development of steam specialty - spirax-sarco … · development of steam specialty and ......

Growth through development of

steam specialty and

peristaltic pump markets

Annual report 2007

• 11% sales growth at constant currency

• Good sales growth in all regions

• Strong 16% growth in operating profit at constant currency

• Operating profit margin increased to 16.5%

• EPS up 13% and final dividend up 14%

• Strong cash generation

Spirax-Sarco Engineering plc

Total Year to 31st December 2007 2006 Change

Revenue £417.3m £384.2m +9%Operating profit £68.3m £61.9m +10%Profit before taxation £72.2m £65.3m +10%Earnings per share 64.7p 57.7p +12%Dividends per share 29.9p 26.5p +13%

Spirax-Sarco Engineering plc final results 2007

Adjusted*

80

60

40

20

0

500

200

300

400

100

0

RevenueOperating

profit£m £m

Year to 31st December 2007 2006 Change

Revenue £417.3m 384.2m +9%Operating profit £68.7m £62.3m +10%Operating profit margin 16.5% 16.2% Profit before taxation £72.8m £65.7m +11%Earnings per share 65.5p 58.1p +13%Dividends per share 29.9p 26.5p +13%* Excludes the amortisation of acquisition - related intangibles. Total 2007 is £0.6m (2006: £0.4m) of which £0.2m relates to Associates (2006: nil)

Contents

Spirax Sarco at a glance 2Chairman’s statement 6Business review 8Board of Directors 24Directors’ report 26Corporate governance 28Corporate social responsibility 32The Directors’ remuneration report 36Statement of Directors’ responsibilities 44Auditors’ report 45Group income statement 46Balance sheets 47Statements of recognised 48income and expense

Cash flow statements 49Notes to the accounts 50Financial summary 1998- 2007 80Officers and advisers 82

1Spirax-Sarco Engineering plc

at a glanceSpirax Sarco

It is important that we make the specialised knowledge of our two businesses easily available to our customers so that they can improve the performance of their processes. We do this through extensive training courses and through our highly trained force of over 1,100 direct sales and service engineers worldwide who build long-term relationships with our customers. We also provide extensive technical literature and our websites include comprehensive commercial, technical and educational material which is widely used within industry.

Our business is spread very broadly across the globe and across virtually all manufacturing industries. No industrial sector makes up more than 10% of Group sales and no individual customer represents more than 1% of the Group’s sales.

Our sales engineers are trained to understand applications in a comprehensive range of industries, to analyse customer problems and then to supply the solution through the application of our products. Over many years both our businesses have expanded the range of products through both in-house development and acquisitions; we are well placed to be able to address any problems faced by customers in their respective steam and peristaltic pump-using processes.

Steam• Natural choice in most industries• Most efficient and effective heat transfer medium• Carries large amounts of heat energy• Generated from range of fuels - gas, oil, waste materials or waste heat• Flows naturally from high pressure to low pressure• Very controllable (temperature proportional to pressure)• Environmentally friendly• Clean and sterile

Peristaltic Pumps• Pump of first choice where fluid is: - abrasive, corrosive or aggressive - sensitive, valuable or pure - delicate and must not be degraded• Contamination free pumping• Virtually maintenance free - no seals, check valves, diaphragms or rotors• Accurate and reproducible flow• Highly controllable

The two businesses of the Spirax-Sarco Engineering Group are focused on the industrial and commercial steam-using market, and the specialist peristaltic pumping market. Both are world leaders in their chosen spheres.

As a heat source, steam is the natural choice in many industrial processes due to its high heat-carrying capacity, controllability, sterility and efficiency as a heat transfer medium. The specialist knowledge within the Spirax Sarco business enables us to apply our products to improve the efficiency of our customers’ process heating, thereby improving the output of the process or reducing running costs, most notably energy consumption, helping to relieve the pressures on the environment. Similarly, the unique properties of peristaltic pumps make them ideal for difficult pumping applications. They are highly accurate and controllable, and virtually maintenance-free making them a very cost-effective solution. Watson-Marlow Bredel are specialists not only in the manufacture of the best and most advanced peristaltic pumps but also in the application of those pumps to customers’ processes, the objective being to improve the performance of the end users’ plant. The peristaltic pumping market is a small part of the global pumping market but it is also one of the fastest growing parts.

2 Spirax-Sarco Engineering plc

Temperature Control

Flowrates from microlitres per minute to 80 cubic metres per hour

Make-to-order lean manufacturing with global sourcing

Research and development continuallyextending capabilities

Wide spread of applications from biotechnology to milkshakes, brewing to concrete colouring

Major OEM sales to leading fast food and inkjet printer companies

Spirax Sarco - wide range of steam product solutions

Spirax Sarco has a complete range of products that cover the entire steam and condensate loop which we design, develop, manufacture and make available to customers on a largely ex-stock basis together with comprehensive technical advice, service and support.

Watson-Marlow Bredel - unmatched range of peristaltic pump solutions

Watson-Marlow Bredel has the widest range of peristaltic pumps with fixed or variable speed, digital, analogue or manual control and single or multi-channel flows.

Flowmetering & Monitoring

Condensate & Heat Recovery

PressureControl

Feedwater Conditioning

Steam Trapping

St

eam System Services

Boiler LevelControls

BoilerBlowdown


Humidity Controls

Heat Exchange Solutions

Pipeline Ancillaries

Based on sales by location of customer for 2007

Global spread of business

North America

19%UK & Republic

of Ireland

11%Continental

Europe

37% Asia

20%

Rest of World(South America, Africa, Australasia)

13%


Spirax Sarco retention and growthThe Spirax Sarco Group continues to expand globally responding to changing market pressures and challenges. There is a greater awareness and demand for energy savings and environmentally friendly solutions, which represent good opportunities across our markets.

Our business strategy continues to focus on growth and retention. Our traditional product markets such as steam traps, pressure controls, ancillaries, have always formed the foundation of our steam business and the building blocks of future solutions.

Focus The Group provides our customers with a distinctive value proposition by:

• Continuing to strengthen our position as the knowledge company.

• Offering improved and expanded solutions to our customers.• Providing the market with innovative and customer focused

technology.• Retaining and improving our existing market base.• Continuing to extend our brand into related industrial fl uids.

Foundations of successThe Group has developed substantial application knowledge, systems expertise and a comprehensive range of products and services that defi ne our value proposition. These assets are becoming even more important as our customers’ needs increase for lower life cycle costs, energy savings and environmentally friendly solutions. We manage the business such that we effectively match our knowledge, services, products, and technological innovation to the changing requirements of our customers.

Knowledge and peopleOur people and knowledge have always been vital ingredients to our competitive edge. It is our people, through the unique knowledge they possess, that deliver the right solutions to our customers. Our emphasis is on their individual and team development and providing them with all the necessary tools.

Customer solutionsSpirax and Watson-Marlow Bredel solutions are tailored to the customer application. Our products, services, engineered packages and new technologies deliver process improvements, energy savings, plant safety and regulatory compliance. The scope of solutions available is progressively extended to meet market demand.

Market penetrationWe continue to focus on our core markets and develop growth opportunities through extending our sales coverage, penetrating existing markets, expanding our range of products, and meeting our customers’ demand for solutions which add value.

6 Spirax-Sarco Engineering plc6 Spirax-Sarco Engineering plc

I am pleased to report a good performance in 2006 which continues the Group’s long record of consistent growth and strong profi tability. We grew sales by over 10% and pre-tax profi ts were 15% ahead of 2005 at a record £65.7 million. This is a consequence of your Board’s long-standing determination to focus on the development of the Spirax Sarco steam specialty business and the Watson-Marlow Bredel peristaltic pumping business through investment in new products, expansion of sales coverage, development of new markets and management of costs.

statementChairman’s

I am pleased to report another strong performance in 2007; we built on the investments and developments of the last few years which helped to sustain our long record of growth, good profi tability and cash generation. We increased sales by 9% and pre-tax profi ts by 11% to £72.8 million. This was achieved through maintaining our commitment to product development, investing in new and expanding markets and improving effi ciency in our business.

Sales grew to £417.3 million, from £384.2 million in 2006. On average, sterling was over 2% stronger in 2007 than in 2006; at constant exchange rates the sales increase was a strong 11%.

As in the fi rst half of the year, the sales growth for the full year was spread across all regions. There was a continuation of the strong growth in Asia; sales in Continental Europe also maintained momentum in the second half and grew well. In North America, there was a good increase in sales at constant currency but the weaker US dollar led to only a small increase in sterling. In the UK and the Rest of the World, there were also solid sales gains in nearly all companies.

Operating profi t increased by 10% to £68.7 million from £62.3 million in 2006. This includes an adverse eff ect from currency movements of over £3 million and, at constant currency, the increase was 16%. The operating margin improved to 16.5% from 16.2% in the prior year despite the adverse exchange transaction eff ect.

Net fi nance income was £2.4 million, which compares with £2.0 million in 2006. There was a £1.1 million increase in net fi nance income relating to the defi ned benefi t pension funds; against this, there was an increase in net bank interest payable as a result of the impact of the share buy-back in 2006, special pension contributions and the acquisition of UltraPure. The proportion of Associates’ post-tax profi ts attributable to the Group increased to £1.6 million (2006: £1.4 million).


Pre-tax profi t for the Group increased by 11% to £72.8 million (2006: £65.7 million) and earnings per share rose by 13% to 65.5p from 58.1p in 2006.

Your Board is recommending a fi nal dividend of 21.6p per share payable on 19th May 2008 to shareholders on the register at the close of business on 18th April 2008. This, together with the interim dividend of 8.3p per share paid in November, makes a total dividend for the year of 29.9p per share. This compares with a total dividend of 26.5p per share last year, an increase of 13%, in line with our improved performance in 2007. The cost of the interim and fi nal dividends is £22.8 million, which is covered 2.2 times by earnings. No scrip alternative to the cash dividend is being off ered.

On 11th February 2008, the Group completed the acquisition of Flexicon A/S in Denmark. Flexicon will form part of the Watson-Marlow Bredel business and its range of peristaltic aseptic fi lling systems is complementary to the range off ered by Watson-Marlow Bredel. The consideration was DKK141 million (£14.1 million).

At the end of 2007, the Group had net cash of £15.8 million. The year started with net debt of £6.6 million and during the year there was a strong cash in-fl ow helped by tight control of working capital and relatively low tax payments refl ecting tax relief on the special pension contributions in 2006 and 2007. The acquisition of Flexicon and signifi cantly higher capital expenditure in 2008 will largely utilise short-term cash balances.

We announced on 13th December 2007 that our Chief Executive, Marcus Steel, would be retiring from the Board on 31st March 2008, having joined the Group in 1972 and the Board in 1992. Marcus has successfully led the company in a fi rm and positive manner achieving improved fi nancial performances, while retaining its ethos and reputation for fair dealing. I, and the whole Board, thank him and wish him a very happy and long retirement.

