Spirax-Sarco Regulatory News (SPX)

Principal Risk

Change

Impact

Mitigation

Relevance to strategy

Economic and political instability:

The Group operates worldwide. Economic and political instability creates risks for our locally based direct operations. The Group

has reviewed country, credit, liquidity and currency risks and, in particular, those arising from European debt issues.

The risk has increased as a

result of the deterioration in some European economies and the general world economic outlook.

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• Fluctuations in profit from significant currency movements

• Reduced profit due to impact on customers from economic problems

• Potential redenomination of local currency, devaluation and high inflation.

• Compliance with Group Treasury Policy

• Strong internal controls with internal audit and appropriate insurance

• Resilient business model (as explained in the Business Review on page 17).

• Well spread business - approximately 10% of Group sales originate in the higher risk countries of Greece, Ireland, Italy, Portugal and Spain. Sales in Greece are immaterial.

Broaden our global presence

Breach of regulatory requirements:

The Group operates in a large number of countries across the world and is subject to many different laws and regulations, including the UK Bribery Act, the US Foreign and Corrupt

Practices Act, health and safety, competition laws and local quality regulations. Breaching these laws and regulations could have serious consequences.

This risk has increased in the year as sales in Asia Pacific have risen.

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• Fines and regulatory action and resultant reduced profit

• Damage to reputation

• Diversion of management time.

• Robust internal controls, policies and procedures and Group Management Code

• Establish strong ethical culture supported by communication and training

• Review of commercial arrangements and regulatory requirements with appropriate professional advice

• Maintain local quality accreditations.

Create strong market positions

Non-compliance with health, safety and environmental legislation:

The Group places great emphasis on health, safety and environmental issues in relation

to our employees and operations, and those of our customers, suppliers and communities so as to avoid the risk of major health, safety or environmental problems.

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• Damage to reputation

• Reduced profit due to fines, compensation and clean-up costs

• Enforcement action by regulatory authorities.

• Compliance with legislation and codes of best practice

• Regular audits, checks and reporting to management and the Board on health, safety and environmental issues

• Ongoing training

• In the course of appointing a Senior Group Health and Safety Manager.

Create strong market positions

Failure to respond to technological developments or customer needs:

The Group has significantly increased R&D resources and risks, this being ineffective if we fail to respond to development

and customer needs or if we fail to manage and protect our intellectual property.

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• Failure to achieve expected return on the R&D investment

• Reduced profit

• Loss of market share

• Loss of intellectual property.

• Maintain market knowledge and monitor competitor developments, making effective use of our direct field sales force

• Maintain investment in R&D programmes

• Maintain appropriate intellectual property registrations, taking enforcement action where appropriate.

Generate consistent organic growth

Deliver solutions to reduce

energy usage

Risk of product failure:

The Group provides a wide range of products into many different plants and industries many of which are in critical parts of

our customers' processes.

A risk exists that products are wrongly specified or installed, fail, or contain design or manufacturing faults.

This risk has increased during the year as a result of the Group providing more fully integrated solutions.

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• Damage to customer relationships

• Reduced profit due to increased costs to correct the problems caused at customers' plants

• Litigation following product liability claim.

• Products designed and tested to international standards and strict quality procedures

• Training of sales/installation staff

• Appropriate conditions of sale and contractual restrictions on liability

• Insurance cover.

Create strong market positions

Deliver solutions to reduce

energy usage

Loss of manufacturing output at any Group factory:

The Group manufactures most of the products we sell in eight main factory units which supply our sales operations worldwide. Loss of manufacturing output at any important plant risks serious disruption to sales operations.

This risk has reduced in the year due to the realisation of the Group's manufacturing strategy of regionalising the manufacturing base.

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• Reduced sales and profit due to inability to meet customer orders

• Loss of market share

• Damage to reputation.

• Group manufacturing strategy to regionalise manufacturing base and increase resilience

• Business continuity planning and disaster recovery plans

• Stocks of components and finished products in sales companies

• Regular and comprehensive back‑ ups of IT systems

• Use of insurance audits/ inspections and business interruption insurance.

Broaden our global presence

Defined benefit pension deficit: Defined benefit pension schemes carry risks in relation to investment performance, security of assets, longevity and inflation. Total defined benefit pension liabilities represent approximately 52% of total Group assets.

This risk has reduced in the year as a result of the operation of the Mercer 'Dynamic De-Risking Solution'.

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• Increase in liabilities

• Increase in pension costs and cash contributions

• Fluctuations in pension fund asset and liability values.

• Use of independent professional advisers and custodians for defined benefit pension schemes

• Pension scheme de‑risking strategy to automatically reduce equity exposure and increase matching assets at pre‑agreed trigger points.

Failure to realise acquisition objectives:

The Group's strategy is focused on organic growth complemented by acquisitions (as explained in the Business Review on page 17). We risk failing to achieve the expected return on investment if acquisitions are not properly identified, executed and integrated.

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• Failure to achieve expected return on investment

• Assumption of unexpected liabilities.

• Evaluation of potential targets against Strategic Plan and acquisition criteria

• Project management disciplines

• Appropriate due diligence by Group personnel and external advisers covering commercial, legal, accounting and environmental issues.

Grow market share

Deliver solutions to educe

energy usage"

2012

2011

"THE GROUP

£000

£000

Sales to associated companies

567

732

Dividends from associated companies

1,454

1,461

Amounts due from associated companies at 31st December

47

21

2012

2011

PARENT COMPANY

£000

£000

Dividends received from subsidiaries

16,500

99,000

Dividends received from associates

1,454

1,461

Loans and amounts due from subsidiaries at 31st December

143,748

203,172

Amounts due to subsidiaries at 31st December

23,941

1,277