by the Executive Committee based on adjusted operating profit and organic revenue growth which are defined in Note 3. These two measures represent the two short-term key performance indicators for the Group. Businesses enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins. Adjusted operating profits are therefore charged/credited with the impact of these contracts. In accordance with IFRS 9, these contracts do not meet the requirements for hedge accounting and gains and losses are reversed out of operating profit and are recorded in net financial income and expense for the purposes of the consolidated income statement. The following table illustrates how the results for the segments reconcile to the overall results reported in the income statement. | | Revenue | | Operating profit | | Operating margin | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 % | 2021 % | | IMI Precision Engineering | 986 | 836 | 182.6 | 148.9 | 18.5% | 17.8% | | IMI Critical Engineering | 713 | 691 | 135.5 | 125.0 | 19.0% | 18.1% | | IMI Hydronic Engineering | 350 | 339 | 71.1 | 68.1 | 20.3% | 20.1% | | Corporate costs | | | (25.4) | (23.9) | | | | **Total revenue/operating profit and margin** | **2,049** | **1,866** | **363.8** | **318.1** | **17.8%** | **17.0%** | | Reversal of net economic hedge contract losses/(gains) | | | 3.0 | (6.0) | | | | Restructuring costs and associated impairment losses* | | | (25.9) | (39.7) | | | | Loss on disposal of subsidiary | | | - | (3.8) | | | | Acquired intangible amortisation and other acquisition items | | | (33.7) | (18.1) | | | | Exit from Russia | | | (9.0) | - | | | | **Statutory revenue/operating profit** | **2,049** | **1,866** | **298.2** | **250.5** | | | | Net financial expense | | | (12.8) | (5.9) | | | | **Statutory profit before tax** | | | **285.4** | **244.6** | | | * 'Restructuring costs and associated impairment losses' were previously reported separately as 'Restructuring costs' and 'Impairment losses'. These amounts are now reported together as they relate to the same projects. Introduction Strategic Report Corporate Governance Financial Statements 175 The following table shows a reconciliation of divisional adjusted operating profit to statutory operating profit: | | IMI Precision Engineering | | IMI Critical Engineering | | IMI Hydronic Engineering | | Corporate | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Revenue | 986 | 836 | 713 | 691 | 350 | 339 | | | 2,049 | 1,866 | | Adjusted operating profit | 182.6 | 148.9 | 135.5 | 125.0 | 71.1 | 68.1 | (25.4) | (23.9) | 363.8 | 318.1 | | **Reconciliation to statutory operating profit:** | | | | | | | | | | | | Reversal of net economic hedge contract losses/(gains) | (2.4) | (3.4) | 3.1 | (1.9) | 2.3 | (0.7) | | | 3.0 | (6.0) | | Restructuring costs and associated impairment losses | (24.8) | (35.6) | (0.4) | (0.8) | (0.7) | (3.3) | | | (25.9) | (39.7) | | Loss on disposal of subsidiary | | | | (3.8) | | | | | - | (3.8) | | Acquired intangible amortisation and other acquisition items | (25.1) | (10.3) | (6.6) | (7.8) | (2.0) | | | | (33.7) | (18.1) | | Exit from Russia | (0.2) | | (3.9) | | (0.1) | | (4.8) | | (9.0) | - | | **Statutory operating profit** | **130.1** | **99.6** | **127.7** | **110.7** | **70.6** | **64.1** | **(30.2)** | **(23.9)** | **298.2** | **250.5** | | **Statutory operating margin (%)** | **13.2%** | **11.9%** | **17.9%** | **16.0%** | **20.2%** | **18.9%** | | | **14.6%** | **13.4%** | The following table illustrates how revenue and adjusted operating profit have been impacted by movements in foreign exchange, acquisitions and disposals compared to 2021: | | Year ended 31 December 2021 | | | | Year ended 31 December 2022 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | As adjusted | Disposals | Exchange | Organic | As adjusted | Acquisitions | Organic | Adjusted growth (%) | Organic growth (%) | | **Revenue** | | | | | | | | | | | IMI Precision Engineering | 836 | (3) | 41 | 874 | 986 | (70) | 916 | 18% | 5% | | IMI Critical Engineering | 691 | (16) | 23 | 698 | 713 | | 713 | 3% | 2% | | IMI Hydronic Engineering | 339 | (5) | 3 | 337 | 350 | | 350 | 3% | 4% | | **Total** | **1,866** | **(24)** | **67** | **1,909** | **2,049** | **(70)** | **1,979** | **10%** | **4%** | | **Adjusted operating profit** | | | | | | | | | | | IMI Precision Engineering | 148.9 | (0.5) | 7.4 | 155.8 | 182.6 | (12.4) | 170.2 | 23% | 9% | | IMI Critical Engineering | 125.0 | (3.3) | 5.0 | 126.7 | 135.5 | | 135.5 | 8% | 7% | | IMI Hydronic Engineering | 68.1 | (0.4) | (0.2) | 67.5 | 71.1 | | 71.1 | 4% | 5% | | Corporate costs | (23.9) | | | (23.9) | (25.4) | | (25.4) | | | | **Total** | **318.1** | **(4.2)** | **12.2** | **326.1** | **363.8** | **(12.4)** | **351.4** | **14%** | **8%** | | **Adjusted operating profit margin (%)** | **17.0%** | | | **17.1%** | **17.8%** | | **17.8%** | | | 176 IMI plc Annual Report & Accounts 2022 #### 4. Segmental information (continued) The following table illustrates how the segmental assets and liabilities reconcile to the overall total assets and liabilities reported in the balance sheet: | | Assets | | Liabilities | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | IMI Precision Engineering | **1,038.9** | 916.1 | **201.8** | 202.4 | | IMI Critical Engineering | **894.1** | 714.6 | **262.5** | 231.2 | | IMI Hydronic Engineering | **373.5** | 233.5 | **98.0** | 90.9 | | **Total segmental assets/liabilities (including lease liabilities)** | **2,306.5** | 1,864.2 | **562.3** | 524.5 | | Corporate items | **23.4** | 24.2 | **47.3** | 39.0 | | Employee benefits | **28.5** | 129.0 | **47.4** | 66.5 | | Investments | **2.0** | 2.9 | - | - | | Net debt items (excluding lease liabilities) | **133.0** | 94.6 | **839.3** | 623.5 | | Net taxation | **26.5** | 53.9 | **118.0** | 136.2 | | **Total assets and liabilities in Group balance sheet** | **2,519.9** | 2,168.8 | **1,614.3** | 1,389.7 | The following table includes other information to show how certain costs are allocated between the segments of the Group: | | Adjusting restructuring costs and associated impairment losses | | Capital expenditure | | Amortisation** | | Depreciation*** | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | IMI Precision Engineering | **24.8** | 35.6 | **42.0** | 29.9 | **28.7** | 11.2 | **38.5** | 32.7 | | IMI Critical Engineering | **0.4** | 0.8 | **15.8** | 9.8 | **13.2** | 14.7 | **20.7** | 20.5 | | IMI Hydronic Engineering | **0.7** | 3.3 | **12.8** | 17.8 | **5.9** | 5.3 | **14.2** | 14.3 | | | **25.9** | 39.7 | **70.4** | 57.5 | **47.8** | 31.2 | **73.4** | 67.5 | | Corporate costs | | | **0.7** | - | **0.2** | - | **0.8** | 0.8 | | **Total** | **25.9** | 39.7 | **71.3** | 57.5 | **48.0** | 31.2 | **74.2** | 68.3 | ** The amortisation figures above include the amortisation of acquired intangibles. £22.9m (2021: £7.2m) is included in respect of IMI Precision Engineering, £6.6m (2021: £7.8m) is included in respect of IMI Critical Engineering and £nil (2021: £nil) is included in respect of IMI Hydronic Engineering. *** The depreciation figures above include the impact of IFRS 16 'Leases': £0.6m in respect of Corporate (2021: £0.6m), £15.1m in respect of IMI Precision Engineering (2021: £12.3m), £9.6m in respect of IMI Critical Engineering (2021: £8.5m) and £7.0m in respect of IMI Hydronic Engineering (2021: £6.9m). ## IntroductionStrategicReportCorporateGovernanceFinancialStatements177 The following table shows a geographical analysis of how the Group’s revenue is derived by destination: 2022 2021 £m £m UK 93 83 Germany 265 238 Rest of Europe 520 520 Total Europe 878 841 USA 536 410 Rest of Americas 91 116 Total Americas 627 526 China 179 165 Rest of Asia Pacific 271 244 Total Asia Pacific 450 409 Middle East & Africa 94 90 Total revenue 2,049 1,866 Revenuebygeography(2022) Revenuebygeography(2021) | | Middle East & Africa | | | Middle East & Africa | | | --- | --- | --- | --- | --- | --- | | | | 5% | | | 5% | | Asia Pacific | | | Asia Pacific | | | | 22% | | | 22% | | | | | Europe | | Europe | | --- | --- | --- | --- | | | 43% | | 45% | | Americas | | Americas | | | 30% | | 28% | | The following table shows a geographical analysis of the location of the Group’s intangible assets, property, plant and equipment and right of use assets: 2022 2021**** £m £m UK 180.1 78.4 Germany 306.8 202.4 Rest of Europe 307.4 278.6 USA 521.3 483.4 Asia Pacific 64.5 57.7 Rest of World 30.3 26.8 Total 1,410.4 1,127.3 **** Prior year comparatives have been reclassified to match the geographical allocation for Group revenue. 178 IMI plc Annual Report & Accounts 2022 # 4. Segmental information (continued) The Group's revenue streams are disaggregated in the table below: | Sector | 2022 Revenue £m | 2021 Revenue £m | | --- | --- | --- | | **IMI Precision Engineering** | | | | **Industrial Automation** | **459** | 413 | | Life Sciences | 152 | 91 | | Process Control | 152 | 119 | | **Precision Fluid OEM** | **304** | 210 | | Commercial Vehicle | 186 | 180 | | Rail | 37 | 33 | | **Transportation** | **223** | 213 | | **Total IMI Precision Engineering** | **986** | 836 | | **IMI Critical Engineering** | | | | Power | 153 | 144 | | Refining & Petrochemical | 118 | 105 | | Oil & Gas | 57 | 45 | | Nuclear | 46 | 57 | | Marine | 14 | 11 | | Other | 23 | 17 | | **Aftermarket** | **411** | 379 | | Refining & Petrochemical | 100 | 108 | | Oil & Gas | 69 | 77 | | Power | 61 | 66 | | Marine | 26 | 22 | | Nuclear | 6 | 3 | | Other | 40 | 36 | | **New Construction** | **302** | 312 | | **Total IMI Critical Engineering** | **713** | 691 | | **IMI Hydronic Engineering*** | | | | TA | 151 | 144 | | Heimeier | 124 | 121 | | Pneumatex | 66 | 61 | | Other | 9 | 13 | | **Total IMI Hydronic Engineering** | **350** | 339 | | **Total revenue** | **2,049** | 1,866 | | **Sale of goods** | **1,977** | 1,806 | | **Sale of services** | **72** | 60 | | **Total revenue** | **2,049** | 1,866 | *Prior period IMI Hydronic Engineering results have been restated to reflect a £15m reclassification between TA and Heimeier. Introduction Strategic Report Corporate Governance Financial Statements 179 ## 5. Net operating costs Operating profit is stated after charging/(crediting): | | 2022 £m | 2021 £m | | --- | --- | --- | | Net foreign exchange gains included in operating profit | (3.2) | (5.1) | | Research and development expense | 70.3 | 49.7 | | Amortisation of intangible assets | 48.0 | 31.2 | | Impairment of intangible assets treated as adjusting items | 0.2 | - | | Impairment of intangible assets | 0.5 | 0.1 | | Depreciation of owned property, plant and equipment | 41.9 | 40.0 | | (Reversal of impairment)/impairment of owned property, plant and equipment treated as adjusting items | (2.3) | 4.6 | | (Reversal of impairment)/impairment of owned property, plant and equipment | (0.6) | 0.8 | | Depreciation of right of use assets | 32.3 | 28.3 | | Cost of inventories recognised as an expense | 1,112.1 | 1,004.6 | | Loss/(profit) on disposal of property, plant and equipment | 1.7 | (1.3) | ### Operating costs by function The following table shows how much of the operating costs disclosed in the income statement relate to selling and distribution costs and administrative expenses: | | 2022 £m | 2021 £m | | --- | --- | --- | | Selling and distribution costs* | (207.2) | (187.3) | | Administrative expenses* | (367.1) | (356.3) | | | (574.3) | (543.6) | * £45.8m included in selling and distribution costs in prior period has been reclassified to administrative expenses to better reflect the underlying transactions. ### Employee information The average number of people employed by the Group during the year was: | | 2022 | 2021 | | --- | --- | --- | | IMI Precision Engineering | 6,001 | 5,740 | | IMI Critical Engineering | 3,106 | 3,117 | | IMI Hydronic Engineering | 1,942 | 1,969 | | Corporate | 80 | 90 | | **Total Group** | **11,129** | **10,916** | The aggregate employment cost charged to operating profit for the year was: | | 2022 £m | 2021 £m | | --- | --- | --- | | Wages and salaries | 505.9 | 491.9 | | Share-based payments | 11.7 | 12.0 | | Social security costs | 76.7 | 80.3 | | Pension costs** | 8.3 | 9.5 | | **Total** | **602.6** | **593.7** | ** There are no special pension events included in 2022 pension costs (2021: £nil, see Note 3). The aggregate gains made by directors on the exercise of share options was £2.6m (2021: £1.6m). The remuneration, as defined in the Companies Act 2006 Schedule 5, for the executive directors comprises fixed and annual variable pay as set out in the table on page 128 of the Remuneration Report. For details of the non-executive directors' remuneration please refer to page 138 of the Remuneration Report. ### Research and development expenditure The cost of research and development expenditure charged directly to the income statement was £70.3m (2021: £49.7m). Included within this is amortisation of capitalised intangible development costs which amounted to £8.2m (2021: £7.1m) and across the Group a further £5.9m (2021: £4.6m) was capitalised in the year. ### Exchange on operating activities net of hedging arrangements The transactional foreign exchange gains in the Group were £3.2m (2021: gains of £5.1m). ### Audit fees The Group engages its auditor, Deloitte, to perform other assurance assignments in addition to their statutory audit duties where their expertise, experience and knowledge of the Group should enable them to perform these assignments more efficiently than other similar service providers. The Group's policy on such assignments is set out in the Audit Committee Report on page 118. Fees earned by Deloitte and its associates during the year are set out below: | | 2022 £m | 2021 £m | | --- | --- | --- | | Fees earned by the Company's auditor for the audit of the Company's Annual Accounts | 0.2 | 0.2 | | The audit of the Company's subsidiaries, pursuant to legislation | 2.9 | 2.5 | | Other assurance services | 0.1 | 0.1 | | **Total** | **3.2** | **2.8** | 180 IMI plc Annual Report & Accounts 2022 ## 6. Share-based payments The Group operates a number of equity and equity-related compensation benefits to reward its employees. The estimated cost of awarding these share options is charged to the income statement over the period that the Group benefits from the employees' services. This cost is then added back to retained earnings, to reflect that there is no overall impact on the Group's balance sheet until the shares are issued to the employees when the options are exercised. The individual share option schemes, the number of options outstanding under each of them, the estimated cost of these options recognised in the income statement and the assumptions used in arriving at this estimated cost are described below. ### Accounting policy The fair value of the employee services received in exchange for the grant of the options is recognised as an expense each year. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. The fair value of the options is determined based on the Monte Carlo and Black-Scholes option-pricing models. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement. For newly issued shares, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. ### Outstanding share options At 31 December 2022, options to purchase ordinary shares had been granted to, but not yet exercised by, participants of IMI share option schemes as follows: | | Date of grant | Number of shares | Price | Dates from which exercisable | | --- | --- | --- | --- | --- | | **IMI Sharesave Scheme** | 21.04.17 | 1,516 | 1106.00p | 01.08.20 or 01.08.22 | | | 04.04.18 | 11,335 | 1012.68p | 01.08.21 or 01.08.23 | | | 04.04.19 | 33,303 | 884.16p | 01.08.22 or 01.08.24 | | | 02.04.20 | 56,579 | 904.66p | 01.08.23 or 01.08.25 | | | 02.04.21 | 68,400 | 1166.58p | 01.08.24 or 01.08.26 | | | 31.03.22 | 97,876 | 1260.00p | 01.08.25 or 01.08.27 | | | | **269,009** | | | | **Purchase Plans** | 15.08.22 | 83,380 | 1155.78p | 15.08.24 | | | | **83,380** | | | | **IMI Incentive Plan** | 07.05.15 | 754 | - | 07.05.17 or 07.05.18 | | | 09.03.16 | 4,735 | - | 09.03.18 or 09.03.19 | | | 09.03.17 | 8,160 | - | 09.03.19 or 09.03.20 | | | 12.03.18 | 7,850 | - | 12.03.20 or 12.03.21 | | | 18.03.19 | 76,907 | - | 18.03.21 or 18.03.22 | | | 16.03.20 | 1,114,366 | - | 16.03.23 | | | 22.03.21 | 781,063 | - | 22.03.24 | | | 18.03.22 | 883,186 | - | 09.03.25 | | | | **2,877,021** | | | | **IMI Share Option Plan** | 12.03.13 | 76,300 | 1322.70p | 12.03.16 | | | 22.10.13 | 9,000 | 1518.33p | 22.10.16 | | | 11.03.14 | 82,000 | 1467.00p | 11.03.17 | | | | **167,300** | | | | **Total** | | **3,396,710** | | | Introduction Strategic Report Corporate Governance Financial Statements 181 ## Schemes under which options are outstanding The options in the adjacent table relate to the following share-based payment schemes: ### IMI Sharesave Scheme ('SAYE') This scheme is open to the majority of the Group's UK employees, including the executive directors, and allows the grant of options to all participants at a discount of up to 20% below the market price. Such schemes are not subject to performance conditions and offer tax incentives to encourage employees to use their own money to purchase IMI shares. SAYE options may be exercised within six months of the date they first become exercisable. ### Global Employee Share Purchase Plans ('GESPP') These plans were introduced in 2011 for the US and Germany. The German and US GESPP's offer the opportunity to buy shares in IMI at a fixed price at a future date. The German GESPP mirrors the UK Sharesave Scheme, with a minimum/maximum savings limit per month and contract duration of three to five years. The US GESPP also operates in a similar way to the UK Sharesave Scheme, with a minimum/maximum savings limit per month, but the contract duration is for a fixed period of two years and different taxation conditions apply for the exercise period. No further awards are intended to be granted under the German GESPP. ### IMI Share Option Plan ('SOP') Share option awards were made from 2009 to selected senior managers and certain other employees under the SOP. These awards are not subject to performance conditions, but are subject to a three year vesting period. The purpose of the SOP is to give selected IMI employees (who are not executive directors of the Company) the opportunity to share the benefits of share price growth and to increase their IMI shareholding. ## Options granted during the year | | Number of options granted (thousand) | Weighted average option price | Normal exercisable date | | --- | --- | --- | --- | | **SAYE** | | | | | 2019 | 200 | 884p | 2022-2025 | | 2020 | 68 | 905p | 2023-2026 | | 2021 | 75 | 1167p | 2024-2027 | | **2022** | **103** | **1260p** | **2025-2028** | | **GESPP** | | | | | 2019 | 33 | 903p | 2021 | | 2020 | 43 | 956p | 2022 | | 2021 | - | - | 2023 | | **2022** | **85** | **1156p** | **2024** | | **IIP** | | | | | 2019 | 845 | - | 2021-2022 | | 2020 | 1,466 | - | 2022-2023 | | 2021 | 891 | - | 2023-2024 | | **2022** | **929** | **-** | **2024-2025** | ## Other share-based payment arrangements The Group also operates the following employee share plans: ### Share Incentive Plan ('SIP') The SIP is open to the majority of the Group's UK employees, including the executive directors. This scheme covers two separate opportunities for employees to share in IMI's success as follows: - Partnership shares – allows employees to invest up to the statutory maximum from pre-tax pay, which is used to buy IMI shares. - Free shares – allows a grant of shares to employees each year, up to the statutory maximum. Shares acquired or awarded under the SIP are not subject to performance conditions and offer tax incentives to encourage employees to build up their shareholdings with the Company. ### The IMI Incentive Plan ('IIP') In light of the expiry in 2015 of both the PSP and SMP, the IIP was introduced to act as the Company's sole senior executive long-term incentive plan. The IIP acts as an umbrella plan which allows the Company to grant different types of awards to different employee groups in an efficient way. The IIP is to be used annually to grant 'Performance Share Awards' in respect of ordinary shares to the executive directors and other members of senior management subject to performance conditions. The IIP will also be used annually to grant 'Bonus Share Awards' below board level. The IIP also gives the Company the ability to grant 'Restricted Stock Unit Awards' and 'Share Options'. It is currently intended that Restricted Stock Unit Awards and share options will only be granted in response to specific business requirements. 182 IMI plc Annual Report & Accounts 2022 ## 6. Share-based payments (continued) ### Movement in outstanding options in the year | | Options not granted at nil cost ^{1} | | | Options granted at nil cost ^{2} | Total | | --- | --- | --- | --- | --- | --- | | | Number of options (thousand) | Range of option prices | Weighted average option price | Number of options (thousand) | Number of options (thousand) | | Outstanding at 1 January 2021 | 966 | 845-1518p | 1098p | 3,048 | 4,014 | | Exercisable at 1 January 2021 | 586 | 971-1518p | 1216p | 167 | 753 | | Granted | 75 | 1167p | 1167p | 978 | 1,053 | | Exercised | 395 | 845-1467p | 1085p | 500 | 895 | | Lapsed | 108 | 845-1467p | 1101p | 461 | 569 | | Outstanding at 31 December 2021 | 538 | 845-1518p | 1116p | 3,065 | 3,603 | | Exercisable at 31 December 2021 | 222 | 845-1518p | 1325p | 272 | 494 | | **Granted** | **188** | **1156-1260p** | **1213p** | **1,033** | **1,221** | | **Exercised** | **142** | **845-1467p** | **947p** | **533** | **675** | | **Lapsed** | **65** | **845-1467p** | **1025p** | **306** | **371** | | **Outstanding at 31 December 2022** | **519** | **884-1518p** | **1209p** | **3,255** | **3,774** | | **Exercisable at 31 December 2022** | **180** | **884-1518p** | **1197p** | **477** | **657** | $^{1}$ Options not granted at nil cost include options granted under the following schemes: IMI Sharesave Scheme, Global Employee Share Purchase Plans and IMI Share Option Plan. $^{2}$ Options granted at nil cost are those granted under the Performance Share Plan, Share Matching Plan and IMI Incentive Plan. ### Share-based payment charge for the year The total expense recognised for the year arising from share-based payments was £11.7m (2021: £12.0m) which comprises a charge of £15.5m (2021: £15.3m) for the year offset by a credit of £3.8m (2021: £3.3m) in respect of lapses. £2.7m (2021: £2.5m) of the total charge and £0.5m (2021: £0.7m) of the total credit is in respect of options granted to directors. ### Share-based payment valuation methodology The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted, based on Black-Scholes and Monte Carlo option pricing models. The assumptions used for grants in 2022 included a dividend yield of 2.0% (2021: 1.7%), expected share price volatility of 32% (2021: 25%), a weighted average expected life of 3.5 years (2021: 3.5 years) and a weighted average interest rate of 1.75% (2021: 0.1%). The expected volatility is wholly based on the historical volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. ### Other share-based payment disclosures The weighted average remaining contractual life for the share options outstanding as at 31 December 2022 is 4.8 years (2021: 7.1 years) and the weighted average fair value of share options granted in the year at their grant date was £13.01 (2021: £12.18). The weighted average share price at the date of exercise of share options exercised during the year was £14.71 (2021: £14.84). Introduction Strategic Report Corporate Governance Financial Statements 183 ## 7. Earnings per ordinary share Earnings per share ('EPS') is the amount of post-tax profit attributable to each share (excluding those held in the Employee Benefit Trust or by the Company). Basic EPS measures are calculated as the Group profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS takes into account the dilutive effect of all outstanding share options priced below the market price, in arriving at the number of shares used in its calculation. Both of these measures are also presented on an adjusted basis to assist the reader of the financial statements and provide insight into the performance of the Group. The note below demonstrates how this calculation has been performed. | | Key | 2022 million | 2021 million | | --- | --- | --- | --- | | Weighted average number of shares for the purpose of basic earnings per share | A | 258.3 | 266.9 | | Dilutive effect of employee share options | | 1.2 | 1.1 | | **Weighted average number of shares for the purpose of diluted earnings per share** | B | **259.5** | **268.0** | | | Key | £m | £m | | --- | --- | --- | --- | | **Statutory profit for the year** | C | **226.3** | 196.3 | | Total adjusting items charges included in profit before tax | | 60.7 | 62.4 | | Total adjusting items credits included in taxation | | (14.6) | (13.1) | | **Earnings for adjusted EPS** | D | **272.4** | 245.6 | | | Key | 2022 | 2021 | | --- | --- | --- | --- | | **Statutory EPS measures** | | | | | Statutory basic EPS | C/A | 87.6p | 73.5p | | Statutory diluted EPS | C/B | 87.2p | 73.2p | | **Adjusted EPS measures** | | | | | Adjusted basic EPS | D/A | 105.5p | 92.0p | | Adjusted diluted EPS | D/B | 105.0p | 91.6p | 184 IMI plc Annual Report & Accounts 2022 ## 8. Net financing costs ### Accounting policy Financial income comprises interest receivable on funds invested, income from investments and gains on hedging instruments that are recognised in the income statement. Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset. Dividend income is recognised in the income statement on the date that the dividend is declared. Financial expense comprises interest payable on borrowings calculated using the effective interest rate method, the interest related element of derivatives and losses on financial instruments that are recognised in the income statement. The interest expense component of lease payments is recognised in the income statement applying territory specific incremental borrowing rates. Net finance expense relating to defined benefit pension schemes represents the assumed interest on the difference between employee benefit plan liabilities and the employee benefit plan assets. The finance income or expense on mark-to-market movements on interest and foreign exchange derivatives and other financing costs are excluded from adjusted earnings. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. | Recognised in the income statement | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Interest £m | Financial instruments £m | Total £m | Interest £m | Financial instruments £m | Total £m | | Interest income on bank deposits | 4.6 | | 4.6 | 2.4 | | 2.4 | | **Financial income** | **4.6** | **-** | **4.6** | **2.4** | **-** | **2.4** | | Interest expense on interest-bearing loans and borrowings | (21.0) | | (21.0) | (11.7) | | (11.7) | | Interest expense on leases | (2.8) | | (2.8) | (2.8) | | (2.8) | | **Financial expense** | **(23.8)** | **-** | **(23.8)** | **(14.5)** | **-** | **(14.5)** | | **Recognised in other comprehensive income** | | | | | | | | Gains on instruments measured at fair value through profit or loss: | | | | | | | | Other economic hedges* | | 4.9 | 4.9 | | 5.2 | 5.2 | | Net financial income relating to defined benefit pension schemes | 1.5 | | 1.5 | 1.0 | | 1.0 | | **Net financial (expense)/income** | **(17.7)** | **4.9** | **(12.8)** | **(11.1)** | **5.2** | **(5.9)** | *Gains and losses on financial instruments measured at fair value through profit or loss were previously reported separately under 'Financial income' and 'Financial expense'. These amounts are now reported under 'Gains/(losses) on instruments measured at fair value through profit or loss' and prior year comparatives have been represented as they relate to the same underlying transactions. Included in financial instruments are current year trading gains and losses on economically effective transactions which for management reporting purposes are included in adjusted revenue and operating profit (see Note 3). For statutory purposes, these are shown within net financial income and expense above. Gains or losses for future year transactions are in respect of financial instruments held by the Group to provide stability of future trading cash flows. | Recognised in other comprehensive income | 2022 £m | 2021 £m | | --- | --- | --- | | (Loss)/gain arising on hedging instruments designated in hedges of the net assets in foreign operations | (7.5) | 20.0 | | Exchange differences on translation of foreign operations net of funding revaluations | 40.9 | (33.8) | | Exchange differences reclassified to income statement on disposal of operations | 0.6 | 0.1 | | Income tax on items recognised in other comprehensive income | (0.3) | 1.2 | | **Total items recognised in other comprehensive income (net of tax)** | **33.7** | **(12.5)** | | **Recognised in statement of changes in equity** | | | | Translation reserve | 33.7 | (12.5) | ## 185Introduction Strategic Report Corporate Governance Financial Statements ## 9. Taxation IMI operates through subsidiary companies all around the world that pay regular basis of any material or significant tax matters, so that appropriate many different taxes such as corporate income taxes, VAT, payroll withholdings, action can be effected. Through IMI Workplace and Knowledge Library, the Group social security contributions, customs import duties and excise duties. This note communicates policies, procedures, guidance and best practices to improve the aggregates only those corporate income taxes that are or will be levied on the management of taxation across its subsidiary companies worldwide. profits of IMI plc and its subsidiary companies for periods leading up to and Compliance: IMI pays and collects significant amounts of taxes around the world including the balance sheet date. The profits of each company are subject to certain as a result of its business activities. It seeks to manage its taxation obligations adjustments as specified by applicable tax laws in each country to arrive at the tax worldwide in compliance with all applicable tax laws and regulations, as well as liability that is expected to result on its tax returns. Where these adjustments have fully in line with the Group’s Code of Conduct. Accordingly, the tax contribution future tax impact then deferred taxes may also be recorded. by the individual businesses is monitored and robust standard tax compliance processes operate together with appropriate financial controls to ensure that all tax returns are complete, accurate and filed on a timely basis with the tax authorities around the world and the declared taxes paid on time. Furthermore, the preparation and filing of the corporate income tax returns for IMI subsidiary companies worldwide have been largely outsourced to one tax advisory firm. Tax laws are often complex, which can lead to inconsistent interpretations by different stakeholders. Where this occurs, IMI may reduce uncertainty and controversy through various actions, including proactive discussion with the fiscal authorities to obtain early resolution and securing external tax advice to ensure the robust interpretation of tax laws and practices. The Group Tax Policy is fully aligned with the Group’s Code of Conduct, which requires the Group and its employees and agents to act in compliance with applicable laws and with fairness and integrity in all of its business dealings. IMI has a zero-tolerance approach to tax evasion and the facilitation of tax evasion. Consideration of UK legislation regarding third party tax evasion has also been incorporated into the Group’s prevention procedures, including employee training. Fairness: IMI seeks to record its profits across the subsidiary companies around the world on an arm’s length basis in accordance with internationally accepted best practices, recognising the relative contributions of people, assets, intellectual property and risks borne by the various businesses. The resulting allocation of profits is regularly tested for compliance with this standard. IMI has taken action to ensure that it meets the enhanced transfer pricing disclosures and documentation requirements by tax authorities as a result of the Base Erosion & Profit Shifting (commonly referred to as ‘BEPS’) initiative by the OECD. Value: IMI manages the impact of taxation on its businesses in a responsible manner by only adopting legitimate and commercial positions. In doing so, the Group may make use of legitimate tax incentives, exemptions and statutory alternatives offered by governments and will look to ensure that it is not taxed more than once on the same profit. As a UK headquartered group, IMI’s profits are ultimately subject to UK taxation, although as the Group pays significant taxes overseas, the overall effective tax rate for the Group is marginally above the UK statutory tax rate. Transparency: IMI aims to build positive working relationships with tax authorities by co-operating in a constructive, open and timely manner. IMI seeks to disclose its tax affairs in its published accounts and taxation returns fully in accordance with the applicable standards and, where appropriate, will supplement its tax disclosures with further information to better inform, and to be transparent to, ## Tax governance, risk and strategy its stakeholders. IMI recognises its corporate responsibility to ensure that all businesses within Risk: IMI engages external support to manage tax risks and achieve the strategic the IMI Group follow responsible tax practices to enhance long-term shareholder objectives outlined above. Tax risks are regularly assessed for all companies within value whilst also contributing to the public expenditure and the overall welfare of the Group, promptly addressed and reported so that they may be appropriately the communities in which it operates. Accordingly, the IMI Tax Policy sets the core provided and disclosed in the relevant accounts and tax returns. To the extent principles of compliance, fairness, value and transparency for the management of that identified tax risks are material they will be reported to the Executive the Group’s tax affairs. Committee through the Group’s process for strategic risk management as This Policy has been approved by the Board, fully communicated to subsidiary described on page 86. businesses and is reviewed to ensure responsible business practices across the Group are maintained. The Group Finance Director has primary responsibility for all tax matters and keeps the Board appraised of any significant issues or changes to the Tax Policy. A robust tax governance framework has also been established under which the Executive Committee and the IMI Board are appraised on a Accounting policy Current tax payable/receivable represents the expected tax payable/receivable on the taxable profits for the year, using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments in respect of prior years. Deferred tax is provided, using the balance sheet method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that the timing of the reversal of the differences can be controlled and it is probable that the differences will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to apply when the temporary differences reverse, based on the tax laws that have been enacted or substantively enacted by the balance sheet date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entities or different taxable entities where there is an intention to settle the balances on a net basis. In common with many multinational companies, IMI faces tax audits in jurisdictions around the world, including in relation to transfer pricing of goods and services between associated entities within the Group, the outcomes of which are uncertain. These tax audits may be subject to inter-government negotiations. The matters under discussion are often complex and can take many years to resolve. Tax liabilities are recorded based on management’s estimate of either the most likely amount or the expected amount depending on which method is expected to better reflect the resolution of the uncertainty. 186 IMI plc Annual Report & Accounts 2022 ## 9. Taxation (continued) ### UK Corporation tax The rate of corporation tax in the UK for 2022 was 19% (2021: 19%). As from 1 April 2023, it will increase from 19% to 25%. UK deferred tax assets and liabilities have therefore been calculated using a rate of 25% (2021: 25%). ### Tax payments During the year, the Group made payments of corporate income tax of £48.6m (2021: £50.9m), principally arising as follows: #### Jurisdiction of companies making corporate income tax payments: ![img-8.jpeg](img-8.jpeg) There is normally an element of volatility in the annual payments of corporate income taxes due to the timing of assessments, acquisition and disposals, exceptional items and payments on account in the many countries in which the Group operates. Changes in the jurisdictions in which profits are earned can have an impact on cashflow levels which may take time to be reflected in the tax cashflow. The level of payments made during 2022 decreased slightly compared to 2021. Sweden and the UK decreased due to the recovery of tax debtors. German payments for 2022 now represent a more normal level having recovered tax debtors in earlier periods. Other territorial movements in payments largely reflect shifts in trading. In addition, the Group makes substantial other tax payments relating to employment, consumption, procurement and investment to tax authorities around the world. ### Recognised in the income statement This section sets out the current and deferred tax charges, which together comprise the total tax charge in the income statement. | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current tax charge** | | | | Current year charge | 63.0 | 53.9 | | Adjustments in respect of prior years | (1.9) | (11.1) | | | 61.1 | 42.8 | | **Deferred taxation** | | | | Origination and reversal of temporary differences | (2.0) | 5.5 | | **Total income tax charge** | **59.1** | **48.3** | Introduction Strategic Report Corporate Governance Financial Statements 187 ## Reconciliation of effective tax rate As IMI's head office and parent company is domiciled in the UK, the Group references its effective tax rate to the UK corporation tax rate, despite only a small portion of the Group's business being in the UK. Therefore, the following tax reconciliation applies the UK corporation tax rate for the year to profit before tax, both before and after adjusting items. The resulting tax charge is reconciled to the actual tax charge for the Group, by taking account of specific tax adjustments as follows: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Adjusted £m | Adjusting items £m | Statutory £m | Adjusted £m | Adjusting items £m | Statutory £m | | **Profit before tax** | **346.1** | **(60.7)** | **285.4** | 307.0 | (62.4) | 244.6 | | Income tax using the Company's domestic rate of tax of 19.00% (2021: 19.00%) | 65.8 | (11.5) | 54.3 | 58.3 | (11.9) | 46.4 | | Effects of: | | | | | | | | Non-deductible items | 3.0 | 0.4 | 3.4 | 1.4 | 0.8 | 2.2 | | Non taxable loss on disposal of businesses | - | 0.9 | 0.9 | - | 0.7 | 0.7 | | Utilisation of losses on which no deferred tax had been recognised | (1.0) | - | (1.0) | (0.4) | - | (0.4) | | Current year losses for which no deferred tax asset has been recognised | 0.2 | - | 0.2 | 0.3 | 0.1 | 0.4 | | Recognition of deferred tax asset on previously unprovided timing differences | (0.8) | - | (0.8) | (2.8) | - | (2.8) | | Change in future tax rate on deferred tax | - | - | - | - | 18.6 | 18.6 | | Differing tax rates | 12.5 | (4.4) | 8.1 | 6.2 | (4.8) | 1.4 | | Adjustments to prior year current and deferred tax charges | (6.0) | - | (6.0) | (1.6) | (16.6) | (18.2) | | **Total tax in income statement** | **73.7** | **(14.6)** | **59.1** | 61.4 | (13.1) | 48.3 | | Income tax expense reported in the consolidated income statement | 73.7 | (14.6) | 59.1 | 61.4 | (13.1) | 48.3 | | Effective rate of tax: | 21.3% | | 20.7% | 20.0% | | 19.7% | ## Events after the reporting period In the Autumn Statement of November 2022, the UK government reconfirmed its intention to introduce legislation to give effect to the OECD Inclusive Framework agreement that there should be a minimum global corporate income tax rate of 15%. Based on current proposals this would apply to IMI from 1 January 2024. It therefore does not impact IMI's results for 2022, and it is not expected to have a material impact on IMI's financial statements for subsequent years. However, this will continue to be monitored. ## Recognised outside of the income statement In addition to amounts charged to the income statement, some current tax and deferred tax is charged/(credited) directly to equity or through other comprehensive income, which can be analysed as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Deferred tax:** | | | | On equity-settled transactions | 1.9 | (2.5) | | On re-measurement gains and on defined benefit plans | (20.4) | 18.4 | | Effect of rate change on previously recognised items | - | (15.8) | | | (18.5) | 0.1 | | **Current tax:** | | | | On change in value of effective net investment hedge derivatives | 0.3 | (1.2) | | On equity-settled transactions | - | (0.5) | | | (18.2) | (1.6) | | Of which the following amounts are charged/(credited): | | | | to the statement of comprehensive income | (20.1) | 1.4 | | to the statement of changes in equity | 1.9 | (3.0) | | | (18.2) | (1.6) | 188 IMI plc Annual Report & Accounts 2022 ## 9. Taxation (continued) ### Recognised deferred tax assets and liabilities Deferred taxes record the tax consequences of temporary differences between the accounting and taxation recognition of certain items, as explained below: | | Assets | | Liabilities | | Net | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Intangible and tangible fixed assets | 6.2 | 11.1 | (64.7) | (59.8) | (58.5) | (48.7) | | Inventories | 5.5 | 4.5 | (1.7) | (1.2) | 3.8 | 3.3 | | Revaluation of derivatives | 0.5 | 0.1 | (0.8) | (0.7) | (0.3) | (0.6) | | Pension and share-based payments | 12.1 | 18.9 | (7.1) | (32.8) | 5.0 | (13.9) | | Short-term timing differences | 30.7 | 28.8 | (5.8) | (3.8) | 24.9 | 25.0 | | Other tax credits and losses | 1.7 | 4.4 | - | - | 1.7 | 4.4 | | | 56.7 | 67.8 | (80.1) | (98.3) | (23.4) | (30.5) | | Offsetting within tax jurisdictions | (32.2) | (28.1) | 32.2 | 28.1 | - | - | | **Total deferred tax assets and liabilities** | **24.5** | **39.7** | **(47.9)** | **(70.2)** | **(23.4)** | **(30.5)** | The movement in the net deferred tax balances has been recognised in the financial statements as analysed below: | | Balance at 1 Jan 22 £m | Recognised in the income statement £m | Recognised outside the income statement £m | Exchange £m | Acquisitions / disposals £m | Balance at 31 Dec 22 £m | | --- | --- | --- | --- | --- | --- | --- | | Intangible and tangible fixed assets | (48.7) | (5.4) | | (4.4) | | (58.5) | | Inventories | 3.3 | 0.4 | | 0.1 | | 3.8 | | Revaluation of derivatives | (0.6) | 0.3 | | | | (0.3) | | Pension and share-based payments | (13.9) | (0.2) | 18.5 | 0.6 | | 5.0 | | Short-term timing differences | 25.0 | 9.7 | | 1.6 | (11.4) | 24.9 | | Other tax credits and losses | 4.4 | (2.8) | | 0.1 | | 1.7 | | **Net deferred tax (liability)/asset** | **(30.5)** | **2.0** | **18.5** | **(2.0)** | **(11.4)** | **(23.4)** | | | Balance at 1 Jan 21 £m | Recognised in the income statement £m | Recognised outside the income statement £m | Exchange £m | Acquisitions / disposals £m | Balance at 31 Dec 21 £m | | --- | --- | --- | --- | --- | --- | --- | | Intangible and tangible fixed assets | (31.3) | 12.3 | | 0.6 | (30.3) | (48.7) | | Inventories | 2.1 | 1.0 | | (0.1) | 0.3 | 3.3 | | Revaluation of derivatives | (1.1) | 0.5 | | | | (0.6) | | Pension and share-based payments | 7.0 | (20.1) | (0.1) | (0.7) | | (13.9) | | Short-term timing differences | 24.2 | (0.3) | | (0.4) | 1.5 | 25.0 | | Other tax credits and losses | 1.5 | 1.1 | | (0.2) | 2.0 | 4.4 | | **Net deferred tax asset/(liability)** | **2.4** | **(5.5)** | **(0.1)** | **(0.8)** | **(26.5)** | **(30.5)** | All exchange movements are taken through the translation reserve. Introduction Strategic Report Corporate Governance Financial Statements 189 ## Unrecognised deferred tax assets and liabilities Deferred assets are reviewed at each reporting date. Deferred tax assets have not been recognised for the following temporary differences: | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Gross amount £m | Tax effected £m | Gross amount £m | Tax effected £m | | Tax losses expiring: | | | | | | Within 10 years | 7.4 | 1.8 | 8.5 | 2.1 | | Available indefinitely | 46.0 | 12.0 | 43.3 | 11.4 | | Capital losses expiring: | | | | | | Within 10 years | - | - | - | - | | Available indefinitely | 119.2 | 29.9 | 118.9 | 29.8 | | Surplus interest expiring: | | | | | | Within 10 years | 0.5 | 0.1 | - | - | | Available indefinitely | - | - | 13.2 | 3.4 | | | 173.1 | 43.8 | 183.9 | 46.7 | Deferred tax assets have not been recognised for these temporary differences due to uncertainty over suitable future taxable profits and therefore their ability to be recovered. In assessing the probability of recovery, the Group assesses the likelihood of them being recovered within a reasonably foreseeable timeframe, being typically a minimum of five years, taking into account the future expected profit profile business model of the relevant company and country. The Group also considers the nature of the losses and interest, and any potential legislative restrictions on use. In some instances, these amounts are yet to be accepted by the tax authorities and could be challenged. The majority of these amounts have no expiry date as noted in the table above. It is likely that the majority of unremitted earnings of overseas subsidiaries would qualify for the UK dividend exemption. However, £112.9m (2021: £128.4m) of those earnings may still result in a tax liability principally as a result of withholding taxes levied by the overseas jurisdictions in which those subsidiaries operate. These tax liabilities are not expected to exceed £6.6m (2021: £7.5m) of which £3.2m (2021: £2.2m) has been provided on the basis that the Group expects to remit these amounts. ## 10. Dividends ### Accounting policy Dividends are recognised as a liability in the period in which they are approved by shareholders. ### Dividends After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income tax consequences. | | 2022 £m | 2021 £m | | --- | --- | --- | | Current year final dividend - 17.4p per qualifying ordinary share (2021: 15.8p) | 45.1 | 40.9 | The following dividends were declared and paid by the Group during the year: | | 2022 £m | 2021 £m | | --- | --- | --- | | Prior year final dividend paid - 15.8p per qualifying ordinary share (2021 final year dividend: 15.0p) | 40.8 | 40.8 | | Current year interim dividend paid - 8.3p per qualifying ordinary share (2021: 7.9p) | 21.4 | 21.0 | | | 62.2 | 61.8 | ### Dividend policy and share buybacks As part of the capital management process, the Group ensures that adequate reserves are available in IMI plc in order to meet proposed shareholder dividends, the purchase of shares for employee share scheme incentives and any on-market share buyback programme. The Group does not have a formal dividend policy or pay out ratio. The Group's aim is to continue with progressive dividends which typically increase at a steady rate for both the interim and final dividend payments. In the event that the Board cannot identify sufficient investment opportunities through capital expenditure, organic growth initiatives and acquisitions, the return of funds to shareholders through share buybacks or special dividends will be considered. It should be noted that a number of shares are regularly bought in the market by an employee benefit trust in order to hedge the exposure under certain management incentive plans. Details of these purchases are shown in Note 22 to the financial statements. IMI plc Annual Report & Accounts 2022190 ## 11. Intangible assets Accounting policy Intangible assets are disclosed as acquired intangible assets and non-acquired intangible assets. Amortisation of acquired intangible assets is treated as an adjusting item as described in Note 3 as the impact of any acquisitions, which are clearly identifiable, can materially impact the net book value, from period to period. i. Goodwill Goodwill is initially measured at cost being the excess of the aggregate of the acquisition date fair value of the consideration transferred over the net identifiable amounts of the assets acquired and the liabilities assumed for the business combination. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. The value of the goodwill can arise from a number of sources, but in relation to our more recent acquisitions, it has been represented by post-acquisition synergies and the skills and knowledge of the workforce. ii. Research and Development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised provided benefits are probable, cost can be reliably measured and if, and only if, the product or process is technically and commercially feasible and the Group has sufficient resources and intention to complete development. The expenditure capitalised includes the cost of materials, direct labour and directly attributable overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy ‘Impairment’) and is included in the other acquired or other non-acquired category of intangible assets depending on its origin. iii. Software development costs Software applications and systems that are not an integral part of their host computer equipment are capitalised on initial recognition as intangible assets at cost. Cost comprises the purchase price plus directly attributable costs incurred on development of the asset to bring it into use. Following initial recognition, software development costs are carried at cost less any accumulated amortisation (see below) and accumulated impairment losses (see accounting policy ‘Impairment’) and are included in the other acquired or other non-acquired category of intangible assets depending on their origin. iv. Customer relationships and other acquired intangible assets Customer relationships and other intangible assets that are acquired by the Group as part of a business combination are stated at their fair value calculated by reference to the net present value of future benefits accruing to the Group from utilisation of the asset, discounted at an appropriate discount rate. Expenditure on other internally generated intangible assets is recognised in the income statement as an expense as incurred. v. Amortisation of intangible assets other than goodwill Amortisation is charged to the income statement on a straight-line basis (other than for customer relationships and order book, which are charged on a sum of digits basis) over the estimated useful lives of the intangible assets. Amortisation commences from the date the intangible asset becomes available for use. The estimated useful lives for: • Capitalised development costs are the life of the intangible asset (usually a maximum of 17 years) • Software development costs are the life of the intangible asset (up to 17 years) • Customer relationships are the life of the intangible asset (up to 17 years) • Other intangible assets (including order books, brands and software) are the life of the intangible asset (up to 10 years) The Group splits its intangible assets between those arising on acquisitions and those which do not, because the amortisation of acquired intangibles is recognised as an adjusting item in the income statement. ## 191Introduction Strategic Report Corporate Governance Financial Statements Analysis of intangible assets Non-acquired Acquired Other Other non- intangibles Other customer acquired acquired under intangible Goodwill relationships ** intangibles** intangibles* construction assets £m £m £m £m £m £m Cost As at 1 January 2021 487.4 244.0 132.3 170.2 9.8 556.3 Exchange adjustments (14.7) (7.9) (5.2) (3.0) (0.8) (16.9) Acquisitions 97.4 51.4 58.2 109.6 Additions 4.5 6.8 11.3 Transfers from assets in the course of construction 6.9 (6.9) - Disposals (0.5) (3.6) (0.3) (6.4) (10.3) As at 31 December 2021 569.6 283.9 185.0 172.2 8.9 650.0 Exchange adjustments 48.3 21.2 22.3 12.7 (0.7) 55.5 Acquisitions (Note 23) 153.5 30.9 16.5 47.4 Additions 7.0 7.1 14.1 Transfers from assets in the course of construction 9.3 (9.3) - Disposals (6.0) (6.0) As at 31 December 2022 771.4 336.0 223.8 195.2 6.0 761.0 Amortisation As at 1 January 2021 37.9 204.8 106.7 94.5 406.0 Exchange adjustments (1.9) (7.7) (3.7) (0.9) (12.3) Disposals (3.3) (0.3) (5.9) (9.5) Impairment charge 0.1 0.1 Amortisation for year 10.5 4.5 16.2 31.2 As at 31 December 2021 36.0 204.3 107.2 104.0 - 415.5 Exchange adjustments 1.7 14.0 11.5 6.8 32.3 Acquisitions - Disposals (6.0) (6.0 ) Impairment charge 0.7 0.7 Amortisation for year 17.2 12.3 18.5 48.0 As at 31 December 2022 37.7 235.5 131.0 124.0 - 490.5 Net book value at 31 December 2021 533.6 79.6 77.8 68.2 8.9 234.5 Net book value at 31 December 2022 733.7 100.5 92.8 71.2 6.0 270.5 * Other non-acquired intangibles includes capitalised development costs with a carrying value of £33.1m (2021: £34.5m) and capitalised software costs with a carrying value of £38.1m (2021: £33.7m). ** An amount included in other acquired intangibles in prior period has been reclassified to acquired customer relationships as part of finalisation of provisional accounting for Adaptas . IMI plc Annual Report & Accounts 2022192 ### 11. Intangible assets (continued) ## Goodwill impairment testing Accounting policy For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (or groups of ’CGUs’). The composition of CGUs reflects both the way in which cash inflows are generated and the internal reporting structure. Where our businesses operate closely with each other we will continue to review whether they should be treated as a single CGU. Each unit or group of units to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and shall not be larger than an operating segment before aggregation. Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained. Impairment The carrying values of the Group’s non-financial assets other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether impairment indicators exist. If indicators exists, the recoverable amount of the asset or all assets within its CGU is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its CGU unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. For goodwill and assets that are not yet available for use, the recoverable amount is evaluated at each balance sheet date. The recoverable amount of non-financial assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, an individual assessment is made of the estimated future cash flows generated for each CGU derived from the Group’s long-term forecasts for the next five years. These are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Management believe that this approach, including the use of the indefinite cash flow projection, is appropriate based upon both historical experience and because it is one of the bases management utilise to evaluate the fair value of investment opportunities. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the smallest cash generating unit to which the asset belongs. Reversals of impairment Impairments of goodwill are non-reversible. In respect of other assets, an impairment loss is reversed if at the balance sheet date there are indications that the loss has decreased or no longer exists following a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Introduction Strategic Report Corporate Governance Financial Statements 193 The Group has 12 (2021:13) cash generating units to which goodwill is allocated. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use. Value in use is determined using cash flow projections from financial budgets, forecasts and plans approved by the Board covering a five-year period and include a terminal value multiple. The projected cash flows reflect the latest expectation of demand for products and services, including consideration of the future impacts of climate change which is considered as part of the Group's five-year strategic planning process. The key assumptions in these calculations are the long-term growth rates and the discount rates applied to forecast cash flows in addition to the achievement of the forecasts themselves. Long-term growth rates are based on long-term economic forecasts for growth in the manufacturing sector in the geographical regions in which the cash generating unit operates. Pre-tax discount rates specific to each cash generating unit are calculated by adjusting country and region-specific post-tax weighted average cost of capital ('WACC') for specific country risk premium, the Group's size risk premium and tax rate relevant to the jurisdiction in which the cash flows are generated. This exercise resulted in the use of the following ranges of values for the key assumptions: | | 2022 % | 2021 % | | --- | --- | --- | | Discount rate | 8.8 – 13.3 | 7.3 – 11.2 | | Long-term growth rate | 1.2 – 2.0 | 1.5 – 2.0 | For the purpose of assessing the significance of CGUs, the Group uses a threshold of 10% of the total goodwill balance. The recoverable amount of the CGUs is determined from a value in use calculation and the key assumptions used in this calculation are the discount rate, growth rate and operating cash flows. These estimates are determined using the methodology discussed above and for those CGUs considered to be significant; outlined in the table below: | 2022 | Goodwill £m | Discount rate % | Growth rate % | | --- | --- | --- | --- | | **CGU** | | | | | IMI Precision – Fluid OEM* | 208.9 | 10.3 | 2.0 | | IMI Critical – Petrochemical & Isolation | 117.4 | 10.0 | 2.0 | | IMI Critical – Control Valves | 99.6 | 13.3 | 2.0 | | 2021 | | | | | **CGU** | | | | | IMI Critical – Petrochemical & Isolation | 110.6 | 10.9 | 2.0 | | IMI Critical – Control Valves | 95.9 | 10.8 | 2.0 | | IMI Precision Americas – Fluid Technologies | 59.0 | 10.9 | 1.7 | * IMI Precision Fluid OEM CGU is a new group of CGUs in the current year that combines IMI Precision Americas – Fluid Technologies, IMI Precision EMEA – Fluid Technologies and Adaptas. The goodwill balance of Heatmiser UK Ltd of £102.2m has not been included in the 2022 analysis above due to provisional accounting used for the purchase price allocation. The carrying amount of Goodwill allocated to CGUs deemed to be non-significant is £307.8m (2021: £268.1m). ### Sensitivity to changes in assumptions The key estimates reflect the combination of assumptions used, including the long-term growth rates and the discount rate applied to forecast cash flows in addition to the achievement of the forecasts themselves. The Directors do not consider that any reasonably possible changes to the key assumptions would cause the carrying amount to exceed the recoverable amount of the CGU. The aggregate amount of goodwill arising from acquisitions prior to 1 January 2004 which had been deducted from the profit and loss reserves and incorporated into the IFRS transitional balance sheet as at 1 January 2004, amounted to £364m. The cumulative impairment recognised in relation to goodwill is £41m (2021: £41m). 194 IMI plc Annual Report & Accounts 2022 ## 12. Property, plant and equipment This note details the physical assets used by the Group to generate revenues and profits, in addition to those disclosed in Note 13 'Leases'. These assets include manufacturing, distribution and office sites, and equipment used in the manufacture of the Group's products. The cost of these assets represents the amount initially paid for them. ### Accounting policy Freehold land and assets in the course of construction are not depreciated. Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 11). Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Costs in respect of tooling owned by the Group for clearly identifiable new products are capitalised net of any contribution received from customers and are included in plant and equipment. Depreciation is charged to the income statement, from the date the asset is brought in to use, on a straight-line basis (unless such a basis is not aligned with the anticipated benefit) so as to write down the cost of assets to residual values over the period of their estimated useful lives within the following ranges: - Plant and equipment - 3 to 20 years Assets in the course of construction comprise assets which are not currently ready to be brought in to use. Assets under construction are not depreciated. If there has been a technological change or decline in business performance the directors review the value of the assets to ensure they have not fallen below their depreciated value. If an asset's value falls below its depreciated value, a one-off impairment charge is made against profit. | | Land & buildings £m | Plant & equipment £m | Assets in the course of construction £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | As at 1 January 2021 | 189.6 | 698.2 | 16.9 | 904.7 | | Exchange adjustments | (5.6) | (27.3) | (1.4) | (34.3) | | Acquisitions (Note 23) | 4.1 | 5.0 | 0.5 | 9.6 | | Additions | 1.1 | 20.6 | 24.5 | 46.2 | | Transfers from assets in the course of construction | 1.8 | 12.1 | (13.9) | - | | Disposals | (4.3) | (33.9) | | (38.2) | | As at 31 December 2021 | 186.7 | 674.7 | 26.6 | 888.0 | | **Exchange adjustments** | **8.7** | **43.9** | **(0.4)** | **52.2** | | **Acquisitions (Note 23)** | **2.9** | **1.8** | **0.2** | **4.9** | | **Additions** | **3.6** | **23.7** | **29.9** | **57.2** | | **Transfers from assets in the course of construction** | **0.8** | **24.4** | **(25.2)** | **-** | | **Disposals** | **(4.3)** | **(32.8)** | **(0.1)** | **(37.2)** | | **As at 31 December 2022** | **198.4** | **735.7** | **31.0** | **965.1** | | **Depreciation** | | | | | | As at 1 January 2021 | 97.0 | 541.7 | | 638.7 | | Exchange adjustments | (0.6) | (28.3) | | (28.9) | | Disposals | (2.6) | (32.3) | | (34.9) | | Impairment charge | 3.1 | 2.3 | | 5.4 | | Depreciation | 3.7 | 36.3 | | 40.0 | | As at 31 December 2021 | 100.6 | 519.7 | - | 620.3 | | **Exchange adjustments** | **3.6** | **35.6** | | **39.2** | | **Disposals** | **(2.1)** | **(30.5)** | | **(32.6)** | | **Reversal of impairment** | **(1.9)** | **(1.0)** | | **(2.9)** | | **Depreciation** | **4.7** | **37.2** | | **41.9** | | **As at 31 December 2022** | **104.9** | **561.0** | **-** | **665.9** | | NBV at 31 December 2021 | 86.1 | 155.0 | 26.6 | 267.7 | | **NBV at 31 December 2022** | **93.5** | **174.7** | **31.0** | **299.2** | A reversal of impairment £2.9m occurred during the year (2021: an impairment charge of £5.4m). The recoverable amount of these assets has been determined using their fair value less costs to sell, estimated by both internal and external valuation specialists. Group contracts in respect of future capital expenditure which had been placed at the balance sheet date amounted to £3.7m (2021: £3.4m). ## 195Introduction Strategic Report Corporate Governance Financial Statements ## 13. Leases Accounting policy The Group leases various properties, plant, equipment and cars. Rental contracts are negotiated individually and have a range of initial terms and may have extension options. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of: i. fixed payments less any lease incentives receivable; ii. variable lease payments that are based on an index or a rate; iii. amounts expected to be payable by the Group under residual value guarantees; iv. the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and v. payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the entity’s incremental borrowing rate is used, being the rate that the entity would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are measured at cost comprising: i. the amount of the initial measurement of lease liability; ii. any lease payments made at or before the commencement date less any lease incentives received; and iii. restoration costs. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture. Extension and termination options - Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. Critical judgement In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Potential future cash outflows of £nil have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the Group. During the current financial year, the financial effect of revising lease terms to reflect the effect of exercising extension and termination options was an increase in recognised lease liabilities and right-of-use assets of £8.3m (2021: £11.0m). 196 IMI plc Annual Report & Accounts 2022 # 13. Leases (continued) Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: | | Land & buildings £m | Plant & equipment £m | Total £m | | --- | --- | --- | --- | | As at 1 January 2021 | 72.6 | 13.0 | 85.6 | | Additions | 14.9 | 5.0 | 19.9 | | Acquisitions | 3.8 | 0.1 | 3.9 | | Extensions | 12.4 | 0.7 | 13.1 | | Payment changes | 0.5 | 0.1 | 0.6 | | Terminations | (1.5) | (0.4) | (1.9) | | Depreciation expense | (20.9) | (7.4) | (28.3) | | Exchange | (0.9) | (0.5) | (1.4) | | As at 31 December 2021 | **80.9** | **10.6** | **91.5** | | **Additions** | **27.9** | **7.3** | **35.2** | | Acquisitions | - | 0.1 | 0.1 | | Extensions | 8.0 | 1.0 | 9.0 | | Payment changes | 1.6 | 0.2 | 1.8 | | Terminations | (0.5) | (0.2) | (0.7) | | Impairment | (0.6) | - | (0.6) | | Depreciation expense | (25.0) | (7.3) | (32.3) | | Exchange | 2.5 | 0.5 | 3.0 | | As at 31 December 2022 | **94.8** | **12.2** | **107.0** | Set out below are the carrying amounts of lease liabilities and the movements during the period: | | Land & buildings £m | Plant & equipment £m | Total £m | | --- | --- | --- | --- | | As at 1 January 2021 | 75.5 | 12.8 | 88.3 | | Additions | 14.6 | 5.1 | 19.7 | | Acquisitions | 3.8 | 0.1 | 3.9 | | Extensions | 12.1 | 0.7 | 12.8 | | Payment changes | (0.8) | 0.1 | (0.7) | | Terminations | (1.5) | (0.3) | (1.8) | | Accretion of interest | 2.6 | 0.2 | 2.8 | | Payments | (22.3) | (7.7) | (30.0) | | Exchange | (0.8) | (0.3) | (1.1) | | As at 31 December 2021 | **83.2** | **10.7** | **93.9** | | **Additions** | **23.7** | **7.3** | **31.0** | | Acquisitions | - | 0.1 | 0.1 | | Extensions | 8.1 | 1.0 | 9.1 | | Payment changes | 1.7 | 0.2 | 1.9 | | Terminations | (0.5) | (0.2) | (0.7) | | Accretion of interest | 2.6 | 0.2 | 2.8 | | Payments | (27.2) | (7.9) | (35.1) | | Exchange | 2.2 | 0.5 | 2.7 | | As at 31 December 2022 | **93.8** | **11.9** | **105.7** | | **Current** | **20.0** | **5.8** | **25.8** | | **Non-current** | **73.8** | **6.1** | **79.9** | ## 197Introduction Strategic Report Corporate Governance Financial Statements The following are the amounts recognised in the income statement: 2022 2021 £m £m Depreciation expense of right-of-use assets (32.3) (28.3) Interest expense on lease liabilities (2.8) (2.8) Total amount recognised in profit or loss (35.1) (31.1) Practical expedients applied The Group has used the following practical expedients permitted by the standard: i. the use of a single discount rate to a portfolio of leases with reasonably similar characteristics No practical expedient has been applied in relation to short-term leases and low value assets and is not expected to be used in subsequent periods. Future cash outflows that the Group is potentially exposed to in relation to the measurement of lease liabilities which have not been reflected is £nil (2021: £nil). IMI plc Annual Report & Accounts 2022198 ## 14. Retirement benefits Accounting policy i. Defined contribution (‘DC’) pension plans Arrangements where the employer pays fixed contributions into an external fund on behalf of the employee (who is responsible for making the investment decision and therefore assumes the risks and rewards of fund performance). Contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. ii. Defined benefit (‘DB’) pension plans A defined benefit pension plan is a pension arrangement in which the employer promises a specified annual benefit on retirement that is pre-determined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. In some cases, this benefit is paid as a lump sum on leaving the Company or while in the service of the Company rather than as a pension. The Group underwrites one or more risks in meeting these obligations and therefore any net liability or surplus in these arrangements is shown on the Group balance sheet. The Group’s net obligation in respect of defined benefit pension plans 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; that benefit is discounted to determine its present value, and the fair value of any plan assets are deducted. Past service costs are recognised in profit or loss on the earlier of the date of the plan amendment or curtailment, and the date that the Group recognises restructuring-related costs. The discount rate is the yield at the balance sheet date on high quality corporate bonds of the appropriate currency that have durations approximating those of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. At each year end the Company and the local actuaries consider