We were delighted to announce that Mark Vernon will succeed Marcus as Chief Executive from 1st April 2008. Mark joined the Group as President of Spirax Sarco, Inc. in the USA in 2003 and he then came onto the Board of Spirax-Sarco Engineering plc in June 2006 with responsibility for the Americas and Group Marketing. Mark brought to Spirax a wealth of experience in the global process control industry and he is well qualifi ed to take the Group forward.

Also on 13th December 2007 we announced that Peter Smith will be retiring as Company Secretary and Director with eff ect from 31st March 2008 after 33 years with the Group. He joined the Board of Spirax-Sarco Engineering plc in 1995. Since that date,

Peter has provided the Board with wise and balanced advice. His counsel will be much missed and we wish him a long and healthy retirement.

We are pleased to have announced the appointment of William Stebbings as Company Secretary with eff ect from 1st April 2008. William joined Spirax in February 2007. He is a solicitor with extensive industrial experience at Linpac Group Ltd., HP Bulmer Holdings PLC, Bunzl PLC and The Distillers Company PLC.

The good results we have achieved in the past and again in 2007 refl ect the fundamental strengths of the Group - a wide geographical spread, diverse customer base, broad product range and our focus on our niche Spirax Sarco and Watson-Marlow Bredel businesses. Spirax-Sarco Engineering plc is a high quality business and it is the skills and dedication of the people who make up the Group that sets it apart. Their eff orts all around the world have made our achievements possible; my thanks and those of the Board go to our colleagues past and present for their hard work which has produced such strong results over a very long period.

PROSPECTS

Today, whilst we are faced with increasing uncertainty about the resilience of the global economy, the underlying strengths of the Spirax Sarco and Watson-Marlow Bredel businesses, which sell into a very broad range of industries worldwide, and the increasing importance of energy savings should allow us to continue our long history of consistent performance. 2008 has started well including a more favourable exchange environment. We will continue to invest in the development and expansion of our business and, assuming that our global markets remain stable, we expect to produce another good performance in 2008.

Note: All profi t measures exclude the amortisation of acquisition-related intangible assets. The total in 2007 is £0.6 million (2006: £0.4 million) of which £0.2 million relates to Associates (2006: nil).

M Townsend, Chairman

6 Spirax-Sarco Engineering plc 7Spirax-Sarco Engineering plc

Sales grew to £417.3 million, from £384.2 million in 2006. On average, sterling was over 2% stronger in 2007 than in 2006; at constant exchange rates the sales increase was a strong 11%.

As in the fi rst half of the year, the sales growth for the full year was spread across all regions. There was a continuation of the strong growth in Asia; sales in Continental Europe also maintained momentum in the second half and grew well. In North America, there was a good increase in sales at constant currency but the weaker US dollar led to only a small increase in sterling. In the UK and the Rest of the World, there were also solid sales gains in nearly all companies.

Operating profi t increased by 10% to £68.7 million from £62.3 million in 2006. This includes an adverse eff ect from currency movements of over £3 million and, at constant currency, the increase was 16%. The operating margin improved to 16.5% from 16.2% in the prior year despite the adverse exchange transaction eff ect.

Net fi nance income was £2.4 million, which compares with £2.0 million in 2006. There was a £1.1 million increase in net fi nance income relating to the defi ned benefi t pension funds; against this, there was an increase in net bank interest payable as a result of the impact of the share buy-back in 2006, special pension contributions and the acquisition of UltraPure. The proportion of Associates’ post-tax profi ts attributable to the Group increased to £1.6 million (2006: £1.4 million).

continuation of the strong growth in Asia; sales in Continental Europe also maintained momentum in the second half and grew well. In North America, there was a good increase in sales at constant currency but the weaker US dollar led to only a small increase in sterling. In the UK and the Rest of the World, there were also solid sales gains in nearly all companies.

Operating profi t increased by 10% to £68.7 million from £62.3 million in 2006. This includes an adverse eff ect from currency movements of over £3 million and, at constant currency, the increase was 16%. The operating margin improved to 16.5% from 16.2% in the prior year despite the adverse exchange transaction

Net fi nance income was £2.4 million, which compares with £2.0 million in 2006. There was a £1.1 million increase in net fi nance income relating to the

I am pleased to report another strong performance in 2007; we built on the investments and developments of the last few years which helped to sustain our long record of growth, good profi tability and cash generation. We increased sales by 9% and pre-tax profi ts by 11% to £72.8 million. This was achieved through maintaining our commitment to product development, investing in new and expanding markets and improving effi ciency in our business.

statementChairman’s

Applications - Steam• Feedwater conditioning• Steam generation• Steam distribution• Steam heat exchange• Condensate recovery• Condensate return• Heat recovery• Clean steam• Humidification• Sterilisers, autoclaves• Tanks and vats• Rotating cylinders• Tracing

Applications - Peristaltic pumps• Fermenter and bioreactor feed• Chromatography column feed• Filling and dispensing• Chemical metering• Potable water sampling• Ink and varnish transfer• pH control• Vending of juices and flavours• Surgical irrigation• Tablet coating• Abrasive slurry handling• Concrete pumping • Sludge transfer

Industries• Combined heat and power• Oil refining and processing• Industrial and agricultural chemicals• Fine chemical, pharmaceutical and biotechnology• HVAC• Hospitals and clinics, medical devices• Government and commercial institutions• Dairy• Cars and aircrafts• Shipbuilding• Boilers• Electronics• Textiles, fibres and leather• Tobacco• Food and beverages• Brewing and distilling• Sugar• Pulp and paper• Rubber and plastics• Water and waste water treatment• Print and packaging, paints and pigments• Mining• Science and research• Ceramics and glass

Market spread - in breadth and depth

Business review

• Economic growth• Industrial investment• Globalisation• Regulation (e.g. food hygiene, emissions and climate change)• Energy costs• Outsourcing• Capital projects• Technological changes• Growing peristaltic pump usage

Business drivers - creating growthOur business is well spread geographically across the product range and over a diverse range of industries. The following factors all have an influence on the underlying demand in our markets.

The Group’s steam and peristaltic pumping markets are very well spread geographically with no industry sector accounting for more than 10% of sales and no customer accounting for more than 1% of sales.


market overviewBusiness review

HeinzEnergy savings have enabled the largest food factory in Europe to realise a payback of less than nine months, after investing in a Spirax Sarco steam trap survey and undertaking the resulting remedial work.

AdimmuneInvestment in Spirax UltraPure’s new vapour compressor technology will not only simplify this pharmaceutical customer’s water system, but reduce pure water generation costs by as much as 40%, with less work in maintenance and validation.

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Ajinomoto Betagro Frozen Foods (Thailand) Co., Ltd.A modern steam system has been supplied to this Thai food company, to maximise efficiency and minimise their steam losses. The closed loop steam system solution has improved plant start-up and performance.

StrategyThe Group remains focused on the development of its two market-leading businesses. The Spirax Sarco business aims to be the steam users’ first choice provider worldwide of efficient solutions in the use of steam and related industrial fluids. Watson-Marlow Bredel aims to strengthen its position as the world’s largest manufacturer of peristaltic pumps, with capacities from micro litres to tonnes, providing problem-solving knowledge, constant innovation and lifetime value to process industries around the globe. The position of our two businesses as world leaders is founded on our long held strategy of investing for growth both organically and, where appropriate, by acquisition.

The Group’s prime financial objective is to provide enhanced value to shareholders through consistent growth in earnings per share and dividends per share. Both the Spirax Sarco and Watson-Marlow Bredel businesses are based on the philosophy of understanding in detail the customers’ processes and being able to apply the product and engineered solutions in order to give a benefit to the customer. We are clear that by investing in sales and marketing resources, in product development, in improved efficiencies and in training our people, we expect to continue to grow sales, profits and dividends in the long term.

TrendsIn 2007 we continued to develop and promote our two businesses and, as a result, we grew sales and profits and again increased the operating profit margin despite an adverse exchange transaction effect. Both Spirax Sarco and Watson-Marlow Bredel supply a very broad base of customers in a wide range of industries and we concentrated on developing our ability to improve customers’ processes through our highly trained technical sales force.

The industrial and commercial steam-using market that is served by the Spirax Sarco business is fragmented and, although Spirax Sarco is market leader, we still have significant growth opportunities. We are adding to our range of solutions and are improving product designs and performance. There is good growth potential, whether in newer less developed economies or in the large longer established markets such as the USA, Japan and Germany. We will continue to increase the number of trained sales and service engineers across the world. This will also allow us to increase revenue from providing a range of services and pre-packaged solutions which incorporate our specialist technical expertise and our assurance of performance.


Improved websiteA new Group website has improved usability and experience, whilst maximising interaction with customers, and prospects. Intuitive navigation has encouraged repeat visits, to access the extensive information available and has raised our profile in search engine results.

Investment in marketing resources

The Steam and Condensate Loop book‘The Steam and Condensate Loop’ book, is a unique culmination of 100 years of steam application knowledge. This indispensable full-colour reference guide arms engineers with practical application knowledge to improve productivity, minimise maintenance and deliver energy saving solutions.

market overview continued...

Group Marketing Group Marketing provides us with the information, identity and direction for long-term sustainable business growth. To achieve these core responsibilities, the department is divided into three coordinated teams: Group Strategic Marketing, Group Industrial Marketing and Group Media Services.

Trends continued...Our Watson-Marlow Bredel business is the world leader in providing and applying peristaltic pumps for industrial use. One of our major tasks is to educate customers about the intrinsic advantages of peristaltic pumps so that they will increasingly be used to solve difficult pumping problems. These intrinsic advantages make peristaltics one of the fastest growing sectors of the global pumping market. The product range is being steadily widened and developed, making use of improved electronics and materials to broaden the addressable market by taking business from other pump types. As we widen the possible applications for our pumps, so we are seeing increasing opportunities including hygienic applications in pharmaceuticals, biotechnology and the food industries. The acquisition of Flexicon A/S in Denmark in February 2008 will increase our presence in the important pharmaceutical and biotechnology markets.

Current environmentMarket conditions in 2007 remained generally positive throughout the year. Although there has been increasing speculation as to the future impact of the global credit problems, our markets remained firm and were underpinned by an increasing need to improve plant efficiency and reduce energy consumption, due in part to high oil prices, increasing emphasis on climate change and requirement for reduction in CO2 emissions. The markets in Continental Europe were helpful through 2007 following the pick up in 2006. Although we increased sales in the UK domestic market in 2007, our underlying market in the industrial sectors of the economy continued to be subdued, not helped by the strength of sterling. The markets in North America remained positive with good levels of demand despite increasing general worries about a slow-down in 2008. The economies in South America, Australasia and South Africa were positive, although with some degree of fragility, particularly in South America. In Asia, market activity has continued to be good and the economic fundamentals have, in most cases, been strong.

Not surprisingly, exchange rate movements, on average, have had a noticeable effect on the 2007 results, particularly as the Group’s business is so geographically diverse. The US dollar and dollar-related currencies were substantially weaker against sterling than in 2006, which has held back the reported results - especially in North America. By contrast, the euro and related currencies were roughly unchanged against sterling in 2007 as against 2006; this area accounts for roughly a third of the Group’s sales. The currencies in Asia tended to move with the US dollar.


Total Group sales increased by 9% in 2007 to £417.3 million (2006: £384.2 million). This increase was after an exchange hit and, at constant currency, the sales increase was a strong 11%. While some of this growth arose from the generally positive economic conditions, we continued to develop the product range and to implement a series of global and local sales plans, and, as a result, have increased our market share. There has been good organic growth in all regions, with the strongest increases in Asia and the Rest of the World and solid growth in UK, Continental Europe and North America.

In the Spirax Sarco steam business, sales increases were achieved in controls, heat exchange solutions, clean steam products and steam system services; the latter also contributed to good growth in sales of traditional products. In Watson-Marlow Bredel, there were good increases in business into the environmental and sanitary applications in both developed and developing markets.

The Group’s operating profit was £68.7 million (2006: £62.3 million), an increase of 10% in sterling and 16% at constant currency - a strong result. The profit was the highest ever achieved by the Group. The increase in operating profit arose mainly from the organic sales growth and improved efficiency, partially offset by higher material costs and the impact of exchange rate movements. The operating profit margin improved again from 16.2% in 2006 to 16.5% in 2007. The improvement was held back by exchange transaction effects and the impact of slow sales development at UltraPure as reported at the half year.

£85m

£81m

£154m

£44m

£53mRest of world (South America, Africa, Australasia)

United Kingdom & Republic of Ireland

Continental Europe

North America

Asia

Geographical analysis of sales (based on sales by location of customer in 2007)

£16.6m

£7.3m

£26.3m

£13.4m

£5.1mRest of world (South America, Africa, Australasia)

United Kingdom & Republic of Ireland

Continental Europe

North America

Asia

Geographical analysis of trading profit* (based on location of operation in 2007)

performance review


£10m

£8m

£6m

£4m

£2m

-£6m

-£8m

-£10m

£12m

-£4m

-£2m

£14m

£16m

performance review continued...

Change in sales is shown at constant exchange rates.Based on sales by location of customer.

Change in operating profit is shown at constant exchange rates.Based on the location of operations.

UnitedKingdom

ContinentalEurope

NorthAmerica

Asia Rest of World

Exchangerate

% change +8% +10% +9% +15% +13% -2%

UnitedKingdom

ContinentalEurope

NorthAmerica

Asia Rest of World

ExchangeRate

£2.0m

£1.5m

£1.0m

£0.5m

£0.0m

% change +19% +15% +5% +23% +11% -5%

Change in operating profit *2007 versus 2006 £m

Change in sales 2007 versus 2006 £m

New products

-£2.0m

-£2.5m

-£3.0m

Trading continued..... United Kingdom and Republic of Ireland

Sales into the domestic market increased by 8% in 2007 to £44.0 million from £40.7 million in 2006. The underlying market remains quiet due to the continuing pressure on the manufacturing base. In Spirax Sarco, we focused on our technical support for customers in helping to improve their plant operations and energy conservation, which resulted in good growth in sales of steam system services and prefabricated packages. Watson-Marlow Bredel’s sales included a good increase in demand for Bredel pumps but was held back by a lower level of projects.

Our UK factories continued to be busy satisfying demand for both the domestic and overseas markets and benefiting from the increased throughput and tight control of costs.

Operating profit of £13.4 million was well ahead of the £11.0 million achieved in 2006, with good gains in both the sales companies and the manufacturing operations - with the latter helped by the overseas demand.


-£3.5m

£2.5m

-£1.5m

-£1.0m

-£0.5m

£3.0m

£3.5m

£0m

Controls and instrumentationOur range of direct acting and pneumatically actuated control valves are amongst the most advanced in the market place, providing accurate control to ensure successful process operation.

New products


GenerationWith an extensive range of FDA and cGMP approved pure steam generators, and water for injection distillation units, our products are at the heart of any critical utility service.

Steam trapping After developing the first true clean steam trap we have evolved the design to improve operation, helping to ensure effective system sterilisation.

Ancillary productsWe now have a comprehensive range of ancillary products, including check valves, pressure gauges, sight glasses, ball valves and sample coolers. The introduction of a unique clean steam separator helps customers overcome steam quality problems and complies with the standard HTM2010.

Clean Steam product range extended To enhance our capabilities as a solutions provider to the biopharmaceutical industry we have expanded our range of high purity products, designed and manufactured to the latest industry standards.

Continental Europe

The good levels of activity that built up in 2006 continued through 2007, with sales increasing to £153.7 million from £138.3 million, an increase of 11%. Exchange movements had little effect on the sterling figures as the average euro rates were similar in both years. In 2007, levels of economic and industrial activity were positive with increases in GDP growth and industrial production. The higher sales were reflected across both the Spirax Sarco and Watson-Marlow Bredel ranges. In particular, there was good progress in sales of controls, heat exchangers, steam system services and tubing. Sales to OEMs, pharmaceutical, biotech, food and pulp & paper did well.

Geographically, the growth was also widespread with increases for the Spirax Sarco business in nearly all the operating companies, including in France, Germany, Scandinavia, Spain and Russia. In Watson-Marlow Bredel, there was good progress in all companies and the new direct selling company in Denmark, acquired in January 2007, started well.

Operating profits increased 17% from £22.4 million in 2006 to £26.3 million in 2007, driven mainly by the organic growth. The operating margin in 2007 was slightly ahead at 13.8%.

North America

Sales in North America increased in sterling by only 1% in 2007 to £80.8 million from £80.0 million. The substantial devaluation (average year on year) of the US dollar in 2007 as against 2006 has masked an underlying growth in sales of 9%, which is mainly organic growth. In the USA, the markets remained positive and sales in the Spirax Sarco business grew well with increased sales of energy services, controls and traditional products. The Watson-Marlow Bredel business saw good growth in water/wastewater and sanitary applications.

Our Canadian company produced a strong performance in 2007. Our Mexican operation also generated a significant increase in sales and profits, although it is accounted for separately as an Associate.

The operating profit in North America was down 18% at £7.3 million, which compares with £8.9 million in 2006; at constant currency, the operating profit was up 5%. The operating profit margin was lower at 9.0% as against 11.0% in 2006. The reduction in margin arises from unfavourable exchange rate movements, particularly in Watson-Marlow Bredel, and, to a lesser extent, the impact of slow sales development at UltraPure. Excluding these, the operating profit margin in North America would have increased slightly over 2006.



Asia

Sales growth in our Asian territories was 11% in sterling to £85.3 million (2006: £77.1 million) and at constant exchange was ahead 15%. The markets in most of the Asian countries continued to be buoyant, the main exceptions being Taiwan and Thailand. In Malaysia and South East Asia, our sales and profits increased nicely and our operations in China and Korea turned in excellent performances with good increases in profits. We increased sales coverage in the growing markets and increased sales of traditional products as well as heat exchange packages, boilerhouse products and clean steam products. The new factory in China and offices in Korea were delayed for some months for technical reasons and the projects will now run into 2009. Our Indian operation, which is treated as an Associate, grew sales well and is strongly profitable.

The Asian currencies tended to weaken with the US dollar, particularly the Yen, Won and Taiwanese dollar, thus adversely affecting the Asian results when reported in sterling. The operating profit in 2007 was £16.6 million, which compares with £15.1 million in 2006, an increase of 10%; at constant currencies, the operating profit increase was 23%. The overall operating profit margin in Asia was unchanged at 20.9%, despite the exchange transaction impact.

The Max Planck InstitutePure steam is used in the biotechnology and pharmaceutical industries for sterilisation and for air humidification in critical air conditioning systems. This institute for vascular biology had a complete pure steam generating unit developed by Spirax Sarco.

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Canadian Natural Resources LimitedTo combat freezing temperatures, three technologically advanced steam heat exchange solutions have been delivered to Canadian Natural Resources Limited’s Horizon project. These were made in line with the high specifications demanded by the oil industry for a steam to glycol system.

BASF CatalystA Watson-Marlow Bredel SPX50 peristaltic pump has transferred hundreds of gallons of aggressive and hot (50-60°C), particulate-laden caustic liquid from a plastics scrubber. The pump has offered this electronics recycling company uninterrupted production and maintenance-free operation.

Rest of the World (South America, Africa, Australasia)

We also increased sales well in the Rest of the World to £53.6 million in 2007 (2006: £48.2 million), an increase of 11%. Here too, net exchange rate movements adversely affected the sterling numbers and, at constant exchange rates, the sales increased by 13% in 2007. Although the South American economies remain somewhat fragile, they were buoyant and our company in Argentina, particularly, produced strong increases in local currency sales and profits. The Spirax Sarco and Watson-Marlow Bredel operations in Brazil also provided good growth. In South Africa, the Watson-Marlow Bredel business produced an excellent result, but the Spirax Sarco business performed poorly and a management reorganisation is being implemented. In Australasia, our New Zealand company continued to produce strong results, but in Australia sales were flat and profits were slightly down.

Operating profits in the Rest of the World were £5.1 million, up 6% from £4.8 million in 2006; at constant exchange, the operating profit increase was 11%. The profit increase was reduced by the results in Spirax Sarco South Africa and Australia. The margin in the region therefore came down slightly from 10.0% in 2006 to 9.5% in 2007.


SP200 wins awardThe SP200 electropneumatic control valve positioner was amongst winners at Flow Control magazine’s annual Product Innovation Awards. This program is designed to recognise industry’s most compelling advances in fluid handling technology. The improved SP200 marks a new standard in ease of use with simpler installation and commissioning, adaptive valve control, and smarter functions.


Interest

Net finance income was £2.4 million which compares with £2.0 million in 2006. The increase was due to improved net finance income in respect of defined benefit pension funds. This arose because the higher value of the assets of the funds, following the special pension contributions in 2006 and early 2007, improved the return on assets by more than the interest on the schemes’ liabilities. Net bank interest payable increased by £0.7 million in 2007 due to the share buy-back in 2006, the special pension contributions in late 2006 and early 2007, and the acquisition of UltraPure.

Associates

We have minority shareholdings in our operations in India and Mexico, which are reported as Associates outside the operating profit. They are nevertheless an integral part of the Group and both produced good performances in 2007. During 2007, we increased our shareholding in the Indian operation from 40% to nearly 50%. The Group’s share of after tax profits of Associates increased to £1.6 million (2006: £1.4 million).

Profits before taxation*

The Group’s pre-tax profit increased by 11% to £72.8 million (2006: £65.7 million).

Taxation

The tax charge at 31.6% compares with 32.4% in 2006. More than 80% of the Group’s profits are earned outside the UK and the majority of the overseas tax rates are effectively higher than UK rates. We expect that the tax rate for 2008 will be broadly in line with 2007.