whether the plans are affected by the asset ceiling requirements. When the calculation results in a net asset to the Group, the recognised asset is limited to the present value of any future refunds from the plan or reductions in future contributions to the plan and restricted by any relevant asset ceiling. Any deduction made by the tax authorities in the event of a refund of a surplus would be regarded by the Group as an income tax. When the benefits of a plan are improved, the expense is recognised immediately in the income statement. Re-measurement gains and losses are recognised immediately in equity and disclosed in the statement of comprehensive income. iii. Long-term service and other post-employment benefits The Group’s net obligation in respect of long-term service and other post-employment benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present value and the fair value of any related assets is deducted. The discount rate is the yield at the balance sheet date on high quality bonds of the appropriate currency that have durations approximating those of the Group’s obligations. Key source of estimation uncertainty Key source of estimation uncertainty –The present value of the Group’s defined benefit pension plans and other post-employment benefits are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, inflation, future salary increases, mortality rates and future pension increases. The assumptions used and analysis of their sensitivity is set out below. Due to the complexity of the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. Introduction Strategic Report Corporate Governance Financial Statements 199 ## Summary information ### Net pension deficit: £18.9m (2021: surplus of £62.5m) The assets and liabilities of the defined benefit schemes are aggregated, recognised in the consolidated balance sheet and shown within non-current liabilities or in non-current assets if a scheme is in surplus and it is deemed recoverable. ### Number of DB arrangements: 70 (2021: 70) There has been no change to the number of schemes during the year. The following table shows a summary of the geographical profile of the Group's defined benefit schemes: | | Quantity 2022 | Quantity 2021 | Assets £m | Liabilities £m | Net surplus/ (deficit) £m | | --- | --- | --- | --- | --- | --- | | Australia | 3 | 3 | | (0.4) | (0.4) | | Austria | 6 | 6 | | (2.4) | (2.4) | | France | 3 | 3 | 0.2 | (0.9) | (0.7) | | Germany | 30 | 30 | 7.0 | (42.8) | (35.8) | | India | 6 | 6 | | (1.2) | (1.2) | | Italy | 6 | 6 | | (2.2) | (2.2) | | Mexico | 5 | 5 | | (0.8) | (0.8) | | Spain | 2 | 2 | | | | | Switzerland | 5 | 5 | 74.0 | (73.9) | 0.1 | | UAE | 1 | 1 | | (1.3) | (1.3) | | US* | 2 | 2 | | (2.6) | (2.6) | | UK | 1 | 1 | 325.3 | (296.9) | 28.4 | | | 70 | 70 | 406.5 | (425.4) | (18.9) | * The US deficit above excludes £1.8m of assets relating to unqualified plans classified as investments (see Note 17). As at 31 December 2022, the Group has recognised a net defined benefit surplus of £28.4m (2021: £129.0m) for the UK Deferred Fund. No asset ceiling has been applied to the net surplus recognised since the Group has an unconditional right to a refund of surplus assets following the settlement of the liabilities. The Group provides pension benefits through a mixture of funded and unfunded DB and DC arrangements. Assessments of the obligations of the defined benefit plans are carried out by actuaries, based on the projected unit credit method. A historical split of the types of defined benefit schemes in operation is as follows: | Type of scheme | Qty No. | Assets £m | % of total assets | Liabilities £m | % of total liabilities | | --- | --- | --- | --- | --- | --- | | **2022** | | | | | | | Final salary* | 25 | 325.9 | 79% | (333.6) | 78% | | Cash balance** | 12 | 79.1 | 19% | (76.3) | 18% | | Jubilee Awards*** | 14 | - | 0% | (2.7) | 1% | | Other | 19 | 7.2 | 2% | (12.8) | 3% | | **Total** | **70** | **412.2** | **100%** | **(425.4)** | **100%** | | Asset ceiling | | (5.7) | | | | | Revised assets | | 406.5 | | | | | **2021** | | | | | | | Final salary* | 25 | 632.5 | 88% | (549.2) | 84% | | Cash balance** | 12 | 80.6 | 11% | (87.1) | 13% | | Jubilee Awards*** | 14 | - | 0% | (3.0) | 0% | | Other | 19 | 6.6 | 1% | (17.9) | 3% | | **Total** | **70** | **719.7** | **100%** | **(657.2)** | **100%** | * **Final salary scheme:** The pension available to a member in a final salary arrangement will be a proportion of the member's salary at or around their retirement date. This proportion will be determined by the member's length of pensionable service, their accrual rate and any particular circumstances under which the member retires (for example early ill-health retirement). ** Cash balance:** A cash balance scheme is a form of defined benefit pension under which the member has the right to a defined lump sum on retirement rather than a defined amount of pension receivable. For example a cash balance plan may have minimum or guaranteed rates of return on pension contributions. The amount of pension to which that lump sum may be converted is determined by the annuity rates prevailing at the time of conversion. *** Jubilee Awards:** Jubilee plans provide for cash award payments which are based on completed lengths of service. These payments are often made on cessation of service with the company, subject to a minimum period of service. 200 IMI plc Annual Report & Accounts 2022 ## 14. Retirement benefits (continued) ### Asset profile of schemes The following table sets out the profile of the overall assets of the schemes (to give an indication of their risk profile), the comparative amounts of the funded and unfunded defined benefit liabilities ('DBOs') and a split of the balance sheet impact between schemes with a net pension surplus and a net pension deficit. | | 2022 £m | 2021 £m | | --- | --- | --- | | Quoted equities | 24.7 | 27.8 | | Quoted bonds | 23.3 | 256.8 | | Total quoted assets | 48.0 | 284.6 | | Unquoted equities | 103.3 | 120.8 | | Insurance policies* | 272.0 | 254.7 | | Property | 19.5 | 20.0 | | Other** | (30.6) | 39.6 | | Total unquoted assets | 364.2 | 435.1 | | Fair value of assets | 412.2 | 719.7 | | Restriction due to asset ceiling | (5.7) | - | | DBOs for funded schemes | (378.3) | (598.1) | | DBOs for unfunded schemes | (47.1) | (59.1) | | Surplus/(deficit) for DBOs | (18.9) | 62.5 | | Schemes in net pension deficit | (47.4) | (66.5) | | Schemes in net pension surplus | 28.5 | 129.0 | * The value of the insurance policies match the value of the IAS 19 liabilities insured. ** 'Other' assets primarily consists of cash, currency swaps and UK commercial real estate debt. The overseas assets of £86.9m (2021: £87.8m) comprise equities of £24.7m (2021: £27.8m), bonds of £21.0m (2021: £20.2m), insurance of £7.5m (2021: £4.1m), property of £19.5m (2021: £19.2m) and other assets of £14.2m (2021: £16.5m). This excludes the impact of the restriction due to the asset ceiling of £5.7m (2021: £nil) associated with schemes in Switzerland and Germany. **Funded:** The majority of the Group defined benefit and other post-employment benefit arrangements are funded, which means they are linked to specific plan assets that have been segregated in a trust or foundation. **Unfunded:** Plans that are not funded are those that are not backed by segregated assets. These include some pension plans but also a number of other long-term arrangements for the benefit of our employees, with benefits payable while they are employed by the Group but more than 12 months after the related service is rendered. Actuarial gains and losses on other long-term arrangements are recognised in the income statement in the period in which they arise. ### Average duration by geography The following table shows the weighted average number of years (or duration) over which pension benefits are expected to be paid. | Location | 2022 | 2021 | | --- | --- | --- | | UK | 15.4 | 21.7 | | Switzerland | 14.1 | 16.8 | | US | 5.1 | 5.5 | | Eurozone | 11.9 | 14.6 | ### The UK Funds The United Kingdom constitutes 70% (2021: 77%) of total defined benefit liabilities and 80% (2021: 88%) of total defined benefit assets. Historically, the IMI Pension Fund offered final salary benefits to UK employees until it closed to new entrants in 2005 and to future accrual on 31 December 2010. In December 2014, winding-up procedures commenced and those members who were not eligible or did not take up the offer of a single cash lump sum transferred to one of two new Funds (IMI 2014 Pensioner Fund or the IMI 2014 Deferred Fund – 'the UK Funds'). Ongoing pension benefits in the UK are provided via the Trustee's defined contribution plan - The IMI Retirement Savings Plan. All UK pension assets are run on behalf of the Trustee by the Board of the IMI Common Investment Fund. ### Liability management During 2022, the Group completed an insurance buy-in exercise for the remaining uninsured members. The Trustees agreed to defer part of the premium owed to the insurance company for this buy-in and the outstanding amount is expected to be paid over the next 5 years. The present value of the deferred premium has been deducted from the total asset value for the current year. Consistent with the accounting treatment of previous buy-in transactions, the impact has been recognised in the other comprehensive income statement. During 2021, the Group completed a bulk insurance buy-in exercise in relation to certain members of the UK Deferred Fund. The difference between the value of the liabilities insured and the cost of the premium to insure them of £26.4m was recognised as a loss in other comprehensive income. ### Contributions The March 2021 Valuation was completed in December 2021 and the Funds' Actuary certified that no deficit funding contributions would be required over and above the projected investment returns and the scheduled payments, of £7.0m per annum, due from the Scottish Limited Partnerships until the earlier of full funding of the UK Deferred Fund or 2030. During 2022, the Group ceased contributions to the Scottish Limited Partnership as the UK Deferred Fund is fully funded. The final payment of £3.5m for 2021 was made in February 2022. Introduction Strategic Report Corporate Governance Financial Statements 201 ## Specific effect on the financial statements The corresponding entries for increases and decreases in the net pension deficit reported in the balance sheet are reflected as follows: i. **Cash flow statement:** When the Group makes cash contributions to fund the pension deficit/surplus they are reflected in the cash flow statement and reduce the net deficit/increase the net surplus. ii. **Income statement:** Movements in the overall net pension deficit/surplus are recognised in the income statement when they relate to changes in the overall pension promise, due to either an additional period of service (known as 'current service cost'), changes to pension terms in the scheme rules (known as 'past service cost'), or closure of all or part of a scheme (known as settlements and curtailments). The interest charge/income on the net deficit/surplus position is also recognised in the income statement. iii. **Other comprehensive income (OCI):** Movements in the overall net pension deficit/surplus are recognised through OCI when they relate to changes in actuarial assumptions or the difference ('experience gain or loss') between previous assumptions and actual results. The table below reconciles the movement in the UK and overseas net defined benefit (obligation)/surplus between 1 January 2022 and 31 December 2022. | | UK £m | Overseas £m | Total £m | | --- | --- | --- | --- | | Net defined benefit surplus/(obligation) at 1 January 2022 | 129.0 | (66.5) | 62.5 | | **Movement recognised in:** | | | | | Income statement | 2.3 | (6.0) | (3.7) | | OCI | (102.9) | 20.2 | (82.7) | | Cash flow statement | - | 8.2 | 8.2 | | Exchange movements | - | (3.2) | (3.2) | | **Net defined benefit surplus/(obligation) at 31 December 2022** | **28.4** | **(47.3)** | **(18.9)** | ## Risks faced by the schemes The main risks that the Group face in respect of the UK Deferred Fund, which makes up 70% of the Group's liabilities, are: | Risk | Description/mitigation | | --- | --- | | **Interest rate risk** | Under IAS 19, the discount rate should be set with reference to the yield on high quality corporate bonds (typically taken to mean those rated AA) of term appropriate to the duration of the liabilities. A decrease in corporate bond yields and therefore the resulting discount rate, leads to a higher value being placed on the pension liabilities. The Trustees' investment strategy for the UK Deferred Fund includes investing in liability-driven investments and bonds whose values increase with decreases in interest rates. The Trustees have a target to hedge 100% of interest rate risk. The Trustee's investment managers measure and monitor the hedging arrangements in place and the latest performance report shows this target is being met. Note that the Scheme hedges interest rate risk on a scheme funding basis (relative to gilts) whereas AA corporate bonds are implicit in the IAS 19 discount rate and so there is some mismatching risk to the Group should yields on gilts and corporate bonds diverge. The Scheme's exposure to corporate bonds mitigates this risk to some extent. | | **Inflation risk** | In the UK Deferred Fund, a large proportion of the benefits are linked to inflation. Therefore, an increase in inflation would lead to higher benefits being paid than expected. To mitigate this risk, the UK Deferred Fund aims to hedge 100% of the Fund's liabilities against inflation risk. The Trustee's investment managers measure and monitor the hedging arrangements in place and the latest performance report shows this target is being met. | | **Investment risk** | The UK Deferred Fund holds investments in asset classes, such as private equity and property, which have volatile market values. These assets are expected to provide better returns than Government bonds over the long-term. However, the short-term volatility can cause additional funding to be required, if a deficit emerges. As these investments make up around 27% of the total assets, the risk to the Group is relatively small. | | **Mortality risk** | The majority of the plans' obligations are to provide benefits for the life of each retired member and his/her spouse, so increases in life expectancy result in an increase in the plans' liabilities. An increase of one year in life expectancy for the UK Deferred Fund would act to increase liabilities by c.£10.4m. The Group has an objective to insure benefits as members retire in order to reduce mortality risk. | 202 IMI plc Annual Report & Accounts 2022 ## 14. Retirement benefits (continued) ### Cash flow impacts | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | UK £m | Overseas £m | Total £m | UK £m | Overseas £m | Total £m | | Amounts from employees | - | 2.3 | 2.3 | - | 2.2 | 2.2 | | Amounts from employers | 3.5 | 2.9 | 6.4 | 7.0 | 2.7 | 9.7 | | Benefits and settlements paid directly by the Group | - | 5.3 | 5.3 | - | 4.1 | 4.1 | | **Total** | **3.5** | **10.5** | **14.0** | **7.0** | **9.0** | **16.0** | The expected contributions to the DB arrangements in 2023 are £2.9m of normal employer contributions and £2.4m of normal employee contributions, both in relation to overseas pension funds. ### Other comprehensive income Movements in pension assets and liabilities that arise during the year from changes in actuarial assumptions, or because actual experience is different from the actuarial assumptions, are recognised in equity via other comprehensive income. These movements are analysed below: | | 2022 | | | | 2021 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | UK £m | Overseas post employment £m | Overseas non-post employment £m | Total £m | UK £m | Overseas post employment £m | Overseas non-post employment £m | Total £m | | Change in discount rate | 203.9 | 26.0 | | 229.9 | 49.9 | 8.0 | | 57.9 | | Change in inflation | 2.2 | 9.3 | | 11.5 | (16.0) | - | | (16.0) | | Change in other assumptions | 2.3 | - | | 2.3 | 5.4 | 3.2 | | 8.6 | | Actuarial experience - Liabilities | (2.1) | (1.2) | | (3.3) | 3.6 | 1.4 | | 5.0 | | Asset experience | (309.2) | (8.5) | | (317.7) | 8.0 | 7.4 | | 15.4 | | **Actuarial (losses)/gains in the year** | **(102.9)** | **25.6** | | **(77.3)** | **50.9** | **20.0** | | **70.9** | | Change in the asset ceiling | | (5.4) | | (5.4) | | | | - | | Exchange (losses)/gains | | (2.8) | (0.4) | (3.2) | | 4.0 | 0.3 | 4.3 | | **(Losses)/gains recognised through equity** | **(102.9)** | **17.4** | **(0.4)** | **(85.9)** | **50.9** | **24.0** | **0.3** | **75.2** | IMI takes advice from actuaries regarding the appropriateness of the assumptions used to determine the present value of the defined benefit obligations. These assumptions include the discount rate applied to the assets and liabilities, the life expectancy of the members, their expected salary and pension increases and inflation. The assumptions used for this purpose in these financial statements are summarised below: | | Weighted Averages | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 31 Dec 2022 | | 31 Dec 2021 | | 31 Dec 2020 | | | | UK* % pa | Overseas % pa | UK** % pa | Overseas % pa | UK % pa | Overseas % pa | | Inflation – RPI | 3.4 | n/a | 3.4 | n/a | 3.1 | n/a | | Inflation – CPI (pre-2030) | 2.4 | 1.5 | 2.4 | 1.3 | 2.1 | 1.3 | | Inflation – CPI (post-2030) | 3.4 | 1.5 | 3.4 | 1.3 | 3.1 | 1.3 | | Discount rate | 4.8 | 3.0 | 1.9 | 0.8 | 1.4 | 0.4 | | Expected salary increases | n/a | 1.8 | n/a | 1.7 | n/a | 1.6 | | Rate of pension increases | 3.3 | 0.5 | 3.3 | 0.7 | 3.1 | 0.7 | \* Assumptions based on 31 December 2022 market conditions and based on the weighted average of various buy-in policy assumptions. \*\* Assumptions based on 31 December 2021 UK market conditions excluding buy-ins. Introduction Strategic Report Corporate Governance Financial Statements 203 | | 2022 Years | 2021 Years | 2020 Years | | --- | --- | --- | --- | | **Life expectancy (IMI Pension Fund only)***** | | | | | Current male pensioners | 21.5 | 21.8 | 21.8 | | Current female pensioners | 23.9 | 24.1 | 24.6 | | Future male pensioners | 22.8 | 23.1 | 23.5 | | Future female pensioners | 25.4 | 25.6 | 26.4 | *** Life expectancies are based on members with a pension size of £5k-£20k for male members and £1k-£8k for female members. The mortality assumptions used for the UK Funds above reflect its scheme specific experience, together with an allowance for improvements over time. The experience was reviewed as part of the formal triennial actuarial valuation carried out as at 31 March 2021. The assumptions used as at 31 December 2022 have been based on the results of this review, with the allowance for improvements over time updated to reflect the latest data available. The table below illustrates how the UK Funds' net pension surplus would decrease (excluding the impact of inflation rate and interest rate hedging), as at 31 December 2022, in the event of the following reasonable changes in the key assumptions above. | UK | 2022 £m | 2021 £m | | --- | --- | --- | | Discount rate 0.1% pa lower* | 5.0 | 11.0 | | Inflation-linked pension increases 0.1% pa higher | 4.0 | 0.0 | | Increase of one year in life expectancy from age 65 | 10.0 | 18.0 | | 10% fall in non-bond-like assets** | 11.0 | 37.0 | * Due to the volatility of the discount rate year on year, sensitivities using a percentage of 0.1% are shown to provide the users of the accounts the ability to adjust the sensitivities as they consider necessary. ** Fund assets excluding cash, bonds and insurance policies. In each case all other assumptions are unchanged. The table below shows how the net pension deficit for IMI's non-UK plans would increase, in the event of the following reasonable changes in the key assumptions above. | Non-UK | 2022 £m | 2021 £m | | --- | --- | --- | | Discount rate 0.1% pa lower | 1.4 | 2.5 | | Salary increases 0.1% higher | 0.3 | 0.3 | | Increase of one year in life expectancy at age 65 | 2.7 | 4.2 | ## Income statement In accordance with IAS 19, pension costs recorded through the income statement primarily represent the increase in the DBO based on employee service during the year and the interest on the net liability or surplus for DBOs in respect of employee service in previous years. The table below shows the cost reported in the income statement in respect of pension obligations (excluding defined benefit contributions): | | 2022 | | | | 2021 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | UK £m | Overseas post employment £m | Overseas non-post employment £m | Total £m | UK £m | Overseas post employment £m | Overseas non-post employment £m | Total £m | | Current service cost | | 4.5 | 0.8 | 5.3 | | 5.1 | 0.8 | 5.9 | | Settlement/curtailment gain | | | | - | (0.4) | | | (0.4) | | Recognition of gains | | | (0.1) | (0.1) | | | | - | | Pension expense/(income) - operating costs | - | 4.5 | 0.7 | 5.2 | (0.4) | 5.1 | 0.8 | 5.5 | | Interest on DBO | 9.2 | 1.1 | 0.1 | 10.4 | 9.0 | 0.6 | 0.1 | 9.7 | | Interest on assets | (11.5) | (0.4) | | (11.9) | (10.6) | (0.1) | | (10.7) | | Interest (income)/expense - financing costs | (2.3) | 0.7 | 0.1 | (1.5) | (1.6) | 0.5 | 0.1 | (1.0) | 204 IMI plc Annual Report & Accounts 2022 # 14. Retirement benefits (continued) # Overall reconciliation of changes in the net (liability)/surplus for DBOs | | 2022 | | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | DBO £m | Assets £m | Asset ceiling £m | Net DB asset/ (liability) £m | DBO £m | Assets £m | Net DB asset/ (liability) £m | | **Brought forward at start of year** | **(657.2)** | **719.7** | **-** | **62.5** | **(740.8)** | **718.8** | **(22.0)** | | **Income statement (charges)/credits** | | | | | | | | | Current service cost | (5.3) | | | (5.3) | (5.9) | | (5.9) | | Settlements | 1.2 | (1.2) | | - | 25.3 | (24.9) | 0.4 | | Net interest (cost)/income on net DB (liability)/asset | (10.4) | 11.9 | | 1.5 | (9.7) | 10.7 | 1.0 | | Immediate recognition of gains/(losses) – other long-term benefits | 0.1 | | | 0.1 | | | - | | **Total charged to income statement** | **(14.4)** | **10.7** | **-** | **(3.7)** | **9.7** | **(14.2)** | **(4.5)** | | **Remeasurements recognised in other comprehensive income** | | | | | | | | | Actuarial (loss)/gain due to actuarial experience | (3.3) | | | (3.3) | 5.0 | | 5.0 | | Actuarial gain due to financial assumption changes | 241.6 | | | 241.6 | 41.9 | | 41.9 | | Actuarial gain due to demographic assumption changes | 2.2 | | | 2.2 | 8.6 | | 8.6 | | Return on plan assets* less than discount rate | | (317.8) | | (317.8) | | 15.4 | 15.4 | | Change in asset ceiling | | | (5.4) | (5.4) | | | - | | **Total remeasurements recognised in other comprehensive income** | **240.5** | **(317.8)** | **(5.4)** | **(82.7)** | **55.5** | **15.4** | **70.9** | | **Cash flows in the year** | | | | | | | | | Employer contributions | | 2.9 | | 2.9 | | 9.7 | 9.7 | | Employee contributions | (2.3) | 2.3 | | - | (2.2) | 2.2 | - | | Benefits paid directly by the Company | 