Eirdata wins Sustainable Energy Ireland awardAs part of the Spirax Sarco Group of Companies, Eirdata is a provider of engineering and consultancy services in the areas of energy management and conservation. At the recent Sustainable Energy Ireland awards, Eirdata achieved first place in the Energy Service / Supply company category, placed above two major competitors in this field.

Awards

Capital employed

The continued growth in the business is reflected in a higher level of capital employed, although the overall increase is well below the increase in sales. Working capital was higher with increases in trade receivables and inventories but reflecting improvements in both debtor days and stock weeks as we continued to closely manage working capital levels.

Earnings per share*

The Group’s prime financial objective is to provide enhanced value to shareholders through consistent growth in earnings per share and dividends per share. Earnings per share rose to 65.5p from 58.1p, an increase of 13% including a small benefit resulting

from the share buy-back in 2006.

Dividends per share

The proposed final dividend is increased by 14% to 21.6p per share. This gives a total dividend of 29.9p per share (2006: 26.5p), an increase of 13%, in line with our improved performance in 2007.

Return on capital employed

2007 2006 £’000 £’000Property, plant and equipment 93,933 88,802Inventories 73,824 67,707Trade receivables 98,067 90,023Prepayments and other current assets / (liabilities) (55,463 (47,337Capital employed 210,361 199,195

Intangibles and investments in associates 36,297 30,197Post-retirement benefits (21,533 (29,592Deferred tax 3,352 7,352Provisions (1,343 (876Net cash / (borrowings) 15,831 (6,554Net assets 242,965 199,722

Return on capital employed

Operating profit 68,336 61,941Acquisition intangibles amortisation 384 350Adjusted operating profit 68,720 62,291Average capital employed 204,778 193,691Return on capital employed 33.6% 32.2%

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Return on capital employed (ROCE)*ROCE improved in 2007 to 33.6% from 32.2% in 2006. Capital employed was carefully controlled and increased by 6% in 2007, whereas operating profit increased by 10%.


Capital expenditureThe value of tangible fixed assets increased by 2% at constant exchange rates to £93.9 million in 2007 as we continue investing in our businesses. There were investments in new or extended premises in Denmark, Germany and South Africa, together with on-going plant and machinery expenditure in our manufacturing plants to increase efficiency and expand capacity. The additions in 2007 exceeded the depreciation charge by 22%.

2007 2006 £’000 £’000Capital expenditure** 16,052 19,153Depreciation and amortisation** 13,147 12,151Capital expenditure as a % of depreciation 122% 158%

** The numbers above exclude acquired intangible assets and capitalised development costs.

Energy solutions

Energy saving researchThe Carbon Trust has awarded Spirax a grant to develop a range of energy saving devises. These products will contribute to a C02 reduction of about 1 million tonnes in the UK alone. This innovation will also help to support our global survey and service business.

The Carbon Trust is a private company set up by the government to accelerate the UK’s move to a low carbon economy.

There have been delays in the expansion plans for our plant in China. During 2008 and 2009 there will be an investment of around £9 million in a new factory and offices to increase the volume of production in Shanghai and to accommodate the growth of the sales organisation of this successful company. We also intend to invest £6 million in expanding the Watson-Marlow tube and pump production plant.


Intangible assets and investments in associatesIntangible assets include goodwill capitalised prior to 2004 under UK GAAP and goodwill and other intangible assets capitalised on acquisitions since the transition to IFRS. Goodwill is the subject of annual impairment testing and intangible assets are amortised over their expected useful lives. There was no impairment of goodwill during 2007, or 2006. Amortisation of acquired intangible assets was £0.6 million for the year (2006: £0.4 million). Of this £0.2m relates to Associates (2006: nil) following the increase in our shareholding in India from 40% to nearly 50%, which required the recognition of intangible assets in respect of our total shareholding. Product development costs capitalised and computer software are also included in intangible assets in accordance with IFRS. The Group balance sheet also includes the cost of investment in our Associate companies in India and Mexico and our share of post-acquisition profit, net of dividends received.

Office extension - GermanyIn response to growth of the German business, which has seen an increase in the number of sales engineers, the offices have been extended by another floor. This provides much needed space and brings together the sales department, to improve efficiency and teamwork, and to improve customer service.

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Post - retirement benefitsThe post-retirement benefit liability shown in the balance sheet reduced to £21.5 million at 31st December 2007 from £29.6 million a year earlier. The improvement was due to the special pension contributions of £5.5 million made in early 2007 and to a reduction in pension liability values as bond yields rose both in the UK and overseas. These gains were partially offset by a shortfall in the return on assets for the year and to a lesser extent by increased liabilities due to pay and demographic factors.

performance review continued... New training centreBredel in the Netherlands has opened a new training facility, where technical training and practical experience is combined to give sales staff a better understanding of the behaviour of the peristaltic pump, especially at higher pressures. Since the first use of the training centre in early 2007, already people from many different countries have visited the facility.


Cash flowThere was a good cash flow performance for the year. Free cash flow was £39.0 million (2006: £10.0 million) driven by the strong growth in operating profit and despite making the £5.5 million of special contributions into the Group’s main defined benefit pension schemes. Working capital levels were well controlled and movements during the year absorbed only £3.6 million. Taxation payments at £18.2 million were reduced by tax relief on the special pension contributions, particularly in the UK. Capital expenditure (net of disposals) at £16.5 million was at a normal level but is expected to increase significantly in 2008 as previously explained.

Net dividend payments rose to £20.8 million and there was an outflow of £1.2 million in respect of acquisitions. Against this, there was an inflow of £3.2 million due to the operation of the Group’s share-based payment schemes which were satisfied by the reissue of treasury shares. In February 2008, we acquired Flexicon A/S in Denmark for DKK141 million (£14.1 million) of which DKK113 million (£11.3 million) was paid on completion with the remainder to be paid in three equal annual instalments starting in February 2009.

The good cash flow and a small favourable exchange effect meant that we finished 2007 with net cash of £15.8 million compared with net debt of £6.6 million a year earlier.


2007 2006 £’000 £’000Operating profit* 68,720 62,291Depreciation and amortisation 13,847 13,014Equity settled share plans 1,259 860Working capital changes (3,572 (13,726Additional contributions to defined benefits schemes (5,726 (15,887Net interest paid (793 (154Income taxes paid (18,162 (16,484Net capital expenditure, including development (16,524 (19,942Free cash flow 39,049 9,972Net dividends (20,271 (18,366Acquisitions (1,170 (3,969Shares purchased, less proceeds from issues 3,157 (14,254Cash flow before exchange 20,765 (26,617Exchange movement 1,620 1,018Opening net (borrowings) / cash ((6,554 19,045Closing net (debt) / cash at 31st December 15,831 (6,554

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Improvements made at BSA factoryThrough the implementation of Demand Flow Technology principles, the BSA isolation unit has reduced lead times, and improved stock availability, which has improved customer service.

Growth at Engineered SystemsSince investment in 2004 the factory has supported growth from the UK and is prepared to support future growth in Europe. Offering a range of bespoke and standard packaged solutions, it now has the capabilities to manufacture factored products in-house.

Capital structureNet cash of £15.8 million at 31st December 2007 comprised £37.9 million in cash and cash equivalents, and £22.1 million of borrowings. The Group had various borrowing facilities available to it and at the year-end undrawn, committed facilities were £35.1 million. The Group’s objective is to maintain a balance between continuity of availability of funding and flexibility through the use of overdrafts, loans and finance leases as appropriate. The Group has operations around the globe and therefore its balance sheet can be significantly affected by movements in the rate of exchange between sterling and many other currencies, particularly the euro and US dollar. The Group seeks to mitigate the effect of this structural currency exposure by borrowing in local currency where appropriate, consistent with maintaining a low cost of debt.

Our policy is to maintain an appropriately strong balance sheet. The Group’s good cash generation is used to invest in expanding the business both organically and through suitable acquisitions. The Group regularly considers the appropriateness of the structure of its balance sheet. Historically, excess capital has been returned to shareholders in addition to ordinary dividends.

New BP99 line With its in-built quality control measures, this new line for the production of a critical component has meant an improvement in productivity and a decrease in costs.


Risks and uncertaintiesThe Group has well established risk management processes, including insurance cover, which are an integral part of the operation of our business and which are outlined in the Corporate Governance Section on page 30 of this Annual Report. Whilst risk can never be eliminated, our processes allow us to identify and appropriately manage and mitigate risks and uncertainties. These mainly arise from the inherent risks of operating a worldwide business largely using our own local sales companies to sell in local currency direct to end-user customers, distributors, OEMs and contractors, a very wide range of products, mostly designed and manufactured in our own facilities in a number of different countries. The business is well spread geographically, across tens of thousands of customers and across most industrial and commercial sectors. This means that we do not rely excessively on any one customer, application or industrial sector.

The principal risks and uncertainties are strategic, commercial, operational and financial. Ultimately these affect our ability to deliver our prime financial objective, which is to provide enhanced value to shareholders through consistent growth in earnings per share and dividends per share as a result of maintaining our world leading position and investing in our businesses for growth.

Strategic risks and uncertainties include customer relationships, the competitive environment, political and economic upheaval, technological changes, the regulatory and legal environment, and investment in acquisitions. These relate to maintaining our market and technological leadership including branding and reputation.

Commercial risks and uncertainties include issues such as product design and performance, product liability, competitor activity, relations with customers and suppliers, pricing and profit margins. Our employees are key to managing and mitigating risks and uncertainties and we therefore invest significant resources in the training and development of our people.

Operational risks and uncertainties include health and safety and environmental issues, employee relations, mitigation of, and recovery from, major disasters, product quality and customer service. We have for many years complied with recognised quality, health and safety and environmental standards and regulations and have applied project management disciplines in our business. The Group’s approach to the health and safety of employees is more fully described on pages 33 and 34. Appropriate measures are implemented locally, particularly in the manufacturing companies, and there were further improvements in health and safety in our operations in the year. The environmental benefits from the use of Group products are more fully described on pages 34 and 35. General Managers of operating companies are responsible for local compliance with the Group’s policy and with local legislation, and are required to report regularly.

Financial risks and uncertainties include exchange rate exposures, interest rate movements, financial instruments, financial irregularities and protection of assets including pension fund assets. The Group has a comprehensive Treasury Policy covering many of these issues and defining our approach to minimise and mitigate such risks.



*All profit measures exclude the amortisation of acquisition-related intangible assets. The total in 2007 is £0.6 million (2006: £0.4 million) of which £0.2 million relates to Associates (2006: nil).

Spirax-Sarco Limited in Cheltenham celebrates 75th anniversarySpirax-Sarco Limited celebrated its 75th anniversary during 2007. The Company provides steam system solutions to UK customers in varied industries including pharmaceuticals, oil and petrochemical, food, drinks, electronics, textiles, paper and institutions. It also manufactures and supplies steam system products to fellow Group companies around the world for subsequent sale in their own markets. Spirax-Sarco Limited employs nearly 1, 000 people in the UK who regularly demonstrate their ability to provide the best products and services.