5.3 | | | 5.3 | 4.1 | | 4.1 | | Benefits paid from plan assets | 13.6 | (13.6) | | - | 10.8 | (10.8) | - | | **Net cash inflow/(outflow)** | **16.6** | **(8.4)** | **-** | **8.2** | **12.7** | **1.1** | **13.8** | | **Other movements** | | | | | | | | | Changes in exchange rates | (10.9) | 8.0 | (0.3) | (3.2) | 5.7 | (1.4) | 4.3 | | **Total other movements** | **(10.9)** | **8.0** | **(0.3)** | **(3.2)** | **5.7** | **(1.4)** | **4.3** | | **Carried forward at end of year** | **(425.4)** | **412.2** | **(5.7)** | **(18.9)** | **(657.2)** | **719.7** | **62.5** | \* Net of management costs. ## 205Introduction Strategic Report Corporate Governance Financial Statements ## 15. Inventories ## Inventories 2022 2021 £m £m Raw materials and consumables 169.0 135.4 Work in progress 136.7 107.0 Finished goods 110.6 92.8 416.3 335.2 Inventories are stated after: Allowance for impairment 52.5 46.2 In 2022, the cost of inventories recognised as an expense (being segmental cost of sales) amounted to £1,112.1m (2021: £1,004.6m). In 2022, the write-down of inventories to net realisable value amounted to £0.1m (2021: £0.4m). The reversal of write-downs amounted to £nil (2021: £nil). Write-downs and reversals in both years relate to ongoing assessments of inventory obsolescence, excess inventory holding and inventory resale values across all of the Group’s businesses. Accounting policy Inventories are valued at the lower of cost and net realisable value. Due to the varying nature of the Group’s operations, both first in, first out and weighted average methodologies are employed. In respect of work in progress and finished goods, cost includes all direct costs of production and the appropriate proportion of production overheads. The Group sells a wide range of highly technical products and whilst they are designed and engineered to a high degree of precision and to customer specifications, there is a risk of products requiring modification, which can lead to excess or obsolete inventory. The amount of inventory provision recognised is disclosed below: 206 IMI plc Annual Report & Accounts 2022 # 16. Trade and other receivables ## Accounting policy The recoverable amount of the Group's receivables other than financial assets held at fair value is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration of less than one year are not discounted. The expected credit loss is calculated based on the ageing of individual customers receivables, giving consideration to the geographical location in which they operate, historical collectability and the customer's financial position, where this information is known. ## Trade and other receivables | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current** | | | | Trade receivables | 368.5 | 325.4 | | Prepayments* | 23.6 | 29.6 | | Accrued income* | 2.3 | 0.3 | | Other receivables | 90.5 | 58.7 | | | **484.9** | **414.0** | | **Receivables are stated after:** | | | | Allowance for impairment | 16.4 | 15.7 | * 'Prepayments' and 'Accrued income' are now disclosed separately given their quantum. Prior period comparatives have been re-presented. ## Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers, cash and cash equivalents held by the Group's banks and other financial assets. At the end of 2022 these totalled £526.1m (2021: £446.0m). ### Managing credit risk arising from customers The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which customers operate, have less of an influence on credit risk. Our largest single customer accounted for 2% of our 2022 revenues (2021: 3%). Geographically there is no unusual concentration of credit risk. The Group's contract approval procedure ensures that large contracts are signed off at executive director level at which time the risk profile of the contract, including potential credit and foreign exchange risks, is reviewed. Credit risk is minimised through due diligence on potential customers, appropriate credit limits, cash flow management and the use of documentary credits where appropriate. ### Exposure to credit risk in respect of trade receivables | | Carrying amount | | | --- | --- | --- | | | 2022 £m | 2021 £m | | UK | 18.1 | 12.9 | | Germany | 33.0 | 24.9 | | Rest of Europe | 98.3 | 83.3 | | USA | 75.7 | 62.5 | | Asia Pacific | 95.6 | 93.4 | | Rest of World | 47.8 | 48.4 | | | **368.5** | **325.4** | The maximum exposure to credit risk for trade receivables at the reporting date by segment was as follows: | | Carrying amount | | | --- | --- | --- | | | 2022 £m | 2021 £m | | IMI Precision Engineering | 164.2 | 128.3 | | IMI Critical Engineering | 147.1 | 153.8 | | IMI Hydronic Engineering | 57.2 | 43.3 | | | **368.5** | **325.4** | ### Impairment provisions for trade receivables The ageing of trade receivables at the reporting date was: | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Gross £m | Impairment £m | Gross £m | Impairment £m | | Not past due | 317.0 | (0.1) | 285.8 | (0.3) | | Past due 1-30 days | 30.7 | (0.9) | 24.5 | (1.0) | | Past due 31-90 days | 14.4 | (0.9) | 9.2 | (1.1) | | Past due over 90 days | 22.8 | (14.5) | 21.6 | (13.3) | | **Total** | **384.9** | **(16.4)** | **341.1** | **(15.7)** | The net movement in the allowance for impairment in respect of trade receivables during the year was as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Net balance at 1 January | 15.7 | 19.5 | | Acquisitions | (0.4) | (0.1) | | Utilised during the year | 2.0 | (3.0) | | Charged to the income statement | (0.1) | 1.7 | | Released | (1.6) | (1.3) | | Exchange | 0.8 | (1.1) | | **Net balance at 31 December** | **16.4** | **15.7** | ### Managing credit risk arising from counterparties A group of relationship banks provides the bulk of the banking services, with pre-approved credit limits set for each institution. Financial derivatives are entered into with these core banks and the credit exposure to these instruments is included when considering the credit exposure to the counterparties. At the end of 2022, credit exposure including cash deposited did not exceed £16.0m with any single institution (2021: £15.8m). Introduction Strategic Report Corporate Governance Financial Statements 207 ## 17. Financial assets and liabilities Financial instruments included in the financial statements are measured at either fair value or amortised cost. The measurement of this fair value can in some cases be subjective, and can depend on the inputs used in the calculations. The Group generally calculates its own fair values using comparable observed market prices and a valuation model using the respective and relevant market data for the instrument being valued. The table below sets out the Group's accounting classification of each class of financial assets and liabilities, and their fair values at 31 December 2022 and 31 December 2021. Under IFRS 9, all derivative financial instruments not in a hedge relationship are classified as derivatives at fair value through the income statement. The Group does not use derivatives for speculative purposes and transacts all derivatives with suitable investment grade counterparties. All transactions in derivative financial instruments are undertaken to manage the risks arising from the Group's business activities. | | Fair value | | | At amortised cost £m | Total carrying value £m | Fair value if different £m | | --- | --- | --- | --- | --- | --- | --- | | | Designated at fair value £m | Other derivatives at fair value £m | Financial assets at fair value* £m | | | | | **2022** | | | | | | | | Cash and cash equivalents | | | 133.0 | | 133.0 | | | Bank overdrafts | | | | (93.8) | (93.8) | | | Borrowings due within one year | | | | (150.1) | (150.1) | (150.1) | | Borrowings due after one year | | | | (595.4) | (595.4) | (554.2) | | Lease liabilities | | | | (105.7) | (105.7) | | | Trade and other payables** | | | | (447.6) | (447.6) | | | Trade receivables | | | | 368.5 | 368.5 | | | Investments | | | 2.0 | | 2.0 | | | Other current financial assets/(liabilities) | | | | | | | | Derivative assets*** | | 15.7 | | | 15.7 | | | Derivative liabilities*** | (3.9) | (9.9) | | | (13.8) | | | **Total** | **(3.9)** | **5.8** | **135.0** | **(1,024.1)** | **(887.2)** | | | **2021** | | | | | | | | Cash and cash equivalents | | | 94.6 | | 94.6 | | | Bank overdrafts | | | | (65.5) | (65.5) | | | Borrowings due within one year | | | | (127.7) | (127.7) | (128.3) | | Borrowings due after one year | | | | (430.3) | (430.3) | (446.6) | | Lease liabilities | | | | (93.9) | (93.9) | | | Trade and other payables** | | | | (406.9) | (406.9) | | | Trade receivables | | | | 325.4 | 325.4 | | | Investments | | | 2.9 | | 2.9 | | | Other current financial assets/(liabilities) | | | | | | | | Derivative assets*** | 4.9 | 5.1 | | | 10.0 | | | Derivative liabilities*** | | (6.3) | | | (6.3) | | | **Total** | **4.9** | **(1.2)** | **97.5** | **(798.9)** | **(697.7)** | | * This classification includes items for which the movement in fair value will be recognised in both profit and loss and other comprehensive income. ** Trade and other payables exclude corporation tax and include liabilities of £9.9m (2021: £6.5m) falling due after more than one year. *** Includes £2.6m (2021: £0.1m) falling due after more than one year. *** Derivative liabilities include liabilities of £0.4m (2021: £0.2m) falling due after more than one year: £0.4m in 1-2 years and £nil in 2-3 years (2021: £0.1m in 1-2 years and £0.1m in 2-3 years). Derivative liabilities designated at fair value represent the fair value of unsettled net investment hedge derivatives. The decrease in value of net investment hedge derivatives in the year of £8.8m is shown in the consolidated statement of comprehensive income. The increase in other derivative assets and liabilities at fair value of £7.0m is recognised in the income statement and consists of a £7.8m increase of unsettled net foreign currency and metal forward contracts, which are not designated as hedges for accounting purposes and a decrease of £0.8m of forward contracts to be utilised against specific trade receivables and trade payables. There are no other financial liabilities included within payables disclosed above. 208 IMI plc Annual Report & Accounts 2022 ## 17. Financial assets and liabilities (continued) ### Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The following table shows the Group's financial instruments held at fair value (excluding cash): | | Quoted prices in active markets for identical assets and liabilities Level 1 £m | Significant other observable inputs Level 2 £m | Unobservable inputs Level 3 £m | Total £m | | --- | --- | --- | --- | --- | | **As at 31 December 2022** | | | | | | **Financial assets measured at fair value** | | | | | | Equity instruments* | 2.0 | | | 2.0 | | Foreign currency forward contracts | | 15.7 | | 15.7 | | | 2.0 | 15.7 | | 7.7 | | **Financial liabilities measured at fair value** | | | | | | Foreign currency forward contracts | | (13.8) | | (13.8) | | | | (13.8) | | (13.8) | | **As at 31 December 2021** | | | | | | **Financial assets measured at fair value** | | | | | | Equity instruments* | 2.9 | | | 2.9 | | Foreign currency forward contracts | | 10.0 | | 10.0 | | | 2.9 | 10.0 | | 12.9 | | **Financial liabilities measured at fair value** | | | | | | Foreign currency forward contracts | | (6.3) | | (6.3) | | | | (6.3) | | (6.3) | \* Equity instruments primarily relate to investments in funds in order to satisfy long-term benefit arrangements. ### Valuation techniques for level 2 inputs Derivative assets and liabilities of £15.7m and £13.8m respectively are valued by level 2 techniques. The valuations are derived from discounted contractual cash flows using observable, and directly relevant, market interest rates and foreign exchange rates from market data providers. ### Valuation techniques for level 3 inputs At 31 December 2022, the Group held one external investment at fair value using significant unobservable (level 3) inputs. The valuation is derived using the cash flows of the investment which indicate a fair value of £nil. ### Valuation methodology Cash and cash equivalents, bank overdrafts, trade payables and trade receivables are carried at their book values as this approximates to their fair value due to the short-term nature of the instruments. Long-term and short-term borrowings, apart from any which are subject to hedging arrangements, are carried at amortised cost as it is the intention that they will not be repaid prior to maturity, where this option exists. The fair values are evaluated by the Group based on parameters such as interest rates and relevant credit spreads. Long-term borrowings which are subject to hedging arrangements are valued using appropriate discount rates to value the relevant hedged cash flows. Derivative assets and liabilities, including foreign exchange forward contracts, interest rate swaps and metal hedges, are valued using comparable observed market prices and a valuation model using foreign exchange spot and forward rates, interest rate curves and forward rate curves for the underlying commodities. Introduction Strategic Report Corporate Governance Financial Statements 209 # 18. Financial risk management ## Overview The Group's activities expose it to a variety of financial risks: interest rate, foreign exchange and base metal price movements in addition to funding and liquidity risks. The financial instruments used to manage these risks themselves introduce exposure to market risk and liquidity risk. The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. As described in the Corporate Governance Report on page 101 the Executive Committee monitors risk and internal controls and the Audit Committee monitors financial risk, while the other Board committees also play a part in contributing to the oversight of risk. The Audit Committee oversees how management monitors compliance with the Group's financial risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the financial risks faced by the Group. The Group Assurance department undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. The following sections discuss the management of specific financial risk factors in detail, including market risk, foreign exchange risk, interest rate risk, commodity risk and liquidity risk. The management of credit risk is disclosed in Note 16. ## Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the Group's income and cash flows or the value of its financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters. Under the management of the central Treasury function, the Group enters into derivatives in the ordinary course of business and also manages financial liabilities in order to mitigate market risks. All such transactions are carried out within the guidelines set by the Board and are undertaken only if they relate to underlying exposures. ## Foreign exchange risk The Group publishes consolidated accounts in sterling but conducts much of its global business in other currencies. As a result it is subject to the risks associated with foreign exchange movements affecting transaction costs ('transactional risk'), translation of foreign profits ('profit translation risk') and translation of the underlying net assets of foreign operations ('asset translation risk'). ## Management of transactional risk The Group's wide geographical spread both in terms of cost base and customer locations helps to reduce the impact on profitability of swings in exchange rates as well as creating opportunities for central netting of exposures. It is the Group's policy to minimise risk to exchange rate movements affecting sales and purchases by economically hedging or netting currency exposures at the time of commitment, or when there is a high probability of future commitment, using currency instruments (primarily forward exchange contracts). A proportion of forecast exposures are hedged depending on the level of confidence and hedging is periodically adjusted following regular reviews. On this basis over 50% of the Group's annual exposures to transactional risk are likely to be hedged at any point in time and the Group's net transactional exposure to different currencies varies from time to time. ## Management of profit translation risk The Group is exposed to the translation of profits denominated in foreign currencies into the sterling-based income statement. The interest cost related to the currency liabilities hedging the asset base provides a partial hedge to this exposure. Short-term currency option contracts may be used to provide limited protection against sterling strength on an opportunistic basis. The translation of US dollar and euro-based profits represent the most significant translation exposures for the Group. ## Management of asset translation risk The Group hedges its net investments in its major overseas operations by way of external currency loans and forward currency contracts. The intention is to manage the Group's exposure to gains and losses in Group equity resulting from retranslation of currency net assets at balance sheet dates. To the extent that an instrument used to hedge a net investment in a foreign operation is determined to be an effective hedge, the gain or loss arising is recognised directly in the translation reserves. Any ineffective portion is recognised immediately in the income statement. The Group have designated £288m (2021: £360m) of loans in a net investment hedge of USD net assets and £381m (2021: £193m) of EUR net assets. No ineffectiveness was recorded (2021: nil) and a loss of £8.8m (2021: £0.5m loss) was taken to the translation reserve. The amount accumulated in this reserve in respect of gains/losses arising on hedging instruments designated in net investment hedges up to 31 December 2022 was an accumulated loss of £1.2m (2021: accumulated profit of £7.6m). 210 IMI plc Annual Report & Accounts 2022 ## 18. Financial risk management (continued) ### Currency profile of assets and liabilities | | Cash* 2022 £m | Debt 2022 £m | Lease liabilities 2022 £m | Exchange contracts 2022 £m | Assets and liabilities subject to interest rate risk 2022 £m | Other net assets** 2022 £m | Total net assets 2022 £m | Total net assets 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Sterling | (68) | (77) | (16) | 209 | 48 | 143 | 191 | 207 | | US dollar | (4) | (288) | (9) | | (301) | 669 | 368 | 178 | | Euro | 52 | (381) | (31) | (106) | (466) | 530 | 64 | 163 | | Other | 59 | | (50) | (103) | (94) | 377 | 283 | 231 | | Total | 39 | (746) | (106) | - | (813) | 1,719 | 906 | 779 | * Cash is stated net of overdrafts. ** Other net assets includes leased assets: £14.9m Sterling (2021: £16.5m), £8.1m US Dollar (2021: £10.6m), £33.3m Euro (2021: £15.5m) and £50.7m Other (2021: £48.9m). Exchange contracts and non-sterling debt are financial instruments used as currency hedges of overseas net assets. ### Interest rate risk The Group is exposed to a number of global interest rates through assets and liabilities denominated in jurisdictions to which these rates are applied, most notably US, Eurozone and UK rates. The Group is exposed to these because market movements in these rates will increase or decrease the interest charge recognised in the Group income statement. #### Management of interest rate risk The Group adopts a policy of maintaining a portion of its liabilities at fixed interest rates and reviewing the balance of the floating rate exposure to ensure that if interest rates rise globally the effect on the Group's income statement is manageable. Interest rates are managed using fixed and floating rate debt and financial instruments including interest rate swaps. Floating rate liabilities comprise short-term debt which bears interest at short-term bank rates and the liability side of exchange contracts where the interest element is based primarily on three-month inter-bank rates. All cash surpluses are invested for short periods and are treated as floating rate investments. Non-interest bearing financial assets and liabilities including short-term trade receivables and payables have been excluded from the following analysis. Introduction Strategic Report Corporate Governance Financial Statements 211 ### Interest rate risk profile The following table shows how much of our cash, interest-bearing liabilities and exchange contracts attract both fixed and floating rate interest charges, and how this is analysed between currencies: | | Debt and exchange contracts* 2022 £m | Cash and exchange contracts 2022 £m | Assets subject to interest rate risk* 2022 £m | Floating rate 2022 £m | Fixed rate 2022 £m | Weighted average fixed interest rate % | Weighted average period for which rate is fixed years | | --- | --- | --- | --- | --- | --- | --- | --- | | Sterling | (94) | 141 | 47 | 47 | | | | | US dollar | (297) | (4) | (301) | (136) | (165) | 3.9 | 3.6 | | Euro | (517) | 52 | (465) | (84) | (381) | 2.3 | 5.0 | | Other | (153) | 59 | (94) | (94) | | | | | Total | (1,061) | 248 | (813) | (267) | (546) | | | * Net of lease liabilities; £16m Sterling, £9m US Dollar, £31m Euro and £50m Other. | | Debt and exchange contracts** 2021 £m | Cash and exchange contracts 2021 £m | Assets subject to interest rate risk** 2021 £m | Floating rate 2021 £m | Fixed rate 2021 £m | Weighted average fixed interest rate % | Weighted average period for which rate is fixed years | | --- | --- | --- | --- | --- | --- | --- | --- | | Sterling | (20) | 19 | (1) | (1) | | | | | US dollar | (371) | 196 | (175) | (15) | (160) | 4.1 | 4.4 | | Euro | (440) | 41 | (399) | (206) | (193) | 1.4 | 4.3 | | Other | (142) | 94 | (48) | (48) | | | | | Total | (973) | 350 | (623) | (270) | (353) | | | ** Net of lease liabilities; £17m Sterling, £11m US Dollar, £15m Euro and £51m Other. ### Market risk sensitivity analysis on financial instruments In estimating the sensitivity of the financial instruments all other variables are held constant to determine the impact on profit before tax and equity. The analysis is for illustrative purposes only, as in practice market rates rarely change in isolation. The values shown in the table below are estimates of the impact on financial instruments only. Actual results in the future may differ materially from these estimates. As such this table should not be considered as a projection of likely future gains and losses in these financial instruments. #### Sensitivity table The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified changes occur only to the financial derivatives and do not reflect the opposite movement from the impact of the specific change on the underlying business that they are designed to hedge. | | 1% decrease in interest rates £m | 1% increase in interest rates £m | 10% weakening in sterling £m | 10% strengthening in sterling £m | 10% decrease in base metal costs £m | 10% increase in base metal costs £m | | --- | --- | --- | --- | --- | --- | --- | | **At 31 December 2022** | | | | | | | | Impact on income statement: gain/(loss) | 2.0 | (2.0) | (11.3) | 11.3 | | | | Impact on equity: (loss)/gain | | | (77.2) | 77.2 | | | | **At 31 December 2021** | | | | | | | | Impact on income statement: gain/(loss) | 2.0 | (2.0) | (11.3) | 