75th anniversary


Board of DirectorsMichael Townsend MA FCA (66) joined the Group as an independent non-executive director in 1997 and was appointed Chairman in 2005. Until his retirement in 1999 he was the Finance Director of Rolls-Royce plc. He is Chairman of the Nomination Committee and a member of the Finance Committee. He is a non-executive director of Kennel Club Services Limited.

1

Marcus Steel ACIS FCCA (62) joined Spirax Sarco in 1972 and became Finance Director of Spirax-Sarco Limited in 1978. He was appointed to the Board in 1992 as Director - Supply, and subsequently also assumed responsibility for the Americas. Hewas appointed Group Chief Executive in 1998. He is a member of the Nomination and Finance Committees and Chairman of the Risk Management Committee. As announced on 13th December 2007 Mr. M. J. D. Steel will retire as Chief Executive and from the Board on 31st March 2008.

2

Gareth Bullock MA (54) joined the Group as an independent non-executive director in 2005. He is a director of Standard Chartered PLC. He is a member of the Audit, Nomination and Remuneration Committees. He is a non-executive director of Fleming Family & Partners and Chairman of Mcashback Limited.

5

Mark Vernon BSc (Hons) (55) joined Spirax Sarco Inc. in 2003 to run the Spirax business in the USA. He was appointed to the Board in 2006 and became Chief Operating Officer in 2007 responsible for the day to day operations of both the Spirax Sarco business and the Watson-Marlow Bredel business. As announced on 13th December 2007 Mr. M. E. Vernon has been appointed as Chief Executive of the Company with effect from 1st April 2008.

3

Alan Black BA (Hons) (50) joined Spirax-Sarco Limited in 1981 and has worked in the UK, Austria and Korea and has run the Group’s operations in Belgium, Thailand and China. He was appointed to the Board in 1998 and is now responsible for the Spirax Sarco International operations together with Argentina, Brazil, Mexico and the UK and the Republic of Ireland. He is a member of the Risk Management Committee.

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Neil Daws CEng FIMechE (45) joined Spirax-Sarco Limited in 1978 and became Product Director in 1996. He was appointed to the Board in 2003 as Director - Supply and is responsible for Spirax product marketing, design and manufacture together with Spirax Sarco operations in South Africa and India, Hygromatik Lt A GmbH in Germany and M & M International Srl in Italy. He is also the director responsible for the Group’s health and safety and environmental matters. He is a member of the Risk Management Committee.

6

Einar Lindh FCA (63) joined the Group as an independent non-executive director in 2000. Until his retirement in 2005 he was a director of Smiths Group plc. He is a member of the Audit, Nomination and Remuneration Committees. He is a non-executive director of Foseco plc and Darwin Equity Ltd.

7

David Meredith FCMA (48) joined the Group in 1988 as Group Accountant. He was appointed to the Board as Director - Finance in 1992. He is also responsible for Watson-Marlow Bredel. He is a member of the Finance and Risk Management Committees.

8

Tony Scrivin (60) joined Spirax Sarco in 1963. He was appointed a director of Spirax-Sarco Limited in 1998 and re-appointed in 2003 on his return to the UK from Spirax Sarco Inc., USA. He was appointed to the Board in 2005 and is now responsible for Continental Europe and North America. He is a member of the Risk Management Committee.

9

Peter Smith ACIS (60) joined Spirax-Sarco Limited in 1974, became Company Secretary in 1978 and a director of Spirax-Sarco Limited in 1988. He was appointed Company Secretary to Spirax-Sarco Engineering plc in 1992 and to the Board in 1995. He is a member of the Risk Management Committee. As announced on 13th December 2007 Mr. P. A. Smith will retire as Company Secretary and from the Board on 31st March 2008.

10

Bill Whiteley BSc FCMA (59) joined the Group as an independent non-executive director in 2002. He is the Chief Executive of Rotork plc. He is Chairman of the Audit and Remuneration Committees, a member of the Nomination Committee and Senior Independent Director. He is a non-executive director of Dialight plc.

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The directors of Spirax-Sarco Engineering plc have pleasure in presenting their report and the audited accounts for the year ended 31st December 2007.

RESULTSThe results of the Group for the year, which have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU (“IFRS”), are explained in the Chairman’s Statement and the Business Review on pages 8 to 23 and are set out in the Group income statement on page 46.

DIVIDENDAn interim cash dividend of 8.3p per share (2006: 7.5p) was paid in November 2007. The directors now recommend the payment of a final dividend of 21.6p per share (2006: 19.0p). If approved at the annual general meeting the final dividend will be paid on 19th May 2008 to shareholders on the register on 18th April 2008. The total distribution for the year will be 29.9p per share (2006: 26.5p).

BUSINESS REVIEWA review of the development and performance of the business of the Group, including the financial performance during the year, the position at the end of year, key performance indicators and a description of the principal risks and uncertainties facing the Group, are set out on pages 8 to 23.

The following cautionary statement applies to the Business Review which is set out on pages 8 to 23 and which is incorporated in this Directors’ Report by reference.

This Annual Report has been prepared for, and only for the members of the Company, as a body, and no other persons. The Company, its directors, employees, agents or advisers do not accept or assume responsibility for any other purpose or to any other person to whom this document is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed. By their nature, the statements concerning the risks and uncertainties facing the Group involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Annual Report and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast.

PRINCIPAL ACTIVITIESThe Group’s business is the provision of knowledge, service and products, worldwide for the control and efficient use of steam and other industrial fluids and for peristaltic pumping.

BOARD OF DIRECTORSThe directors of the Company are those listed on pages 24 and 25. In accordance with the Company’s articles of association, Messrs. A. D. H. Black, G. Bullock and A. J. Scrivin retire and, being eligible, offer themselves for re-appointment. Messrs. A. D. H. Black and A. J. Scrivin have service contracts determinable on 12 months’ notice. Mr. G. Bullock, as a non-executive director, has a letter of appointment.

Biographical details of each of the directors retiring at the forthcoming annual general meeting are set out on pages 24 and 25.

DIRECTORS’ INTERESTS AND REMUNERATIONThe beneficial interests of the directors in the share capital of Spirax-Sarco Engineering plc as at 31st December 2007 are set out below. The number of shares over which directors hold options, together with their remuneration, is detailed in the Directors’ Remuneration Report on pages 36 to 43. Ordinary Shares of 25p each Ordinary Shares of 25p each 31.12.07 31.12.06

M. Townsend 2,879 2,879M.J.D. Steel 84,342 83,922M.E. Vernon 10,084 4,500A.D.H. Black 46,346 45,930N.H. Daws 7,455 3,630D.J. Meredith 43,382 42,962A.J. Scrivin 19,367 18,517P.A. Smith 67,322 66,402G. Bullock 1,250 1,250E. Lindh - -W.H. Whiteley 4,934 4,934

There have been no changes in the number of shares held by the directors as shown above since 31st December 2007.

EMPLOYMENT POLICIESDetails of the Group’s Employment Policies are set out on pages 32 to 34.

ANNUAL GENERAL MEETINGThe notice of meeting and an explanation of resolutions 8 to 13 to be proposed at the annual general meeting are set out in the enclosed circular.

SHARE CAPITALDetails of shares issued during the year are set out in Note 24 on page 63.

Directors’ report


PURCHASE OF OWN SHARESThere was no purchase of shares by the Company during the year. At 31st December 2007 the number of shares which may be purchased under the shareholders’ authority given at the annual general meeting in 2007 was 7,500,000 and the number of shares in issue was 77,194,904.

SHAREHOLDINGS OF 3% OR MOREAs at 29th February 2008, the Company had an issued share capital of 77,197,404 shares of which 1,092,115 shares are held in treasury. Of the 76,105,289 ordinary shares with voting rights in issue, as at this date, the Company received notice of material interests in 3% or more of the voting rights (calculated on the issued share capital less the shares held in treasury).

The information received is set out below. Ordinary Shares %Schroders Investment Management Ltd 9,453,204 12.42Blackrock Investment Management 4,908,646 6.45Aberforth Partners LLP 3,345,296 4.40Legal & General Investment Management 3,330,003 4.38Sprucegrove Investment Management Ltd 3,243,081 4.26Arnhold and S Bleichroeder Advisers LLC 3,013,010 3.96M & G Investment Management Ltd 2,914,646 3.83NFU Mutual Insurance Society 2,783,363 3.66F&C Management Ltd 2,569,721 3.38Baillie Gifford & Co 2,321,320 3.05

FINANCIAL INSTRUMENT RISK MANAGEMENTThe main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and foreign currency risk. More detail is set out in Note 33 on pages 75 to 79.

STATEMENT OF THE POLICY AND PRACTICE ON THE PAYMENT OF SUPPLIERSIt is the Group’s policy to meet the terms of individual supply contracts and in the UK to make payment to suppliers at the end of the month following receipt of goods. In view of this, the Group does not follow any particular prescribed code.

Spirax-Sarco Engineering plc has no trade creditors.

RESEARCH AND DEVELOPMENTThe Group continues to devote significant resources to the updating and expansion of its range of products in order to remain at the forefront of its world markets. Expenditure in 2007 on research and development amounted to £6,270,000 (2006: £5,812,000), of which £1,608,000 (2006: £979,000) is capitalised as explained in Note 1 on page 51.

MARKET VALUE OF LAND AND BUILDINGSIn the opinion of the directors, the market value of the land and buildings of the Group exceeds the book value of those assets at 31st December 2007 by approximately £14,000,000 (2006: £10,000,000).

GROUP CHARITABLE AND POLITICAL DONATIONSCharitable donations amounted to £72,381 (2006: £62,424). There were no political donations (2006: nil).

AUDITORS As at the date of this report, as far as each director is aware, there is no relevant audit information of which the Company’s auditors are unaware. Each director has taken such steps as he should have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. A resolution to re-appoint the auditors, KPMG Audit Plc, will be proposed at the annual general meeting.

CAPITAL GAINS TAXFor capital gains tax purposes the market value of the Company’s ordinary shares at 31st March 1982 was 140.375p.

COMPANY INFORMATIONFurther information on the Company is available on the Group web site: www.SpiraxSarcoEngineering.com

By order of the Board Charlton House, Cirencester Road,P. A. Smith Secretary Cheltenham GL53 8ER.

10th March 2008


COMPLIANCECorporate governance has been and remains the responsibility of the whole Board. This statement describes how the Company applies the principles and complies with the provisions of the Combined Code on Corporate Governance published in July 2003, which applied to the Company in respect of the financial year ended 31st December 2007. The Board considers that, subject to the explanation of the ratio of executive and non-executive directors below, the Company met the requirements of the Combined Code throughout the year ended 31st December 2007. The Board has also applied the principles and provisions in the revised Combined Code published by the Financial Reporting Council in June 2006. The Board assesses on an on-going basis its practices to ensure continued compliance with the Combined Code and has allocated responsibility for compliance to appropriate directors or officers. Contact has been made with major shareholders to allow discussion of the Company’s governance policy and strategy with the Chairman and the Senior Independent Director.

BOARD COMPOSITION AND PROCEDURESDuring the year the Board comprised the non-executive Chairman, three independent non-executive directors including a Senior Independent Director and seven executive directors, details of whom are set out on pages 24 and 25. During the year the positions of Chairman, Chief Executive, Chief Operating Officer and Senior Independent Director were held by separate individuals. There is a clear written division of responsibility between the Chairman and the Chief Executive. This ratio of executive and non-executive directors has applied for a number of years and was the established appropriate structure for the Company. The Board is responsible for the Group’s business operations and the full executive team of seven directors is present on the Board in order to provide first hand information and contributions to the running of the business. The executive directors control the Group’s devolved management structure which requires local management initiative across the Group’s global spread of operating companies and the broad product range and wide customer base. Board membership of the executives is key to the overall management of the Group which employs a flat management structure. This also provides the non-executive directors with regular direct access to the full executive management team. This is a successful mix and appointing additional non-executive directors would make the Board very cumbersome and would not add to the quality of the Board’s performance. Following the appointment of Mr. M. E. Vernon as Chief Operating Officer he relinquished direct responsibility for the Americas. The Board structure has been refined whilst maintaining the essential benefit of a successful mix of non-executive and executive directors. The divisional structure will be retained with additional senior managers acting as regional group managers to provide support in the International and European divisions.

The Board applies an appropriate policy in the recruitment of independent non-executive directors to meet the particular requirements of the Board. Each of the non-executive directors has a letter of appointment which meets the requirements of the Combined Code. The non-executive directors have all had senior executive experience and offer independent judgement on Board matters. The non-executive directors of the Company, including the Chairman, do not participate in any bonus, share option or share ownership schemes and their appointments are non-pensionable.

The Board meets normally six times per year to consider strategic developments and to review trading results and operational and business issues. All directors attended all meetings in 2007. In particular the Board deals with those matters reserved to it for decision.

The matters reserved to the Board are posted on the Group web site: www.SpiraxSarcoEngineering.com and are as follows:-

(i) Management● Approval of Group strategy and annual plans.● Commitments relating to the acquisition or disposal of any company or business by the Group.● Material or unusual contracts.● Capital expenditure items in excess of £500,000 or such other limit agreed by the Board. Items over £250,000 but less than £500,000 are reported to the Board.

(ii) Board Membership and Board Committees● The formal appointment and dismissal of directors.● Terms of reference and membership of Board Committees.

(iii) Corporate Governance/Accounting● Approval of actions requiring public documents including circulars to shareholders, related documents and press releases.● Approval of accounting policies or practices, including the Treasury policy.● Individual borrowings, financial instruments, guarantees or provision of equity capital, beyond the authority of the Finance Committee.● Approval of the content of the Annual Report and Accounts and the Interim Statement.● Appointment and dismissal of Company Secretary.● Through the Audit Committee, remuneration of auditors and recommendation for appointment and removal of auditors.● Dividend policy, interim dividends and proposed final dividends.● Any matter to be dealt with at an annual general meeting or extraordinary general meeting.

Corporate governance


(iv) Other● Significant alterations to existing Group Risk Management policies relating to insurance, environmental and health and safety matters.● Changes in principal professional advisers.● Major changes to pensions and employee share schemes operated in the Group.● Prosecution, defence or settlement of any material litigation.

All directors receive detailed progress reports one week prior to each Board meeting. There is provision for the non-executive directors to meet together both with and without the Chairman.

Utilising a format created with the advice of Towers Perrin, the Board again carried out a rigorous board performance evaluation process in accordance with the Combined Code requirements which confirmed the effective operation of the Board and reflected the importance of strategic matters. The evaluation process comprises a review conducted by the Company Secretary and reported to the Chairman of all directors’ views on the operation of the Board and the performance of the Chairman, the Chairman and Chief Executive’s review of the Board performance of each director, the Chairman’s review of the non-executive directors and the review by Committee members and attendees of the operations of the Audit, Nomination and Remuneration Committees and the performance of the Chairman of each of those Committees. The evaluation confirmed a continued high rating for the Board’s operations and encompassed Board constitution, Board meetings, Board functionality, communication and knowledge management, Company secretariat performance, assessment of the Chairman’s performance and the effectiveness of the Board’s Committees.

There are procedures for individual Board members to receive induction and training as appropriate and provision to solicit independent professional advice at the Company’s expense where specific expertise is required in the course of exercising their duties. All directors have access to the Company Secretary, who is responsible for ensuring compliance with appropriate statutes and regulations.

The Company continues to provide directors’ and officers’ insurance for Board members and the directors of Group subsidiary companies.

All directors are subject to re-appointment by shareholders at the first opportunity after their appointment and thereafter at intervals of no more than three years.

SENIOR INDEPENDENT DIRECTORDuring the year Mr. W. H. Whiteley was the Senior Independent Director.

COMMITTEESThe Board delegates specific responsibility to Board Committees, notably the Audit, Nomination and Remuneration Committees in line with best practice. The terms of reference for these committees are posted on the Group web site:www.SpiraxSarcoEngineering.com. Additionally the executive directors comprised the Risk Management Committee and Messrs. M. Townsend, M. J. D. Steel and D. J. Meredith comprised the Finance Committee. Mr. M. E. Vernon will replace Mr. M. J. D. Steel with effect from 1st April 2008.

(i) Audit CommitteeThe Audit Committee comprised Messrs. G. Bullock, E. Lindh and W. H. Whiteley (Chairman). All members are independent in accordance with the independence criteria set out in the Combined Code. There were three meetings of the Audit Committee during the year and all members attended all meetings.

A summary of the Audit Committee’s duties and responsibilities is set out on page 31.

(ii) Nomination CommitteeThe Nomination Committee comprised Messrs. M. Townsend (Chairman), G. Bullock, E. Lindh, M. J. D. Steel and W. H. Whiteley. There were three meetings of the Nomination Committee and all members attended all meetings. Mr. M. E. Vernon will replace Mr. M. J. D. Steel with effect from 1st April 2008.

The Nomination Committee proposes to the Board new appointments for both executive and non-executive directors and determines on an individual basis the most appropriate method of identifying suitable applicants. The Nomination Committee arranges for the executive Board members’ views to be assessed before an appointment decision is made. The Nomination Committee fully followed this process in the appointment of Mr. M. E. Vernon as Chief Operating Officer and subsequently his appointment as Chief Executive with effect from 1st April 2008. The Committee took professional advice from Kaisen Consulting Limited in arriving at its recommendation. Kaisen Consulting Limited supported the view that the strength of the internal applicants meant it was not necessary to seek external applicants.

(iii) Remuneration CommitteeThe Remuneration Committee comprised Messrs. G. Bullock, E. Lindh and W. H. Whiteley (Chairman). All members are independent in accordance with the independence criteria set out in the Combined Code. There were three meetings of the Remuneration Committee and all members attended all meetings.

The Directors’ Remuneration Report presented by the Board of Directors is set out on pages 36 to 43.

The Company Secretary acts as Secretary to the Audit, Nomination and Remuneration Committees.29Spirax-Sarco Engineering plc

SHAREHOLDER RELATIONSThe Group conducts regular dialogue with institutional shareholders and provides such information as is permitted within the guidelines of the Listing Rules. In particular major shareholders have been approached with a view to discussing the Company’s governance and strategy with the Chairman and Mr. W. H. Whiteley, the Senior Independent Director. As required by major shareholders, the Senior Independent Director is available to listen to their views on any areas of concern they may have. There were no requests received from shareholders for meetings with the Chairman or the non-executive directors during 2007. Reports are made to the Board of all meetings with major shareholders and analysts, including, in particular, briefings after interim and final results.

The preliminary results announcement may be accessed by investors on the Group web site: www.SpiraxSarcoEngineering.com. The Report and Accounts is also on the web site.

All shareholders are invited to participate in the annual general meeting, where the chairmen of the Audit, Nomination and Remuneration Committees will be available to answer questions. The results of proxy votes are declared at annual general meetings after each resolution has been dealt with on a show of hands. Details of the proxy votes received will be published on the Group web site: www.SpiraxSarcoEngineering.com, following the annual general meeting.

INTERNAL CONTROLSThe Board has overall responsibility for the system of internal controls and for reviewing its effectiveness, whilst the role of management is to implement Board policies on risk and control. There is an ongoing process for identifying and managing risks faced by the Company which has been in place for the year under review and up to the date of approval of the annual report and accounts. The reviews cover all material controls, including financial, operational and compliance controls and risk management systems. The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve the business objectives.

The Board believes from its reviews that the system of internal controls is embedded in the business and regular review allows for assessment of new and changing risks in the Group’s business.

In pursuing these objectives, internal controls can provide only reasonable and not absolute assurance against material misstatement or loss.

As required by the UK Listing Authority, the Company has complied throughout the year and up to the date of this report, with the Combined Code provisions on internal controls having established the procedures necessary to implement the guidance issued by the Turnbull Committee and by reporting in accordance with that guidance.

(i) Risk ManagementThe Group has operated procedures for considering risks in the normal operations of the Group and with regard to significant transactions. Strategic and annual planning also encompasses consideration of business risks. The Risk Management Committee specifically reviews any risks facing the business which could give rise to a significant loss.

The Risk Management Committee commenced a review prior to the year end with external consultants, Marsh Ltd, of the risk register and risk management process in the context of the current business structure and operations with the aim of validating the risk register and the general risk management process and identifying any additional new risks which could involve a significant risk to the Group’s business. This exercise was completed early in 2008 and reviewed the risk magnitude and risk likelihood and significant potential new risks were assessed and counter-measures established. The Board, on Marsh Ltd’s advice, is satisfied that the system of management for significant risks is appropriate for the Company and is properly executed.

As part of the on-going process, the Group companies have reported on a six monthly basis their position with regard to implementing the identified countermeasures to address the Group’s significant business risks. The six monthly returns are assessed by the Risk Management Committee. Reports are made to the Board as a whole, by the Chief Executive, for review of the risks and measures taken. Annually the executive directors carry out a reappraisal of the business risks. The Audit Committee reviews the system of reporting and monitoring and its effectiveness as a whole.

In the UK the operation of the Incident Management Team, established in 2006, to deal with the situation immediately after any major incident has been reviewed and the Team strengthened during the year. This model is to be adopted by Spirax Sarco Inc. and by the manufacturing operation in France. Applying incident management techniques the significant impact of flooding in Cheltenham and the lack of water supplies were overcome by considerable efforts by the management and employees of Spirax-Sarco Ltd. During the period and subsequently output was maintained in the Cheltenham factories and shipments were achieved in line with planned levels.