11.3 | 0.2 | (0.2) | | Impact on equity: (loss)/gain | | | (53.7) | 53.7 | | | 212 IMI plc Annual Report & Accounts 2022 ## 18. Financial risk management (continued) ### Commodity risk The Group's operating companies purchase metal and metal components and are therefore exposed to changes in commodity prices. The Group manages this exposure through a centralised process hedging copper, zinc and aluminium using a combination of financial contracts and local supply agreements designed to minimise the volatility of short-term margins. ### Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. #### Management of liquidity risk The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have adequate resources to meet its liabilities when they fall due, with sufficient headroom to cope with abnormal market conditions. This position is reviewed on a quarterly basis. Funding for the Group is co-ordinated centrally by the Treasury function and comprises committed bilateral facilities with a core group of banks, and a series of US loan note issues. The level of facilities is maintained such that facilities and term loans exceed the forecast peak gross debt of the Group over a rolling 12-month view by an appropriate amount taking into account market conditions and corporate activity, including acquisitions, organic growth plans and share buybacks. In addition, we undertake regular covenant compliance reviews to ensure that we remain fully within those covenant limits. At the end of 2022 the Group had undrawn committed facilities totaling £200m (2021: £230m) and was holding cash and cash equivalents of £133m (2021: £95m). There are no significant seasonal funding requirements or capital intensive investment areas for the Group. ### Capital management #### Overview Capital management concerns the decision as to how the Group's activities are financed and specifically, how much of the Group capital is provided by borrowings (or debt) and how much of it is financed with equity raised from the issue of share capital. The Board's policy is to maintain a balance sheet with a broad capital base and the strength to sustain the future development of the business including acquisitions. The capital base of the Group includes total equity and reserves and net debt. Employee benefit obligations net of deferred tax form part of the extended capital base. Management of this element of the capital base is discussed further in Note 14 of the financial statements. Undrawn committed funding facilities are maintained as described in Note 19 to provide additional capital for growth (including acquisitions and organic investments) and liquidity requirements as discussed above. ### Capital base | | 2022 £m | 2021 £m | | --- | --- | --- | | Total equity | 906 | 779 | | Gross debt including overdrafts | 839 | 624 | | Gross cash | (133) | (95) | | Capital base | 1,612 | 1,308 | | Employee benefits and deferred tax assets | 53 | 169 | | Extended capital base | 1,665 | 1,477 | | Undrawn funding facilities | 200 | 230 | | Available capital base | 1,865 | 1,707 | Part of the capital base is held in currencies to broadly match the currency base of the assets being funded as described in the asset translation risk section. #### Debt or equity The balance between debt and equity in the capital base of the Group is considered regularly by the Board in light of market conditions, business forecasts, growth opportunities and the ratio of net debt to adjusted EBITDA. Funding covenants currently limit net debt to a maximum of 3.0 times EBITDA. The net debt to EBITDA ratio at the end of 2022 was 1.8 times (2021: 1.5 times). Through the life of our five-year plan, the Board would consider appropriate acquisitions that could take net debt up to 2.5 times EBITDA on acquisition, provided that a clear plan exists to reduce this ratio back to under 2.0 times. It is expected that at these levels our debt would continue to be perceived as investment grade. The potential benefits to equity shareholders of greater leverage are offset by higher risk and the cost and availability of funding. The Board will consider raising additional equity in the event that it is required to support the capital base of the Group. #### Weighted average cost of capital The Group currently uses a post-tax weighted average cost of capital ('WACC') of 8% (2021: 7%) as a benchmark for investment returns. This is reviewed regularly in the light of changes in market rates. The Board tracks the Group's return on invested capital and seeks to ensure that it consistently delivers returns in excess of the WACC. Introduction Strategic Report Corporate Governance Financial Statements 213 # 19. Net debt Net debt is the Group's key measure used to evaluate total outstanding debt, net of the current cash resources. Some of the Group's borrowings (and cash) are held in foreign currencies. Movements in foreign exchange rates affect the sterling value of the net debt. Cash and cash equivalents comprise cash balances and call deposits. 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. ## Movement in net debt | | 2022 £m | 2021 £m | | --- | --- | --- | | **Adjusted EBITDA*** | **457.0** | 403.5 | | Working capital movements | (85.1) | (50.6) | | Capital and development expenditure | (71.3) | (57.5) | | Provisions and employee benefit movements** | 1.5 | (0.5) | | Principal elements of lease payments | (32.3) | (30.0) | | Other | 20.2 | 9.0 | | **Adjusted operating cash flow***** | **290.0** | 273.9 | | Adjusting items | (52.6) | (35.6) | | Tax paid | (48.6) | (50.9) | | Interest | (19.2) | (12.1) | | Derivatives | (8.6) | 26.4 | | Additional pension scheme funding | (3.5) | (7.0) | | **Free cash flow before corporate activity** | **157.5** | 194.7 | | Dividends paid to equity shareholders | (62.2) | (61.8) | | Acquisition of subsidiaries | (213.3) | (203.9) | | Disposal of subsidiaries | - | 0.1 | | Net purchase of own shares and share buyback programme | (18.8) | (225.6) | | **Net cash flow (excluding debt movements)** | **(136.8)** | (296.5) | * Adjusted profit after tax £272.4m before interest £17.7m, tax £73.7m, depreciation £74.2m, amortisation £18.5m and impairment on property, plant and equipment and non-acquired intangible assets £0.5m. ** Movement in provisions and employee benefits as per the statement of cash flows £13.8m adjusted for the movement in the restructuring provisions £15.3m. *** Adjusted operating cash flow is the cash generated from the operations shown in the statement of cash flows less cash spent acquiring property, plant and equipment, non-acquired intangible assets and investments; plus cash received from the sale of property, plant and equipment and the sale of investments, excluding the cash impact of adjusting items. This measure best reflects the operating cash flows of the Group. ## Reconciliation of net cash to movement in net debt | | 2022 £m | 2021 £m | | --- | --- | --- | | Net increase/(decrease) in cash and cash equivalents excluding foreign exchange | 11.0 | (86.7) | | Less: cash acquired/disposed | (10.0) | (1.8) | | Net drawdown of borrowings excluding foreign exchange and net debt disposed/acquired | (137.8) | (208.0) | | **Increase in net debt before acquisitions, disposals and foreign exchange** | **(136.8)** | (296.5) | | Net cash acquired/disposed | 10.0 | - | | Currency translation differences | (50.6) | (4.5) | | Movement in lease liabilities | (11.8) | (5.6) | | **Movement in net debt in the year** | **(189.2)** | (306.6) | | Net debt at the start of the year | (622.8) | (316.2) | | **Net debt at the end of the year** | **(812.0)** | (622.8) | 214 IMI plc Annual Report & Accounts 2022 ## 19. Net debt (continued) ### Reconciliation of adjusted operating cash flow to cash flow statement | | 2022 £m | 2021 £m | | --- | --- | --- | | **Cash generated from operations** | **335.8** | 327.1 | | Principal lease payments | (32.3) | (30.0) | | Settlement of transactional derivatives | 2.3 | (5.9) | | Acquisition of property, plant and equipment and non-acquired intangibles | (71.3) | (57.5) | | Adjusting items | 52.6 | 35.6 | | Proceeds from sale of property, plant and equipment | 2.9 | 4.6 | | **Adjusted operating cash flow** | **290.0** | 273.9 | ### Reconciliation of cash and cash equivalents | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash and cash equivalents in current assets | 133.0 | 94.6 | | Bank overdraft in current liabilities | (93.8) | (65.5) | | **Cash and cash equivalents** | **39.2** | 29.1 | ### Analysis of net debt | | Cash and cash equivalents £m | Borrowings and finance leases due | | Lease creditors £m | Total net debt £m | | --- | --- | --- | --- | --- | --- | | | | within one year £m | after more than one year £m | | | | At 1 January 2021 | 134.4 | | (362.3) | (88.3) | (316.2) | | Lease additions, extensions, terminations and payment changes | | | | (33.9) | (33.9) | | Lease payments and interest | | | | 27.2 | 27.2 | | Cash flow excluding settlement of currency derivatives hedging balance sheet and net cash/debt disposed of/acquired | (122.2) | (126.7) | (81.3) | | (330.2) | | Cash/debt acquired | 1.8 | (1.8) | | | | | Settlement of currency derivatives hedging balance sheet | 20.5 | | | | 20.5 | | Currency translation differences | (5.4) | 0.8 | 13.3 | 1.1 | 9.8 | | **At 31 December 2021** | **29.1** | **(127.7)** | **(430.3)** | **(93.9)** | **(622.8)** | | Lease additions, extensions, terminations and payment changes | | | | (41.4) | (41.4) | | Lease payments and interest | | | | 32.3 | 32.3 | | Cash flow excluding settlement of currency derivatives hedging balance sheet and net cash/debt disposed of/acquired | 2.5 | (21.1) | (123.1) | | (141.7) | | Cash/debt acquired | 10.0 | | | | 10.0 | | Settlement of currency derivatives hedging balance sheet | (6.3) | | | | (6.3) | | Currency translation differences | 3.9 | (1.3) | (42.0) | (2.7) | 42.1 | | **At 31 December 2022** | **39.2** | **(150.1)** | **(595.4)** | **(105.7)** | **(812.0)** | ### Undrawn committed facilities The Group has various undrawn committed borrowing facilities. The facilities available at 31 December in respect of which all conditions precedent had been met were as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Expiring between one and two years | 193.5 | 145.4 | | Expiring after more than two years | 6.0 | 84.2 | | **Total** | **199.5** | 229.6 | The weighted average life of these facilities is 0.9 years (2021: 1.7 years). Introduction Strategic Report Corporate Governance Financial Statements 215 ## Terms and debt repayment schedule The terms and conditions of cash and cash equivalents, outstanding loans, lease liabilities and derivative financial liabilities were as follows: | | Effective interest rate % | Carrying value £m | Contractual cash flows £m | 0 to <1 year £m | 1 to <2 years £m | 2 to <3 years £m | 3 to <4 years £m | 4 to <5 years £m | 5 years and over £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **2022** | | | | | | | | | | | Cash and cash equivalents | Floating | 133.0 | 133.0 | 133.0 | | | | | | | Revolving credit facilities | Floating | (100.5) | (100.5) | (100.5) | | | | | | | Term loan 2023 | Floating | (49.6) | (49.6) | (49.6) | | | | | | | Term loan 2024 | Floating | (49.6) | (49.6) | (24.8) | (24.8) | | | | | | US loan notes 2025 | 1.39% | (132.7) | (138.1) | (1.8) | (1.8) | (134.5) | | | | | US loan notes 2026 | 3.86% | (103.3) | (119.3) | (4.0) | (4.0) | (4.0) | (107.3) | | | | US loan notes 2027 | 3.92% | (62.0) | (74.0) | (2.4) | (2.4) | (2.4) | (2.4) | (64.4) | | | US loan notes 2028 | 1.53% | (70.8) | (77.4) | (1.1) | (1.1) | (1.1) | (1.1) | (1.1) | (71.9) | | US loan notes 2029 | 3.30% | (88.5) | (108.8) | (2.9) | (2.9) | (2.9) | (2.9) | (2.9) | (94.3) | | US loan notes 2030 | 3.40% | (88.5) | (112.5) | (3.0) | (3.0) | (3.0) | (3.0) | (3.0) | (97.5) | | Bank overdrafts | Floating | (93.8) | (93.8) | (93.8) | | | | | | | Lease liabilities | Various | (105.7) | (105.7) | (25.8) | (22.1) | (15.8) | (11.8) | (9.9) | (20.3) | | Derivative financial liabilities | | (13.8) | (13.8) | (13.4) | (0.4) | | | | | | **Total** | | **(825.8)** | **(910.1)** | **(190.1)** | **(62.5)** | **(163.7)** | **(128.5)** | **(81.3)** | **(284.0)** | | **2021** | | | | | | | | | | | Cash and cash equivalents | Floating | 94.6 | 94.6 | 94.6 | | | | | | | Revolving credit facilities | Floating | (70.3) | (70.3) | (70.3) | | | | | | | Term loan 2024 | Floating | (133.3) | (133.3) | (44.4) | (44.4) | (44.5) | | | | | Acquired loan note | | (1.8) | (1.8) | (1.8) | | | | | | | US loan notes 2022 | 7.17% | (11.1) | (12.7) | (12.7) | | | | | | | US loan notes 2025 | 1.39% | (126.1) | (133.3) | (1.8) | (1.8) | (1.8) | (127.9) | | | | US loan notes 2026 | 3.86% | (92.6) | (110.6) | (3.6) | (3.6) | (3.6) | (3.6) | (96.2) | | | US loan notes 2027 | 3.92% | (55.6) | (68.8) | (2.2) | (2.2) | (2.2) | (2.2) | (2.2) | (57.8) | | US loan notes 2028 | 1.53% | (67.2) | (74.2) | (1.0) | (1.0) | (1.0) | (1.0) | (1.0) | (69.2) | | Bank overdrafts | Floating | (65.5) | (65.5) | (65.5) | | | | | | | Lease liabilities | Various | (93.9) | (93.9) | (23.9) | (18.3) | (14.0) | (9.2) | (7.4) | (21.1) | | Derivative financial liabilities | | (6.3) | (6.3) | (6.1) | (0.1) | (0.1) | | | | | **Total** | | **(629.1)** | **(676.1)** | **(138.7)** | **(71.4)** | **(67.2)** | **(143.9)** | **(106.8)** | **(148.1)** | Contractual cash flows include undiscounted committed interest cash flows and, where the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. 216 IMI plc Annual Report & Accounts 2022 # 19. Net debt (continued) # Changes in liabilities arising from financing activities The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities. | | Non-cash changes | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 Jan 2022 £m | Financing cash flows* £m | Acquisition of subsidiary £m | New leases £m | Exchange £m | Other** £m | 31 Dec 22 £m | | **2022** | | | | | | | | | Revolving credit facilities | (70.3) | (35.0) | | | 4.8 | | (100.5) | | Term loan 2023 and 2024 | (133.3) | 24.0 | | | 10.1 | | (99.2) | | Acquired loan | (1.8) | 1.8 | | | | | - | | US loan notes | (352.6) | (221.9) | | | 28.7 | | (545.8) | | Bank overdrafts | (65.5) | (28.3) | | | | | (93.8) | | Lease liabilities | (93.9) | 35.1 | | (41.4) | (2.7) | (2.8) | (105.7) | | **Total** | **(717.4)** | **(224.3)** | **-** | **(41.4)** | **40.9** | **(2.8)** | **(945.0)** | | | Non-cash changes | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 Jan 2021 £m | Financing cash flows* £m | Acquisition of subsidiary £m | New leases £m | Exchange £m | Other** £m | 31 Dec 21 £m | | **2021** | | | | | | | | | Revolving credit facilities | - | (71.7) | | | 1.4 | | (70.3) | | Term loan 2024 | - | (136.2) | | | 2.9 | | (133.3) | | Acquired loan | - | | (1.8) | | | | (1.8) | | US loan notes | (362.3) | | | | 9.7 | | (352.6) | | Bank overdrafts | (73.5) | 8.0 | | | | | (65.5) | | Lease liabilities | (88.3) | 30.0 | | (33.9) | 1.1 | (2.8) | (93.9) | | **Total** | **(524.1)** | **(169.9)** | **(1.8)** | **(33.9)** | **15.1** | **(2.8)** | **(717.4)** | * Financing cash flows exclude the impact of interest paid ** Includes IFRS 16 interest payments # Interest-bearing loans and borrowings The Group borrows money from financial institutions in the form of bonds and other financial instruments. These generally have fixed interest rates and are for a fixed term or are drawn from committed borrowing facilities that generally have floating interest rates. For more information about the Group's exposure to interest rate and foreign currency risk, see Note 18. | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current liabilities** | | | | Unsecured loan notes and other loans | 150.1 | 127.7 | | Lease liabilities | 25.8 | 23.9 | | **Total** | **175.9** | **151.6** | | **Non-current liabilities** | | | | Unsecured loan notes and other loans | 595.4 | 430.3 | | Lease liabilities | 79.9 | 70.0 | | **Total** | **675.3** | **500.3** | Introduction Strategic Report Corporate Governance Financial Statements 217 # 20. Provisions # Accounting policy A provision is recorded instead of a payable when uncertainty exists over the timing and amount of the cash outflow. Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are valued at management's best estimate of the amount required to settle the present obligation at the balance sheet date. A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. The recognition of a provision requires estimation. The principal estimates made in respect of the Group's provisions using the best estimate methodology (with the exception of provisions indemnities as noted below) concern the timing and amount of payments required to: - cover the costs of known restructuring projects; - reimburse customers for potential product warranty claims; - ensure that current and former manufacturing sites meet relevant environmental standards; - reflect the estimated outcome of ongoing legal disputes; and - provide against indemnities following the disposal of subsidiaries. # Analysis of the Group's provisions: | | Restructuring £m | Trade warranties £m | Environmental & legal £m | Total £m | | --- | --- | --- | --- | --- | | Current | 27.8 | 9.9 | 0.4 | 38.1 | | Non-current | 3.8 | 8.6 | 5.9 | 18.3 | | At 1 January 2022 | 31.6 | 18.5 | 6.3 | 56.4 | | **Arising during the year** | **28.9** | **2.0** | **3.0** | **33.9** | | Released during the year | - | - | (2.5) | (2.5) | | Utilised during the year | (44.2) | (3.2) | - | (47.4) | | Exchange adjustment | 1.5 | 0.6 | - | 2.1 | | **At 31 December 2022** | **17.8** | **17.9** | **6.8** | **42.5** | | **Current** | **17.6** | **9.2** | **0.4** | **27.2** | | **Non-current** | **0.2** | **8.7** | **6.4** | **15.3** | | | **17.8** | **17.9** | **6.8** | **42.5** | # Restructuring The restructuring provision reflects residual amounts committed but not spent in relation to a number of specific projects that are discussed further in Note 3, where the cost is a reliable estimate of the obligation. The opening balance of £31.6m relates to a closure of a factory in Europe within our IMI Precision Engineering division and the Customer First project, which both simplify the structure of the division and ensures the business structure is aligned to our customer base. The utilised balance includes £44.2m of cash settlements. Arising during the year primarily relates to the ongoing projects from prior year. The provision as at 31 December 2022 of £17.8m primarily relates to the expected redundancy payments for facility closures with the majority of the resulting outflow expected during 2023. # Trade warranties The Group sells a wide range of highly technical products and whilst they are designed and engineered to a high degree of precision and to customer specifications, there is a risk of products requiring modification, which can lead to warranty claims. Trade warranties are given in the normal course of business and cover a range of periods, typically one to two years, with the expected amounts falling due in less than and greater than one year separately analysed above. The provision represents the directors' best estimate of the Group's liability based on past experience. # Environmental & legal Environmental and legal provisions recognise the Group's obligation to remediate contaminated land at a number of current and former sites, together with current legal cases for which a settlement is considered probable. Due to the long-term nature of the liabilities, the timescales are uncertain and the provisions represent the directors' best estimates of these costs. IMI plc Annual Report & Accounts 2022218 21. Trade and other payables 2022 2021 £m £m Current Trade payables 150.9 120.3 Social security and other taxation 34.8 27.1 Accruals* 43.9 23.6 Deferred income* - - Progress billings and advance payments from customers 71.9 73.2 Other payables* 136.2 156.2 437.7 400.4 Non-current Other payables 9.9 6.5 447.6 406.9 * 'Accruals', 'Deferred income' and 'Other payables' have been disclosed separately given their quantum. Prior period comparatives have been re-presented. Introduction Strategic Report Corporate Governance Financial Statements 219 ## 22. Share capital The movement in the number of ordinary shares of 28 4/7p each issued by IMI plc is as follows: ### Number and value of shares | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Ordinary Shares 28 4/7p per share | | Ordinary Shares 28 4/7p per share | | | | Number (m) | Value (£m) | Number (m) | Value (£m) | | **In issue at the start of the year** | **274.9** | **78.6** | 286.5 | 81.8 | | Issued to satisfy employee share schemes | 0.1 | - | 0.1 | - | | Share cancellations | - | - | (11.7) | (3.2) | | **In issue at the end of the year** | **275.0** | **78.6** | 274.9 | 78.6 | All issued share capital at 31 December 2022 and 2021 is fully paid and conveys the same rights. ### Share movements in the year Movements in shares due to share issues and purchases during the year were as follows: | | Number of ordinary shares of 28 4/7p each (million) | | | | | --- | --- | --- | --- | --- | | | Employee | | | | | | Benefit Trust | Treasury | Other | Total | | In issue at 31 December 2021 | 1.8 | 14.3 | 258.8 | 274.9 | | New issues to satisfy employee share scheme awards | - | - | 0.1 | 0.1 | | Market purchases | 1.4 | - | (1.4) | - | | Shares allocated under employee share schemes | (0.8) | - | 0.8 | - | | **At 31 December 2022** | **2.4** | **14.3** | **258.3** | **275.0** | During the year 0.1m (2021: 0.1m) shares were issued under employee share schemes realising £1.2m (2021: £1.0m). ### Employee Benefit Trust The Employee Benefit Trust made market purchases of a total of 1.4m (2021: 1.7m) shares with an aggregate market value of £20.0m (2021: £30.0m) and a nominal value of £0.4m (2021: £0.5m). Associated transaction costs amounted to £nil (2021: £nil). Share options exercised in 2022 were settled using the shares in the Group's Employee Benefit Trust. In 2022, 0.8m (2021: 1.0m) shares were issued for cash of £nil (2021: £3.4m). Of the 16.7m (2021: 16.1m) shares held within retained earnings, 2.4m (2021: 1.8m) shares with an aggregate market value of £30.9m (2021: £27.9m) are held in trust to satisfy employee share scheme vesting. ### Share buyback In 2021, on-market purchases of 11.7m shares were conducted relating to the share buyback programme. The aggregate market value of these shares at the dates of purchase were £200.0m, which includes dealing costs related to these purchases of £1.9m. 220 IMI plc Annual Report & Accounts 2022 ## 23. Acquisitions In accounting for business combinations, the identifiable assets, liabilities and contingent liabilities acquired have to be measured at their fair values. In particular, an estimate has been made of the forecast future sales under pre-existing commercial relationships which have been discounted at an appropriate discount rate to value the commercial relationships and brand intangibles. The acquisitions have been accounted for as a business combination. During the year ended 31 December 2022, the Group made three acquisitions, namely: - Bahr Modultechnik GmbH ("Bahr"); - CorSolutions