(ii) FinancialThe Finance Committee of the Board considers financing and investment decisions concerning the Group, including the giving of guarantees and indemnities, and monitors policy and control mechanisms for managing treasury risk within the limits laid down by the Board.

Financial reporting systems include comprehensive annual plans approved by the Board and monthly reporting of actual results with appropriate comparisons against plan and previous year’s results. Forecast operating results for the year are regularly updated. Capital investment is subject to approval under a clear policy. This includes annual plans, appropriate authorisation, detailed investment appraisal and post-investment review and due diligence requirements where businesses are being acquired.

Corporate governance continued


(iii) OperationalAll subsidiaries of the Group are required to complete self-certification questionnaires regarding compliance with the policies, procedures and minimum requirements for an effective system of internal controls. Self certification is given by both the general manager and the finance manager of the operation.

(iv) Audit CommitteeThe Audit Committee has met to consider the appropriateness and effectiveness of the Group’s internal controls, policies and procedures and the outcome of the external audit for the year. The Committee also reviewed the outcome of internal audit reports during the year. Its meetings are normally attended by the Director - Finance, the external auditors and, at the invitation of the Committee, the Chairman. There is provision for the Committee to confer with the auditors without the attendance of executive directors. The Audit Committee reviews the independence of the external auditors on an annual basis. The Committee considers in detail reports prepared by the auditors in relation to the interim and final accounts and accounting practices and developments. It also considers reports and explanations provided by the Director - Finance.

The Board has approved terms of reference for the Audit Committee meeting the requirements of the Combined Code. The Audit Committee’s responsibilities include:

● monitoring the integrity of the accounts and in particular reviewing the Company’s internal controls, risk management framework and internal audit reports;

● reviewing the scope and results of the auditors’ work, their independence and objectivity and audit fee;

● recommending the appointment, re-appointment or removal of external auditors;

● reviewing the accounting policies and practices of the Company and at the end of the annual audit cycle, assessing the effectiveness of the audit process.

The Audit Committee reviewed and noted compliance with the good practice list of matters established by the Audit Committe Institute in all material matters.

(v) Non-Audit ServicesA policy on non-audit services provided by the auditors in line with professional practice has been established and approved by the Audit Committee. The external auditors have undertaken non-audit work (essentially in regard to taxation and acquisition due diligence) and the fees paid by the Company for it are set out in Note 6 on page 55. The scope and extent of non-audit work undertaken by the Company’s auditors is carefully controlled in line with the written terms provided by the Company to the auditors with the objective of avoiding impact on their independence and objectivity. Particularly, the auditors are prohibited from providing services in relation to valuations, recruitment, dispute resolution and accounting services. The Audit Committee monitors the scope of the auditors’ work, and approval for fees over established thresholds is specifically required from the Committee Chairman or the full Audit Committee.

(vi) Whistle BlowingIf any employee in the Group has reasonable grounds for believing that the Business Code or Management Code is being breached by any person or group of people and does not feel able to voice the matter with his or her manager, he or she is able to contact directly the Company Secretary in Cheltenham and provide full details. The Company Secretary will ensure that (a) the circumstances are properly investigated and (b) the employment of the person contacting the Company Secretary will be protected appropriately.

INTERNAL AUDITDuring 2006 the Board reviewed the need for an enhanced internal audit function. As a result an internal audit function was established which allows each of the Group’s subsidiaries to be audited at least every four years. The internal audit resource was supplemented by experienced qualified accounting staff from principal Group subsidiaries and a professional auditing firm, BDO Stoy Hayward LLP, is also used for most audits. Reports are made to the Audit Committee and the Board as a whole. The implementation of the internal audit function was successfully achieved and no significant matters were raised in the reports made in the 10 subsidiaries audited during the year.

GOING CONCERNAfter making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

DIRECTORS’ RESPONSIBILITIESThe Statement of Directors’ Responsibilities is set out on page 44.


CORPORATE SOCIAL RESPONSIBILITY For some years the Board has been reporting on Corporate Social Responsibility (“CSR”) which embraces a wide range of issues and in particular focuses on social, ethical and environmental (“SEE”) matters. The Board has continued to embrace and apply the general CSR principles in conducting its business in a socially acceptable and sustainable way with due regard to the relationship of the Company to its employees, customers, investors, suppliers and society generally.

This report follows the practice in recent years of illustrating the Board’s commitment to meeting the requirements laid down by the ABI and the reporting procedures and actions taken within the Group in this connection. The Group has developed further its awareness of CSR issues and has continued to make improvements, particularly in the areas of health and safety and environmental matters.

The Board achieves compliance with the principles of CSR by the management of the risks concerned. The Board seeks to achieve such management within the normal operations of the Group such that the necessary policies, systems and procedures are embedded in Group practice. The importance of involvement of employees and suppliers in meeting the standards required by the Board is inherent in our business operations in the provision of products and services to our customers. Meeting the standards required in the operation of our business as it affects communities and customers is also a specific objective reflected in our annual plans and strategic planning.

The Group’s operations are carried out under the Group’s long standing Business Code. A copy of this is posted on the Group web site: www.SpiraxSarcoEngineering.com. This Code formalised policies followed over many years by the Group. The main areas are as follows:-

● compliance with all applicable laws and regulations● operation of the internal controls established by the Group● having proper regard for all stakeholders in the business● outlawing of bribes● commitment to fair treatment of all employees● recognition of all health, safety and environmental matters.

The standards required in the practical management of the Group are set out in a separate Management Code, which is an internal practical document issued by the Chief Executive with which general managers and the finance managers in each subsidiary confirm compliance for each year.

The Group also recognises that the achievement of good quality products and services, the maintenance of health and safety, and the achievement of good environmental practices, are an integral part of running the business and require consideration as part of the day to day operations of the Group and are reflected in the Group’s performance.

The responsibility held by Board members for the entirety of the Group’s operations, including the implementation of its policies, enables the Group’s Business Code and Group policies to be applied on a consistent basis. The Group’s decentralised structure provides for detailed local management of SEE matters by the general manager in each subsidiary, who reports to and is monitored by the appropriate executive director and the regional group manager. These reporting procedures within the Group enable the executive directors, who have direct responsibility for implementing policy, to monitor, report and take any appropriate action. SEE training is part of the training provided for newly appointed directors appropriate to their experience, knowledge and previous training.

In the risk management process explained in paragraph (i) of Internal Controls, see page 30, the risks involved in not achieving appropriate SEE standards continue to be assessed and any significant risk is monitored by the Board following half yearly reports from all Group companies.

The Group considers and applies appropriate policies through the Group’s Business Code in the following areas:-

(i) Employment PoliciesThe Group supports and applies the principles of Human Rights in its operations including equal opportunities for employees regardless of sex, race, religion, age or disability. Board members satisfy themselves that the terms of employment in subsidiaries worldwide are appropriate. The Group has a policy of non-discrimination and does not tolerate bullying and/or harassment in any form. The recruitment procedures throughout the Group avoid employment of underage staff. Care has been taken to provide for a culture of openness and honesty. The Group operates personnel policies designed to meet the needs of its subsidiaries and employees around the world. Channels of communication appropriate to the local operation have been established to allow employees to be properly informed and voice their views and concerns. Recognition is given to individual employees’ needs and requirements throughout the Group and, where possible, flexible working arrangements are considered where the circumstances are justified. Employees are encouraged to apply their skills, knowledge and energy. The Group’s management philosophy recognises employees as its most important asset.

Corporate social responsibility


Corporate social responsibility

A summary of the Group’s annual accounts is made available to its employees. The Group’s newsletter, with a Foreword from the Chief Executive, is distributed to all Group companies each month and is made available to employees. Individual subsidiaries have either a local newsletter or a regular communication informing employees on the progress of their company. The Group encourages the growth of employee share ownership.

(ii) Community InvolvementThe Group has a Charitable Trust which donates to registered charities and additional donations are made to appropriate requests for support from bodies which are not registered charities both in the UK and in the overseas operating subsidiaries. In the latter case the decision to donate is made by the local general manager. In total the Group donated approximately £79,000 per annum to registered charities and other good causes.

The operating companies in the Group are encouraged to provide support to local communities through company donations, employee organised charitable activities, donation of equipment no longer required and through provision of information.

By way of examples, Watson-Marlow Limited are a sponsor of Falmouth Maritime Museum and a Wildlife Guardian of the Cornwall Wildlife Trust. Watson-Marlow Inc., USA, supports local charities including the Princess House School and The Wilmington Firefighters Association. Bredel Hose Pumps BV supports the annual International Wheelchair Games held in and around Delden. Another example applies in India where with our partners the local company continues to support a hospital it established many years ago making provision for both company employees and the local community. Both benefit from an established welfare programme based in company provided premises supporting community initiatives, particularly for women and pre-school provision for children. Spirax-Sarco Limited continues to support the National Star Centre.

(iii) Supplier RelationsThe Company policy is to use suppliers of goods and services which maintain appropriate standards in their operations. Suppliers must consistently achieve the standards required by ISO 9000.

(iv) Product StewardshipInformation and support is given through appropriate technical advice to provide a solution to customers’ needs with installation and after sales service being integral to the Group’s business. The proper application of products and environmental and safety considerations are dealt with in detail in the technical literature made freely available by the Group.

(v) CorruptionThe Company’s policy outlaws corruption or anti-competitive practices. In addition to provisions within service contracts general managers, who head Group subsidiaries, are required to certify personally that all laws and regulations have been met in their territory.

(vi) Health and Safety● The Company has a clear attitude to health and safety, which is that each operation will maintain a healthy and safe environment. In the first instance the general manager of each company has the responsibility for ensuring that this is effectively managed at the local level. Each major manufacturing site has its own Health and Safety Committee which is advised by a safety officer.

● The general managers report the health and safety record of each subsidiary in a standard form to the responsible executive director, in an exercise co-ordinated and monitored by the Director - Supply. The Director - Supply is responsible for overseeing all health and safety matters in each of the Group’s subsidiaries. A separate Safety Audit Committee composed of UK based directors and senior managers meets every six months to verify the performance of the UK Spirax business on health and safety and environmental issues.

● The Group ensures that the necessary resources are available for health and safety training and companies within the Group seek, as necessary, professional advice regarding the implementation of safety programmes. For example, at Spirax Sarco UK an established training programme applies to new shop floor employees and is provided as a refresher to all shop floor employees.

● Regular reviews are conducted to ensure that employee knowledge of health and safety matters relevant to them is up to date.

● In the UK Spirax Sarco has carried out various reviews and in particular has extended the measures for the welfare of employees by providing:

a) automatic external defibrillators for use in heart attack situations - all first aiders have been trained in their use; b) training for all managers in the recognition and prevention of work related stress; c) training for managers and first aiders in the recognition of the symptoms of abuse of alcohol and drugs; d) significant investment in safety equipment and new procedures for working at height.


● Further recent investment in noise attenuation in the UK machine shops has realised significant decibel level reduction.