LLC ("CorSolutions"); - Heatmiser UK Ltd ("Heatmiser") Below and adjacent are summaries of the assets acquired and liabilities assumed and the purchase consideration of: a) the total of acquisitions; b) Bahr Modultechnik GmbH ("Bahr"); c) CorSolutions LLC ("CorSolutions"); d) Heatmiser UK Ltd ("Heatmiser"); and e) Prior year acquisitions As at the date of approval of the financial statements, the acquisition accounting for all prior year acquisitions is complete. The accounting for all current year acquisitions is provisional, relating to finalisation of the initial consideration which is subject to agreement of certain contractual adjustments and certain other provisional balances. ### a) Total of acquisitions | | Total £m | | --- | --- | | Intangible assets | 47.4 | | Property, plant and equipment | 4.9 | | Inventories | 9.4 | | Trade and other receivables | 9.3 | | Cash and cash equivalents | 12.1 | | Trade and other payables | (7.2) | | Current taxation | (1.2) | | Deferred taxation | (11.3) | | **Total identified net assets at fair value** | **63.4** | | Goodwill arising on acquisition | 153.5 | | **Purchase consideration** | **216.9** | ### b) Bahr Modultechnik GmbH ("Bahr") | | Fair value at 9 June 2022 £m | | --- | --- | | Intangible assets | 38.6 | | Property, plant and equipment | 4.7 | | Inventories | 3.1 | | Trade and other receivables | 1.5 | | Cash and cash equivalents | 4.7 | | Trade and other payables | (1.6) | | Current taxation | (1.0) | | Deferred taxation | (11.3) | | **Total identified net assets at fair value** | **38.7** | | Goodwill arising on acquisition | 49.6 | | **Purchase consideration transferred** | **88.3** | On 9 June 2022 the Group acquired 100% of the share capital, and associated voting rights, of Bahr Modultechnik GmbH ("Bahr") for cash consideration of £88.3m. Bahr is a leading provider of highly configured modular electric linear motion systems, based on a broad portfolio of specialist components and is based in Luhden, Germany. The goodwill recognised above includes certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled workforce, the increase in scale, synergies and the future growth opportunities that the businesses provide to the Group's operations. Acquisition costs of £0.9m were recognised in the income statement in 2022. The revenue and adjusted operating profit included in the income statement for 2022 contributed by Bahr were £7.8m and £1.8m respectively. If the acquisition had taken place on 1 January 2022, Bahr would have contributed revenue and adjusted operating profit of £14m and £4.3m respectively. Introduction Strategic Report Corporate Governance Financial Statements 221 # c) CorSolutions LLC ("CorSolutions") | | Fair value at 27 October 2022 £m | | --- | --- | | Intangible assets | 8.8 | | Inventories | 0.6 | | Deferred taxation | - | | **Total identified net assets at fair value** | **9.4** | | Goodwill arising on acquisition | 1.7 | | **Purchase consideration** | **11.1** | On 27 October 2022 the Group acquired 100% of the share capital, and associated voting rights, of CorSolutions LLC ("CorSolutions") for initial cash consideration of £7.5m and an expected earn-out of £3.6m. CorSolutions is a leading innovator in micro-fluid flow control and is based in Ithaca, New York. The goodwill recognised above includes certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled workforce, the increase in scale, synergies and the future growth opportunities that the businesses provide to the Group's operations. Acquisition costs of £nil were recognised in the income statement in 2022. The revenue and adjusted operating loss included in the income statement for 2022 contributed by CorSolutions were £0.2m and £0.3m respectively. If the acquisition had taken place on 1 January 2022, CorSolutions would have contributed revenue and adjusted operating profit of £1.3m and £0.5m respectively. # d) Heatmiser UK Ltd ("Heatmiser") | | Fair value at 23 December 2022 £m | | --- | --- | | Property, plant and equipment | 0.2 | | Inventories | 5.7 | | Trade and other receivables | 7.8 | | Cash and cash equivalents | 7.4 | | Trade and other payables | (5.6) | | Current taxation | (0.2) | | **Total identified net assets at fair value** | **15.3** | | Goodwill arising on acquisition | 102.2 | | **Purchase consideration transferred** | **117.5** | On 23 December 2022 the Group acquired 100% of the share capital, and associated voting rights, of Heatmiser UK Ltd ("Heatmiser") for initial cash consideration of £117.5m, with up to a further £8.0m payable based on future financial performance. Heatmiser is a leading UK smart thermostatic control manufacturer and is based in Blackburn, UK. Due to the timing of the acquisition, the analysis of acquired intangibles has not yet been completed so all of the purchase price aside from the operating balance sheet is allocated to goodwill as permitted when an acquisition is close to a period end. The provisional purchase price allocation will be completed in the first half of 2023. The goodwill recognised above includes certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled workforce, the increase in scale, synergies and the future growth opportunities that the businesses provide to the Group's operations. Acquisition costs of £2.0m were recognised in the income statement in 2022. There was no revenue and adjusted operating profit contributed by Heatmiser to be included in the income statement for 2022. If the acquisition had taken place on 1 January 2022, Heatmiser would have contributed revenue and adjusted operating profit of £24.0m and £9.5m respectively. # e) Acquisitions in 2021 On 20 December 2021 the Group acquired 100% of the share capital, and associated voting rights, of Adaptas Solutions ("Adaptas") for cash consideration of £203.9m. Adaptas is a manufacturer of mission critical mass spectrometry subsystems and components and is based in North America with facilities in the UK, Australia and China. This acquisition has been accounted for as a business combination. Our accounting has been finalised and there are no changes to the provisional fair value amounts recognised in the 2021 Annual Report & Accounts in respect of the identified assets acquired and liabilities assumed. 222 IMI plc Annual Report & Accounts 2022 ## 24. Disposals ### Disposals in 2022 The Group disposed of its Russian subsidiary IMI International LLC on 27 May 2022 for proceeds of £nil resulting in a loss on disposal for the Group of £4.8m after disposing of £3.3m of net assets and incurring £0.9m of associated disposal costs. In addition, the exit resulted in a £4.2m impairment of assets related to Russian contracts. The exit from Russia is presented in the income statement as an adjusting item but it is not disclosed as a discontinued item because it did not represent a separate major line of business. | | 27 May 2022 £m | | --- | --- | | Net assets disposed | (3.3) | | Costs of disposal | (0.9) | | Foreign exchange loss reclassified on disposal | (0.6) | | **Loss on disposal** | **(4.8)** | | **Net cash flow arising on disposal** | | | Cash costs of disposal | (0.9) | | **Net cash flow arising on disposal of operations** | **(0.9)** | ### Disposals in 2021 In 2021, the Group disposed of Interativa Industria, Comercio e Representacoes Ltda. This disposal resulted in a loss of £3.8m and is presented in the income statement as an adjusting item as it meets our definition of adjusting items based on its nature and quantum. The loss on disposal is not disclosed within discontinued operations because this business did not represent a separate major line of business. A summary of the proceeds received, assets disposed and resulting loss on disposal is included in the table below: | | 23 July 2021 £m | | --- | --- | | Sale consideration | 0.2 | | Net assets disposed | (3.8) | | Costs of disposal | (0.1) | | Foreign exchange loss reclassified on disposal | (0.1) | | **Loss on disposal** | **(3.8)** | | **Net cash flow arising on disposal** | | | Sale consideration | 0.2 | | Cash costs of disposal | (0.1) | | **Net cash flow arising on disposal of operations** | **0.1** | ## 25. Contingent liabilities A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision because significant subjectivity exists regarding its outcome. Group contingent liabilities relating to guarantees in the normal course of business and other items amounted to £132m (2021: £112m). Introduction Strategic Report Corporate Governance Financial Statements 223 ## 26. Related party transactions Related parties include the key management personnel. The Board, including the non-executive directors are considered to be the key management personnel of the Group. | | 2022 £m | 2021 £m | | --- | --- | --- | | Short-term employee benefits* | 3.5 | 4.3 | | Share-based payments** | 2.2 | 1.8 | | **Total** | **5.7** | **6.1** | * Short-term employee benefits comprise salary, including employers' social contributions, benefits earned during the year and bonuses awarded for the year. ** For details of the share-based payment charge for key management personnel, see Note 6. ### Transactions with associated companies | | 2022 £m | 2021 £m | | --- | --- | --- | | Sales to associated companies | - | 0.5 | | Purchases from associated companies | - | - | | Accounts receivable | - | - | | Accounts payable | - | - | | **Total** | **-** | **0.5** | There are no other related party transactions. ## 27. Subsequent events Events that occur in the period between 31 December and the date of approval of the Annual Report can be categorised as adjusting or non-adjusting depending on whether the condition existed at 31 December. If the event is an adjusting event, then an adjustment to the results is made. If a non-adjusting event after the year end is material, non-disclosure could influence decisions that readers of the financial statements make. Accordingly, for each material non-adjusting event after the reporting period we disclose the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made. There were no adjusting or non-adjusting subsequent events after the balance sheet date of 31 December 2022. 224 IMI plc Annual Report & Accounts 2022 # Company balance sheet At 31 December 2022 | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Fixed assets** | | | | | Investments | C5 | **533.0** | 547.0 | | | | **533.0** | 547.0 | | **Current assets** | | | | | Debtors | C6 | **18.3** | 12.1 | | Deferred tax assets | C7 | **5.5** | 6.8 | | Cash at bank and in hand | | **1.6** | 2.0 | | | | **25.4** | 20.9 | | **Creditors: amounts falling due within one year** | | | | | Other creditors | C8 | **(4.3)** | (2.2) | | **Net current assets** | | **21.1** | 18.7 | | **Total assets less current liabilities** | | **554.1** | 565.7 | | **Net assets** | | **554.1** | 565.7 | | **Capital and reserves** | | | | | Called up share capital | C9 | **78.6** | 78.6 | | Share premium account | | **16.4** | 15.2 | | Capital redemption reserve | | **177.6** | 177.6 | | Profit and loss account | | **281.5** | 294.3 | | **Equity shareholders' funds** | | **554.1** | 565.7 | The Company reported a profit for the financial year ended 31 December 2022 of £59.6m (2021: £276.0m). Approved by the Board of Directors on 2 March 2023 and signed on its behalf by: **Lord Smith of Kelvin** Chair Introduction Strategic Report Corporate Governance Financial Statements 225 # Company statement of changes in equity for the year | | Share capital £m | Share premium £m | Redemption reserve £m | Retained earnings £m | Parent equity £m | | --- | --- | --- | --- | --- | --- | | At 1 January 2021 | 81.8 | 14.3 | 174.4 | 291.9 | 562.4 | | Retained profit for the year | | | | 276.0 | 276.0 | | Dividends paid on ordinary shares | | | | (61.8) | (61.8) | | Shares issued in the year | - | 0.9 | | | 0.9 | | Share-based payments | | | | 14.8 | 14.8 | | Cancellation of Treasury shares | (3.2) | | 3.2 | | - | | Shares acquired for: | | | | | | | employee share scheme trust | | | | (26.6) | (26.6) | | share buyback programme | | | | (200.0) | (200.0) | | At 31 December 2021 | 78.6 | 15.2 | 177.6 | 294.3 | 565.7 | | **Retained profit for the year** | | | | **59.6** | **59.6** | | **Dividends paid on ordinary shares*** | | | | **(62.2)** | **(62.2)** | | **Shares issued in the year** | - | 1.2 | | | 1.2 | | **Share-based payments** | | | | **9.8** | **9.8** | | **Shares acquired for:** | | | | | | | **employee share scheme trust*** | | | | **(20.0)** | **(20.0)** | | **At 31 December 2022** | **78.6** | **16.4** | **177.6** | **281.5** | **554.1** | \* Details of treasury and employee trust share scheme movements are contained in Note 22 of the Group financial statements and details of dividends paid and proposed in the year are shown in Note C4. All of the retained earnings held at both 31 December 2022 and 31 December 2021 are considered to be distributable reserves. 226 IMI plc Annual Report & Accounts 2022 # Company notes to the financial statements ## C1. Significant accounting policies The following accounting policies have been applied consistently in dealing with items considered material in relation to the financial statements, except where otherwise noted below: ### Basis of accounting The financial statements were prepared in accordance with Financial Reporting Standard 101 'Reduced Disclosure Framework' ('FRS 101'). The Company has not presented a separate profit and loss account as permitted by Section 408 of the Companies Act 2006. The Company has taken advantage of the following disclosure exemptions under FRS 101: - a) the requirements of paragraphs 45(b) and 46-52 of IFRS 2 'Share-based Payment'; - b) the requirements of IFRS 7 'Financial Instruments'; - c) the requirements of paragraphs 91-99 of IFRS 13 'Fair Value Measurement'; - d) the requirement in paragraph 38 of IAS 1 'Presentation of Financial Statements' to present comparative information in respect of paragraph 79(a)(iv) of IAS 1; - e) the requirements of paragraphs 10(d), 10(f) and 134-136 of IAS 1; - f) the requirements of IAS 7 'Statement of Cash Flows'; - g) the requirements of paragraphs 30 and 31 of IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors'; - h) the requirements of paragraph 17 of IAS 24 'Related Party Disclosures'; and - i) the requirements in IAS 24 'Related Party Disclosures' to disclose related party transactions entered into between two or more members of the Group, provided that any subsidiary which is party to the transaction is wholly owned by such a member. Related party transactions with the Company's key management personnel are disclosed in the Remuneration Report on pages 126 to 145 and in Note 26 on page 223 of the Group financial statements. ### Critical judgements and key sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for income and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. There were no critical judgments or key sources of estimation uncertainty applied in 2022 or in 2021. ### Foreign currencies The Company's functional currency and presentation currency is sterling. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies have been translated into sterling at the rates of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account. ### Investments Investments in subsidiaries are accounted for at cost less any provision for impairment. The Company's cost of investments in subsidiary undertakings is stated at the aggregate of (a) the cash consideration and either (b) the nominal value of the shares issued as consideration when Section 612 of the Companies Act 2006 applies or (c) in all other cases the market value of the Company's shares on the date they were issued as consideration. ### Taxation The charge for taxation is based on the profit for the year and takes into account taxation deferred because of temporary differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised in respect of all temporary differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by IAS 12 'Income Taxes'. Deferred tax is measured at the tax rates that are expected to apply when the temporary differences reverse, based on the tax laws that have been enacted or substantively enacted by the balance sheet date. A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. ### Equity and equity-related compensation benefits The Company operates a number of equity and equity-related compensation benefits as set out in Note 6 to the Group financial statements. The fair value of the employee services received in exchange for the grant of the options is recharged in full to the principal employing company and accordingly, there is no net charge recorded in the Company's financial statements. The recharged amount is recognised as a debtor falling due for payment within one year. The total amount recharged over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. The fair value of the options at the date of grant is determined based on the Monte Carlo and Black-Scholes option-pricing model. At each balance sheet date, the Company revises its estimate of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the amount recharged to subsidiary undertakings. For newly issued shares, the proceeds received, net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. ### Treasury shares The consideration paid by the Company on the acquisition of treasury shares is charged directly to retained earnings in the year of purchase. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost taken to share premium. If treasury shares are subsequently cancelled the nominal value of the cancelled shares is transferred from share capital to the capital redemption reserve. No gain or loss is recognised on the purchase, sale or cancellation of treasury shares. ### Dividends Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements. ### C2. Remuneration of directors The detailed information concerning directors' emoluments, shareholdings and options are shown in the audited section of the Remuneration Report on pages 126 to 145, Note 5 and Note 26 of the Group financial statements. ### C3. Staff numbers and costs The number of people employed by the Company, including directors, during the year was 18 (2021: 18) all of whom were employed in administrative roles. The costs associated with them were borne by a subsidiary undertaking. The Company participates in the IMI UK Funds, which are defined benefit schemes in which the assets are held independently. The total net defined benefit costs of these Funds are borne by a subsidiary undertaking and therefore in accordance with IAS 19, no net defined benefit costs are recognised in the Company's financial statements. Note 14 to the Group financial statements provides further details regarding the defined benefit schemes. Introduction Strategic Report Corporate Governance Financial Statements 227 #### C4. Dividends The aggregate amount of dividends comprises: | | 2022 £m | 2021 £m | | --- | --- | --- | | Prior year final dividend paid - 15.8p per qualifying ordinary share (2021: 15.0p) | 40.8 | 40.8 | | Current year interim dividend paid - 8.3p per qualifying ordinary share (2021: 7.9p) | 21.4 | 21.0 | | Aggregate amount of dividends paid in the financial year | 62.2 | 61.8 | Dividends paid in the year of £62.2m represent 24.1p per share (2021: 22.9p). After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income tax consequences. | | 2022 £m | 2021 £m | | --- | --- | --- | | Current year final dividend - 17.4p per qualifying ordinary share (2021: 15.8p) | 45.1 | 40.9 | Dividends proposed after the balance sheet date may differ from the final dividend paid. This is a result of the final number of qualifying shares entitled to dividends differing from those in issue at the balance sheet date. #### C5. Fixed assets – investments | | 2022 £m | 2021 £m | | --- | --- | --- | | Investments in subsidiary undertakings | 173.2 | 173.2 | | Loans owed by subsidiary undertakings | 359.8 | 373.8 | | | 533.0 | 547.0 | Details of subsidiary undertakings as at 31 December 2022 are shown on pages 229 to 233. The loan due from subsidiary undertakings is due for repayment on 31 December 2027. The loan is unsecured and attracts interest at the relevant risk free rate +0.25%. #### C6. Debtors | | 2022 £m | 2021 £m | | --- | --- | --- | | **Falling due for payment within one year:** | | | | Amounts owed by subsidiary undertakings | 18.3 | 12.1 | | | 18.3 | 12.1 | 228 IMI plc Annual Report & Accounts 2022 # Company notes to the financial statements (continued) # **C7. Deferred tax** | | 2022 £m | 2021 £m | | --- | --- | --- | | **The deferred tax included in the balance sheet is as follows:** | | | | Employee benefits and share-based payments | 5.5 | 6.8 | | Deferred tax asset included in the balance sheet | 5.5 | 6.8 | | **Reconciliation of movement in deferred tax asset:** | | | | At 1 January 2022 | 6.8 | 3.2 | | Adjustment in respect of prior years | - | 0.1 | | Deferred tax credit in the profit and loss account | 0.6 | 1.1 | | Deferred tax (credit)/charge in equity | (1.9) | 2.4 | | **At 31 December 2022** | **5.5** | **6.8** | The rate of corporation tax in the UK for 2022 was 19% (2021: 19%). As from 1 April 2023, it will increase from 19% to 25%. UK deferred tax assets and liabilities have therefore been calculated using a rate of 25% (2021: 25%). # **C8. Other creditors falling due within one year** | | 2022 £m | 2021 £m | | --- | --- | --- | | Corporation tax | 3.3 | 1.3 | | Other payables | 1.0 | 0.9 | | | **4.3** | **2.2** | # **C9. Share capital** | | 2022 £m | 2021 £m | | --- | --- | --- | | **Issued and fully paid** | | | | 275.0m (2021: 274.9m) ordinary shares of 28 4/7p each | 78.6 | 78.6 | # **C10. Contingencies** Contingent liabilities relating to guarantees in the normal course of business and other items amounted to £37.8m (2021: £22.1m). There is a right of set-off with three of the Company's bankers relating to the balances of the Company and a number of its wholly-owned UK subsidiaries. Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. Introduction Strategic Report Corporate Governance Financial Statements 229 # Subsidiary undertakings A full list of the Group's subsidiary undertakings and registered/principal offices as at 31 December 2022 is included below. Except where indicated, the share capital consists of ordinary shares only. The principal country in which each subsidiary operates and has its registered/principal office is the country of incorporation. IMI plc's effective interest in the undertakings listed is 100%, except where indicated, and is held in each case by a subsidiary undertaking, except for IMI Group Limited and IMI Deutschland Verwaltungs GmbH which are held directly by IMI plc. The Group has an interest in two partnerships, The IMI Scottish Limited Partnership and The IMI 2017 Scottish Limited Partnership, which are both fully consolidated into these Group accounts. The Group has taken advantage of the exemption conferred by regulation 7 of the Partnerships (Accounts) Regulations 2008 and has, therefore, not appended the accounts of these qualifying partnerships to these accounts. Separate accounts for the partnerships are not required to be and have not been filed at Companies House. | Charles Baynes Netherlands B.V., Holford Estates Limited, IMI CIF Trustee Limited, IMI Components Limited, IMI Deutschland Limited, IMI Euro Finance Limited, IMI Fluid Controls (Finance) Limited, IMI Germany Limited, IMI Group Limited, IMI Kynoch Limited, IMI Marston Limited, IMI Overseas Investments Limited, IMI Pensions Trust Limited, IMI plc, IMI Precision Engineering Limited, IMI Property Investments Limited, IMI Refiners Limited, IMI Retirement Savings Trust Limited, IMI Sweden Finance Limited, IMI Vision Limited, Liquick 211 Limited, Truflo Group Limited, Truflo International Limited, Truflo Investments Limited | Lakeside, Solihull Parkway, Birmingham Business Park, Birmingham, West Midlands, B37 7XZ, United Kingdom | | --- | --- | | Finch Land Management LLC, IMI Americas LLC, IMI Fluid Controls Holdings Inc, IMI Norgren LLC, Norgren LLC | 5400 South Delaware Street, Littleton, CO 80120, United States | | IMI Critical Engineering Holding GmbH, IMI Deutschland II GmbH & Co KG, IMI Deutschland Verwaltungs GmbH, IMI Germany Holding B.V. & Co. KG, Norgren GmbH | Bruckstrasse 93, 46519 Alpen, Germany | | Adaptas Acquisition Co., Adaptas Acquisition Holdings, LLC Adaptas Solutions, LLC | Palmer Industrial Park, 9 Second Street, Palmer, MA 01069, United States | | Heimeier GmbH, IMI Hydronic Engineering Deutschland GmbH, THJ Holding GmbH | Postfach 1124 59592 Erwitte, Völlinghauser Weg, 59597 Erwitte | | IMI Australia Pty Ltd, IMI Critical Engineering (PAC) Pty Ltd, IMI Lakeside Australia Pty Ltd | 33 South Corporate Avenue, Rowville VIC 3178, Australia | | IMI Finance SA, IMI Finance USD SA, IMI Hydronic Engineering International SA | Route de Cressier 19, Lake Geneva Business Park, 1262 Eysins, Switzerland | | Adaptas Solutions Pty Ltd, DeTech Australia Holdings Pty Ltd | 2-8 Martha Street, Clyde NSW 2142, Australia | | IMI Aero-Dynamiek BVBA | Aero Dynamiek - Antwerpsesteenweg 124, 2630 Aartselaar, Belgium | | IMI Hydronic Engineering NV | Fountain Business Park, C. Van Kerckhovenstraat 110 Gebouw 3 BE-2880 Bornem | | CCI Italy S.R.L., IMI Holding Italy S.R.L., Orton S.R.L. | Via Larga 6, 20122 Milan, Italy | IMI plc Annual Report & Accounts 2022230 ### Subsidiary undertakings (continued) IMI Hydronic Engineering A/S, Vesterlundvej 18, 2730 Herlev, Denmark Norgren A/S IMI Hydronic Engineering AS, Glynitveien 7, Ski, N-1400, Norway Norgren AS IMI Hydronic Engineering BV, Klipperaak 101 (1e etage), 2411 ND Bodegraven IMI Netherlands Holdings BV IMI Scotland Limited, C/O Brodies Llp Capital Square, 58 Morrison Street, Edinburgh, EH3 8BP The IMI Scottish Limited Partnership, The IMI 2017 Scottish Limited Partnership Lakeside Finance Unlimited Company, 1 Stokes Place, St Stephens Green, Dublin 2, Ireland Lakeside Treasury Unlimited Company Norgren Co Limited, Building 3, No. 1885, Duhui Road, Minhang District, Shanghai, China Norgren Manufacturing Co Ltd Valves Holding GmbH, Bertramsweg 6, 52355 Düren, Germany Z & J Technologies GmbH Acro Associates LLC 1990 Olivera Rd., Sta. A Concord, CA 94520, United States Adaptas Solutions China Co, Ltd No. 1588 Xinhong Road, Qidong City, Nantong, Jiangsu, China Applied Kilovolts Limited Woods Way, Goring By Sea, Worthing, West Sussex, BN12 4QY Bahr Modultechnik Holding GmbH North-South-Str. 10a, 31711 Luhden, Germany Bahr Modultechnik GmbH Bimba LLC 25150 S. Governors Hwy, University Park, IL 60484, United States Mead Fluid Dynamics, Inc. Bopp & Reuther Valves GmbH Carl-Reuther Str. 1, 68305 Mannheim, Germany Brookvale International Insurance Limited Clarendon House, Church Street, Hamilton, HM11, Bermuda Buschjost GmbH Detmolder Strasse 256, 32545 Bad Oeynhausen, Germany CCI AG Fabrikstrasse 10, 8370 Sirnach, Switzerland IMI Critical Engineering Brasil Ltda. Rua Anuar Dequech, 272 – Galpão 06, Iporanga - Sorocaba/SP, Brasil 18087-157 CCI Czech Republic s.r.o. K Letišti 1804/3, Šlapanice, 62700, Brno, Czech Republic CCI Flow Control (Shanghai) Co Ltd Room 108, Unit 15, 159 Tian Zhou Road, Cao He Jing Development Zone, Shanghai, 200233, China CCI International Limited Unit A3 Brookside Business Park, Greengate, Middleton, Manchester, M24 1GS, United Kingdom CCI Valve Technology AB Industrigatan 7, Box 603, 661 29 Säffle, Sweden CCI Valve Technology GmbH Lemböckgasse 63/1, 1230 Wien, Austria Control Component India Pvt Limited Ground, 1st & 2nd Floor, Tower 4, SJR i park, Plot # 13 14 & 15, EPIP Zone Phase 1, Whitefield Road, Bangalore 560066, India Control Components Inc 22591 Avenida Empresa, Rancho Santa Margarita CA 92688, United States CorSolutions LLC 95 Brown Rd, Ithaca, New York, 14850, United States FAS Medic SA Route de Bossonnens 2, 1607, Palézieux, Switzerland Fluid Automation Systems GmbH Stuttgarter Straße 120, 70736 Fellbach, Germany Heatmiser UK Ltd Units 1-5 Hurstwood Court, Mercer Way, Blackburn, England, BB1 2QU Heatmiser Automatic Control Technology (Beijing) Limited North Zone, Floor 2, Building 12, 738 Changliu Road, Machikou town, Changping District, Beijing, China Herion Systemtechnik GmbH Untere Talstrasse 65, 71263 Weil der Stadt, Germany IMI Aero-Dynamiek BV Databankweg 7, 3821 AL Amersfoort, Netherlands IMI Critical Engineering (APAC) Pte. Ltd 29 International Business Park #04-01 Acer Building Singapore 609923 IMI Critical Engineering (AUS) Pty Ltd 33 South Corporate Avenue, Rowville Victoria 3178, Australia IMI Critical Engineering (Shanghai) Company Limited Building 3, No. 1-5, Lane 800, Yewang Road, Yexie Town, Songjiang District, Shanghai, 201609, China IMI Critical Engineering Korea 14 Dangdong 2-ro, Munsan-eup, Paju-si, Gyeonggi-do, 10816, Republic of Korea IMI Critical Engr PBM LLC 1070 Sandy Hill Road, Irwin, PA 15642, United States ## 231Introduction Strategic Report Corporate Governance Financial Statements IMI Critical Engr Z&J LLC 4525 Kennedy Commerce Drive, Houston, TX 77032, United States IMI Critical FZE Office No. FZJOA1308, FZJ0A1310, FZJ0A1307A, Jebel Ali Free Zone, PO Box 17827, Dubai, UAE IMI Deutschland B.V. Versterkerstraat 6, 1322 AP Almere, Netherlands IMI Engineering Sdn. Bhd. K-7-5 & K-7-6, Solaris Kirara, Soho, Jalan Solaris Mont Kiara, 50480 Kuala Lumpur, Malaysia IMI France SARL 52 Boulevard de Sébastopol, 75003 Paris, France IMI Holdings LLC 101 Broadway Street West, Suite 204, Osseo, MN 55369, United States IMI Hydronic Engineering AB Annelund, SE-524 80, Ljung, Sweden IMI Hydronic Engineering Business Services Spólka Z Ograniczona Olewin 50 A, PL-32300, Olkusz, Poland Odpowiedzialnoscia IMI Hydronic Engineering China Room 610, Block C the MIXC No.1799 Wuzhong Road, Minghang District, Shanghai 201103 China IMI Hydronic Engineering France S.A. 13, rue de la Perdrix – Les Flamants 8, 93290 Tremblay-en-France, France IMI Hydronic Engineering FZE JAFZA One - Tower A, Office 1310, P.O. Box 262611, Dubai, UAE IMI Hydronic Engineering GesmbH Industriestrasse 9, Objekt 5, 2353, Guntramsdorf, Austria IMI Hydronic Engineering Inc 8908 Governors Row, Dallas, TX 75247, United States IMI Hydronic Engineering Limited Hat House Third Floor, 32 Guildford Street, Luton, Bedfordshire, LU1 2NR, United Kingdom IMI Hydronic Engineering Ltda Av Fagundes Filho, 134 cj 43, S. Judas, Sao Paulo, 04304-010, Brazil IMI Hydronic Engineering OY Robert Huberin tie 7, Vantaa FI-01510, Finland IMI Hydronic Engineering Pte Ltd 223 Mountbatten Road #03-01, Singapore 398008, Singapore IMI Hydronic Engineering S.A. 9, rue des 3 Cantons, Windhof, L-8399, Luxembourg IMI Hydronic Engineering (Spain) SAU Calle Orduña 3 Planta Baja, 28034 Madrid, Spain IMI Hydronic Engineering S.R.L. Via Roma, 108 – Edificio F/2, 20051 Cassina de Pecchi (MI), Italy IMI Hydronic Engineering Switzerland AG Mühlerainstrasse 26, 4414 Füllinsdorf, Switzerland IMI Hydronic Engineering UAB A.Juozapaviciaus 27-5, Kaunas, LT – 45258, Lithuania IMI International Co Srl Str. Aristide Pascal nr.36, Sector 3, Bucuresti, 031445, Romania IMI International d.o.o. Alpska cesta 37b, Lesce, 4248, Slovenia IMI International d.o.o. Slavonska avenija 17, Zagreb, 10040, Croatia IMI International d.o.o. Beograd Milutina Milankovica 1b, Novi Beograd, 11070, Serbia IMI International Kft. Kunigunda Útja 60, Budapest, HU-1037, Hungary IMI International s.r.o. Central Trade Park D1, c.p.1573, Humpolec, 396 01, Czech Republic IMI International Sp. z.o.o. Olewin 50 A, PL-32300, Olkusz, Poland IMI Japan K.K. 7-3-6 Minatojima Minamimachi, Chuo-ku, Kobe, Hyogo 650-0047, Japan IMI Norgren Herion PVT Limited C/o Rajesh Malhotra & Associates 505, Mercantile house, Kasturba gandhi marg, New Delhi – 110001 IMI Norgren Limited 1 Stokes Place, St. Stephen’s Green, Dublin 2, D02 DE03 IMI Norgren SA (Sociedad Unipersonal) Calle Colom, 391, 2 Edif. Tecno, 08223, Terrassa, Spain IMI Saudi Industry LLC 3826 unit No. 7, Street 122, Second Industrial City, Post 34325-7535, Dammam, Saudi Arabia IMI Ventures Singapore Pte Ltd 29 International Business Park #04-01 Acer Building Singapore 609923 Industrie Mecanique Pour Les Fluides SA 15 Avenue des Cures, 95580, Andilly, France Kynoch Sweden Holding AB c/o IMI Hydronic Engineering AB, 52 480 Ljung, Sweden Mead Fluid Dynamics, Inc. 4114 North Knox Avenue, Chicago, IL 60641, United States Newman Hattersley Limited 5063 North Service Road, Suite 100, Burlington, ON, L7L 5H6 Canada Norgren AG Fabrikstrasse 10, 8370 Sirnach, Switzerland Norgren Automation Solutions LLC 2871 Bond Street, Rochester Hills, MI 48309, United States Norgren BV Versterkerstraat 6, 1322 AP Almere, Netherlands Norgren Co Limited 36/8 Room M1 Krungthep Kreetha Rd., Khlong Song Ton Nun Sub-District, Lat Krabang District, Bangkok 10520, Thailand IMI plc Annual Report & Accounts 2022232 ### Subsidiary undertakings (continued) Norgren Finland OY Robert Huberin Tie 7, Fl-015 10 Vantaa, Finland Norgren Ges.m.b.H Industriezentrum NÖ Süd, Straße 2a, Objekt M39/1, A-2355, Wiener Neudorf, Austria Norgren GT Development LLC 425 “C” Street NW, Suite 100, Auburn, WA 98001, United States Norgren Kloehn LLC 10000 Banburry Cross Drive, Las Vegas, NV 89144, United States Norgren Limited 6/F Benson Tower, 74 Hung To Road, Kwun Tong, Kowloon, Hong Kong Norgren Limited 15A Vestey Drive, Auckland, 1060, New Zealand IMI Webber Limited, Blenheim Way, Fradley Park, Lichfield, Staffordshire, WS13 8SY, United Kingdom Norgren Limited Norgren Ltda Av. Eng. Alberto de Zagottis, 696-B, Sao Paulo SP, 04675-085, Brazil Norgren Manufacturing (Suzhou) Co., Ltd No. 975, Xinzi Road, Wujiang Economic & Technological Development Zone, Jiangsu Province, China Norgren Manufacturing de Mexico S.A. de C.V. Avenida de la Montaña # 120, Parque Industrial Querétaro, Santiago De Querétaro, Querétaro, CP 76220, México Norgren S.A. de C.V. Avenida de la Montaña # 120, Santa Rosa Jauregui, Santiago De Querétaro, Querétaro, CP 76220, México Norgren NV F Walravensstraat 84, B.1651 Lot, Belgium Norgren Pte. Limited JTC Space@ Tuas, 16B Tuas Ave 1, #03-40, Singapore 639534 Norgren SAS 1, rue de Lamirault 77090 Collégien, France Norgren Srl Building F2, Via Roma 108, Cassina de Pecchi, 20051, Milan, Italy Norgren Sweden AB Box 14001, Ventilgatan 6, S-200 24 Malmo, Sweden Norgren Taiwan Co Limited 3F, No. 540 Sec. 1, Minsheng N. Rd., Guishan Dist., Taoyuan City , 333, Taiwan Pneumadyne LLC 14425 23rd Ave North, Plymouth, MN 55447, United States Remosa S.R.L. Sesta Strada Ovest snc – Loc Macchiareddu, 09010, UTA (CA), Italy SAIC CCI Valve Co Ltd (44%)* Block B, 123 Chongming Xiushan Road, Chengqiao Town, Chongming County, Shanghai, 202150 China Shanghai CCI Power Control Equipment Co Ltd 229C, 2F, No 11, Lane 465, Tengyue Road, Yangpu District, Shanghai, 200090, China STI S.R.L. Via dei Caravaggi 15, 24040, Levate (BG), Italy TA Regulator d.o.o. Orliska Ulica13, Brezice, SI-8250, Slovenia TH Jansen Armaturen GmbH Blucherstrasse 47, 66386 Sankt Ingbert, Germany Thompson Valves Limited 17 Balena Close, Creekmoor, Poole, Dorset, BH17 7EF, United Kingdom Truflo Rona S.A. 3e avenue, 16, Parc Industrial des Hauts Sarts, 4040 Herstal, Belgium Truflo Marine Limited 2, Priory Road, Aston, Birmingham B6 7LG, United Kingdom Vaccon Company, Inc. 2871 Bond Street, Rochester Hills, MI 48309, United States * Treated as external investments. ## 233Introduction Strategic Report Corporate Governance Financial Statements Subsidiary audit exemptions IMI plc has issued guarantees over the liabilities over the following companies at 31 December 2022 under Section 479C of Companies Act 2006 and these entities are exempt from the requirements of the Act relating to the audit of individual accounts by virtue of Section 479A of the Act: | Company name Company number | Company name Company number | | --- | --- | | Applied Kilovolts Limited 02101051 | IMI Precision Engineering Limited 01687068 | | CCI International Limited 00259162 | IMI Refiners Limited 00148305 | | Heatmiser UK Limited 03747773 | IMI Scotland Limited SC378424 | | Holford Estates Limited 01181406 | IMI Sweden Finance Limited 07272731 | | IMI Components Limited 01640862 | IMI Vision Limited 04421176 | | IMI Deutschland Limited 07843551 | IMI Webber Limited 01416237 | | IMI Euro Finance Limited 07929408 | Norgren Limited 00564656 | | IMI Fluid Controls (Finance) Limited 08528502 | Thompson Valves Limited 02791464 | | IMI Germany Limited 07843576 | Truflo Group Limited 04430846 | | IMI Hydronic Engineering Limited 02945254 | Truflo International Limited 00164822 | | IMI Kynoch Limited 00713735 | Truflo Investments Limited 04430927 | | IMI Marston Limited 00155987 | Truflo Marine Limited 00993167 | IMI Overseas Investments Limited 00209251 ### * ## Geographic distribution of employees The following table shows the geographic distribution of employees as at 31 December 2022 and is not required to be audited. United Kingdom 1,188 Continental Europe 5,703 Americas 2,688 Asia Pacific 1,363 Rest of World 49 Total 10,991 * Includes agency and contractors. IMI plc Annual Report & Accounts 2022234 ### * ## Five year summary | Revenue £m Adjusted profit before tax* £m | Group revenue by geography 2022 | | | --- | --- | --- | | | Total | Middle East & | | | APAC | Africa | | | 22% | 5% | 346.1 2,049 1,907 307.0 1,873 1,866 1,825 273.9 251.2 250.7 Total Europe 43% Total Americas 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 30% * On an adjusted basis. Income statement 2018 2019 2020 2021 2022 £m £m £m £m £m Revenue 1,907 1,873 1,825 1,866 2,049 Adjusted operating profit 265.5 266.1 284.7 318.1 363.8 Adjusted profit before tax 251.2 250.7 273.9 307.0 346.1 Special pension events 6.8 8.6 - - - Restructuring costs and associated impairment losses (14.4) (53.3) (37.7) (39.7) (25.9) Acquired intangible amortisation (25.1) (19.5) (18.7) (15.0) (29.5) Other acquisition items (3.7) (1.6) - (3.1) (4.2) Loss/(gain) on disposal of subsidiaries 0.6 - - (3.8) - Exit from Russia - - - - (9.0) Financial instruments excluding economic hedge contract (losses)/gains (2.5) 4.4 (3.2) (0.8) 7.9 Profit before tax 212.9 189.3 214.3 244.6 285.4 Adjusted EBITDA 320 357 380 404 457 Group sales by destination 2018 2019 2020 2021 2022 £m £m £m £m £m UK 90 90 88 83 93 Germany 288 234 222 238 265 Rest of Europe 519 494 486 520 520 Total Europe 897 818 796 841 878 Total Americas 515 538 545 526 627 Total Asia Pacific 357 404 390 409 450 Middle East and Africa 138 113 94 90 94 Revenue 1,907 1,873 1,825 1,866 2,049 Introduction Strategic Report Corporate Governance Financial Statements 235 ## Earnings and dividends | | 2018 | 2019 | 2020 | 2021 | 2022 | | --- | --- | --- | --- | --- | --- | | Adjusted basic earnings per share | 73.2p | 73.2p | 79.7p | 92.0p | **105.5p** | | Statutory basic earnings per share | 62.5p | 56.6p | 62.7p | 73.5p | **87.6p** | | Ordinary dividend per share | 40.6p | 41.1p | 22.5p | 23.7p | **25.7p** | ## Balance sheet | | 2018 £m | 2019 £m | 2020 £m | 2021 £m | 2022 £m | | --- | --- | --- | --- | --- | --- | | Segmental net assets (including lease liabilities) | 1,220 | 1,168 | 1,124 | 1,340 | **1,744** | | Other net non-operating liabilities excluding borrowings (gross) | (149) | (111) | (96) | (32) | **(132)** | | Net debt (excluding lease liabilities) | (405) | (347) | (228) | (529) | **(706)** | | **Net assets** | **666** | **710** | **800** | **779** | **906** | ## Statistics | | 2018 | 2019 | 2020 | 2021 | 2022 | | --- | --- | --- | --- | --- | --- | | Adjusted operating profit as a percentage of revenue | 14.0% | 14.2% | 15.6% | 17.0% | **17.8%** | | Adjusted operating profit as a percentage of segmental net assets | 21.8% | 22.8% | 25.3% | 23.7% | **20.9%** | | Effective tax rate on adjusted profit before tax | 21.0% | 21.0% | 21.0% | 20.0% | **21.3%** | | Net assets per share (excluding treasury and EBT shares) | 245.8p | 262.2p | 294.9p | 301.0p | **344.1p** | | Net debt as a percentage of shareholders' funds | 60.7% | 48.9% | 39.5% | 79.9% | **89.6%** | | Net debt: adjusted EBITDA | 1.3 | 1.2 | 0.8 | 1.5 | **1.8** | | Adjusted EBITDA: interest | 25 | 24 | 35 | 33 | **24** | \* The five year summary is not required to be audited. IMI plc Annual Report & Accounts 2022236 ## Shareholder and general information | Announcement of trading results | Corporate website | Headquarters and registered office | | --- | --- | --- | | The trading results for the Group for the first half of | The IMI plc website provides a wealth of useful | Lakeside | | 2023 will be announced on 28 July 2023. The trading | information for shareholders and should be your | Solihull Parkway | | results for the full year ending 31 December 2023 will | first port of call for general queries relating to the | Birmingham Business Park | | be announced in February 2024. | Company and your shares. As well as providing share | Birmingham | | | price data and financial history, the site also provides | B37 7XZ | Interim management statements will be issued in background information about the Company. Telephone: +44 121 717 3700 May and November 2023. Shareholders are also encouraged to sign up to IMI plc is registered in England No.714275 receive news alerts by email in the Investors section of the website. These include all of the financial Expected dividend payments news releases from throughout the year that are Registrars Final: 12 May 2023 not sent to shareholders by post. You can access the Equiniti corporate website at: www.imiplc.com. Interim: September 2023 Aspect House Spencer Road Lancing Share prices and capital gains tax Annual General Meeting 2023 West Sussex The closing price of the Company’s ordinary shares This year’s AGM will be held on 4 May 2023. BN99 6DA on the London Stock Exchange on 31 December 2022 For further information, please refer to the Notice Telephone: 0371 384 2040 or from overseas was 1,228.0p (2021: 1,736.0p). The market value of of Meeting which is on the corporate website. (0)371-384-2040 the Company’s ordinary shares on 31 March 1982, as calculated for capital gains tax purposes, was 53.5p Lines are open 8.30am to 5.30pm, Monday to Friday Individual Savings Account (ISA) per share. (excluding public holidays in England and Wales). IMI‘s ordinary shares can be held in an ISA. For The Company’s SEAQ number is 51443. Email: information about the ISA operated by our Registrar, customer@equiniti.com Equiniti, please call the Equiniti ISA helpline on 0345 bereavementsupport@equiniti.com 300 0430. Lines are open from 8.30am to 5.30pm, Enquiries about shareholdings Monday to Friday (excluding public holidays in For enquiries concerning shareholders’ personal England and Wales). Stockbrokers holdings, please contact the Company’s Registrar: Equiniti (contact details appear to the right). JPMorgan Cazenove Share dealing service Bank of America Please remember to tell Equiniti if you move house, Managed by Equiniti, the Company’s registrar, the change bank details or if there is any other change IMI plc share dealing service provides shareholders Auditor to your account information. with a simple way of buying and selling IMI ordinary Deloitte shares. Telephone: 0345 603 7037. Full written Managing your shares online details can be obtained from Equiniti (contact details appear to the right). Cautionary statement Shareholders can manage their holdings online by registering with Shareview, the internet based This Annual Report may contain forward-looking platform provided by Equiniti. Registration is a statements that may or may not prove accurate. For Share fraud straightforward process and allows shareholders to: example, statements regarding expected revenue Share fraud includes scams where investors are • help us to reduce print, paper and postage costs growth and operating margins, market trends and called out of the blue and offered shares that often and the associated environmental impact of these; our product pipeline are forward-looking statements. turn out to be worthless or non-existent, or an It is believed that the expectations reflected in • cast your AGM vote electronically; inflated price for shares they own. These calls come these statements are reasonable but they may be from fraudsters operating in ‘boiler rooms’ that are • receive an email alert when important shareholder affected by a number of risks and uncertainties mostly based abroad. Further information on how to documents are available online such as Annual that are inherent in any forward-looking statement spot share fraud or report a scam can be found on Reports and Notices of General Meetings; which could cause actual results to differ materially our corporate website. • access details of your individual shareholding from those currently anticipated. Any forward- quickly and securely; looking statement is made in good faith and based American Depository Receipts on information available to IMI plc as of the date of • set up a dividend mandate online; and the preparation of this Annual Report. All written IMI plc terminated its sponsored American • change your registered postal address or your or oral forward-looking statements attributable to Depository Receipt programme on 18 January 2023. dividend mandate details. IMI plc are qualified by this caution. IMI plc does not If you have questions about the termination, please undertake any obligation to update or revise any To find out more information about the services contact Citibank, N.A. at 1-877-248-4237. forward-looking statement to reflect any change in offered by Shareview and to register, please visit: circumstances or in IMI plc’s expectations. www.shareview.co.uk. Printed in the UK by Pureprint Group, a Carbon Neutral® company. The report is printed on recycled silk paper, make from 100% pre and post-consumer waste. The CO 2 emissions associated with the paper manufacturing and printing of this publication have been offset. It was printed using vegetable-based inks and a water-based coating. Both the paper mill and printer are registered to the Environmental Management System ISO 14001 and are Forest Stewardship Council® (FSC®) chain-of-custody certified. Designed and produced by www.designmotive.co.uk ### IMI plc ### Lakeside ### Solihull Parkway ### Birmingham Business Park ### Birmingham B37 7XZ ### United Kingdom ### www.imiplc.com