● All Group manufacturing companies have implemented a “5S” programme which employs a methodology to reduce waste and optimise productivity through maintaining an orderly workplace to achieve more consistent operational results. 5S drives a cleaner environment.

● Watson-Marlow Bredel in Falmouth has obtained OHSAS 18001 which gives a framework for the management of health and safety.

(vii) Environmentala) Environmental Benefits from the use of Group Products The use by customers of the Group's products and services has a significant environmental benefit that outweighs the environmental issues associated with the production of the products. The Group’s main business is to provide its customers with solutions to manage steam and other related fluids in a safe, environmentally friendly and cost-effective way.

The name Spirax Sarco is synonymous with steam and its efficient use worldwide. The majority of sales is the result of assisting customers to improve the efficiency of their plant processes, reduce energy consumption and emissions and meet local safety regulations. Our analysis shows that the environmental impact arising from the manufacture of the Group’s range of steam system products is significantly less than the energy saving benefits enjoyed by customers in the application of those products.

The Group’s technical advice and expertise on the application of its products and engineered solutions in relation to steam systems, which is freely given to customers, is the key to maximising the benefit of the products we supply. There are numerous individual examples of benefits enjoyed by customers which include improved overall boiler efficiency, improved energy efficiency of plant processes, reduced consumption of water and water treatment chemicals and lower production of effluent and emissions.

The implementation of these solutions allows customers to reduce their environmental impact by reducing steam consumption and returning condensate to the boiler, hence saving on energy, CO2 emissions and water costs. Returning (‘recycling’) condensate for re-use has the added benefit of reducing chemical treatment and effluent costs.

A key part of the Group’s activity is auditing customers’ steam systems. These audits identify savings to be gained as a result of simple repairs and the employment of new technologies such as energy savings solutions or packaged engineered systems. As an example, based on audits and surveys carried out for customers globally, the Company calculates average potential CO2 emissions savings in excess of 180,000 tonnes per year assuming implementation of our recommendations.

The knowledge and experience of engineers within the Group help customers to identify and implement cost-effective energy savings and emissions reduction solutions through a combination of correctly applied products, engineered systems and associated services. An example of the Group’s ability to offer more than product is the Eirdata Environmental Services operation in the Republic of Ireland which offers a service to clients which includes expertise in many areas of energy management. They were winners of the 2007 Energy Service Company award from Sustainable Energy Ireland.

The Group’s Product Research and Development programme has been assisted through collaboration with the UK’s Carbon Trust, which aims to bring new and innovative energy saving solutions to customers globally, enabling their CO2 emissions to be further reduced.

The Group’s operations in Cheltenham have instituted a ‘carbon footprint’ assessment. It is intended to extend this analysis to all global operations. The data gained from this exercise will be used as a benchmark, with appropriate management effort applied to achieve a targeted annual reduction. Preliminary scaling analysis indicates that the Group’s Carbon Footprint is significantly smaller than the CO2 emissions the Group helps customers save. Many applications for Watson-Marlow Bredel peristaltic pumps are those where environmental improvement is the main aim. These pumps are particularly well-suited to applications such as waste water treatment, where difficult fluids must be handled safely and reliably.

Watson-Marlow Limited in the UK and Spirax-Sarco Chatellerault are certified to the Environmental standard ISO 14001. It is the intention for the whole Group to be accredited ISO 14001. In the United States, Watson-Marlow Bredel Inc. complies with US OSHA regulations and strives to be environmentally conscious through a paper recycling programme and implementing energy-efficient and green technologies.

Corporate social responsibility continued


b) Policy Statement and Performance The Group regularly reviews its written policy statement and performance with regard to environmental matters to ensure compliance with good practice and statutory regulations in all its operations and to meet corporate objectives. The Group operates its businesses with a proper concern for their impact on the environment generally and, particularly, with concern for the local communities where the Group’s operations are located.

The Group, through its Board of Directors, ensures that its managers and staff are aware of the actions required to consider environmental factors and meet regulations in each of the Group’s plants and the risks of failing to do so. Managers are required to take environmental considerations into account in running the business, for example in its energy efficiency, its use of appropriate materials and the design and manufacture of its products generally and in the investment in new equipment, new processes and new buildings and services.

There is a detailed procedure which lays down responsibility for ensuring that the Group’s policy is carried out. Employees are also expected in their daily job to be aware of environmental considerations and draw to the attention of management any matters of possible concern or ideas for improvement.

● Implementation The Director - Supply has specific environmental responsibility in relation to the Group’s operations and their impact on the environment. The Group’s objective is to comply with environmental laws and good practice and where non-compliance is identified to have management systems in place to ensure that this is rectified within an appropriate timeframe. The environmental policy set out above is circulated to management and to all employees.

General managers of operating companies within the Group are responsible for local compliance with the Group’s policy and with local legislation. A manager within each operating company is nominated to ensure compliance. Agreed actions are implemented by the operating company overseen by the relevant executive director for that division.

● Review The Group also operates a regular system of review, under which every operating company reports on environmental issues and compliance with local legislation.

The review in 2007 revealed no major problems. Following a prescribed approach regular reviews of the Group’s facilities worldwide are conducted.

Following a review the implementation of recommendations, if any, is monitored at Group level. The general manager will report through the executive director on any issues identified as is appropriate in the circumstances.

If recommendations are made then in the first instance the general manager of each company has the responsibility for ensuring that they are effectively considered and implemented where appropriate at the local level.

Where environmental upgrades are made to plant and machinery in any jurisdiction, consideration is given to implementation of such upgrades across the Group’s facilities worldwide.

● Audit Process In the past the Group has utilised external environmental consultants to audit a number of manufacturing facilities and has, as a result, established an internal environmental audit process under which a senior manager assesses the environmental position in each of the major manufacturing units and reports to the local management. This process is overseen by the relevant executive director who informs the Director - Supply appropriately and is distinct from the process identified above.

● Results As a result of these processes there have been improvements in the use of solvents, chemicals and fluxes all of which have contributed to a cleaner operating environment which together with noise attenuation have benefited both employees and local residents. To comply with local regulations as to its efficiency, Spirax Sarco Ind. e. Com. Ltda. in Brazil has installed a waste water system to treat water before discharging it and an audit is carried out each six months. Also to comply with local regulations the company has developed methodologies and documentation for the discharge of industrial residues. A selective waste programme, practising recycling concepts, has been implemented, together with an environmental audit to ensure continuous improvement.


The Board presents the following report on directors’ remuneration and the work and responsibilities of the Remuneration Committee.

THE REMUNERATION COMMITTEEThis Committee has been established for many years and operates under terms of reference agreed by the Board and which can be found on the Group web site: www.SpiraxSarcoEngineering.com.

The Committee members throughout the year were Messrs. G. Bullock, E. Lindh, and W. H. Whiteley (Chairman). They continue to be the Committee members and each is an independent non-executive director. They bring independence to all aspects of Board remuneration and the application of professional advice.

The Committee is responsible for determining, on behalf of the Board, the Company’s remuneration policy, the employment conditions and remuneration packages of individual executive directors and the fees for the Chairman. The Committee also administers and determines the grant of options under the Group’s share option schemes for senior employees and administers and determines the grants of awards under the Performance Share Plan.

The Committee obtains independent professional advice from Towers Perrin to ensure that the Company’s remuneration policy is appropriate and competitive. Towers Perrin was appointed by the Committee and has not provided other services to the Company during the year. Mr. M. Townsend, the Company Chairman, and Mr. M. J. D. Steel, the Chief Executive, attend meetings at the invitation of the Committee to provide information requested by it. However, they do not participate in any discussions involving their own remuneration. The Company Secretary acts as Secretary to the Committee.

The Company has throughout the year complied with the provisions of The Combined Code and Code of Best Practice published in July 2003 with regard to directors’ remuneration. The Committee has given full consideration to the Combined Code in establishing the remuneration policy and packages for directors.

POLICY ON EXECUTIVE DIRECTORS’ REMUNERATIONThe Company’s policy is to reward directors competitively and on the broad principle that their remuneration should be comparable with remuneration in other similar public companies. Further, the total remuneration package is designed in a way which is appropriate and necessary to attract, retain and motivate directors of the calibre required to take the Company forward.

In order to align the interests of directors and shareholders, the Committee has structured the total remuneration package to provide a material performance-related element through the annual bonus and the Group’s Performance Share Plan.

The structure of the directors’ remuneration package has been established, subject to appropriate modifications, for many years and has regard to pay and conditions elsewhere in the Group.

The Company’s policy on directors’ remuneration and the structure of their remuneration package are kept under review to ensure the directors’ overall package remains competitive and shareholders will be informed of any resulting change. The remuneration package comprises:-

Basic SalaryThe Committee obtains independent professional advice from Towers Perrin using published information for comparable public companies. Salaries are reviewed annually on 1st January taking into account the experience, responsibility and performance of the individual.

Annual BonusThe Company operates an annual bonus scheme for executive directors. The bonus is paid as a percentage of salary. For 2007 this percentage is the sum of:-

(i) one third of the percentage increase in profit before tax for the year over the average profit before tax for the previous three years - this element contributed 9% in the year ended 31st December 2007;

(ii) two thirds of the percentage increase in Earnings per Share ("EPS") for the year over the average EPS for the previous three years - this element contributed 20% in the year ended 31st December 2007;

(iii) cash generation (expressed as a percentage of profit for the financial year) will carry a maximum of 20% bonus. Where cash inflow, as determined from the Accounts, is less than 100% of profit, no bonus will be earned under this element; where cash generated equals or exceeds 160% of profit, the full 20% will accrue with proportionate bonus being earned between 100% and 160% of profit - this element contributed 6% in the year ended 31st December 2007; and

(iv) an amount derived from the change in gross margin percentage compared with that for the previous year. Where the gross margin has deteriorated by 0.5 percentage points or more, no bonus will be earned under this element; where there has been an improvement of 1.5 percentage points or more, the full allocation of 20% will accrue with proportionate bonus being earned between these limits, provided always that the gross margin percentage is above a required minimum. No bonus was payable in respect of this element for the year.

There is a contractual maximum bonus payment equal to basic salary. The bonus forms an integral and regular part of the executive directors’ remuneration. The bonus is not pensionable.

The Directors’ remuneration report


For the current financial year, the Committee wishes to focus on just two key elements of Company performance, operating profit and Return on Capital Employed ("ROCE"). The maximum bonus will remain at 100% of salary and will not be pensionable. It will be determined as follows:-

(i) up to 65% of salary will be based on the operating profit of the Group plus the Associated Companies in India and Mexico. Under the scale set for 2008 a bonus of 10% will be payable if operating profits are equal to the previous year’s profits; it will rise to 39% if operating profits are equal to the planned profit for the year and to the maximum of 65% if operating profit exceeds plan by 6%, with the bonus being calculated on a sliding scale for achievement of operating profit between these figures; and

(ii) up to 35% of salary will be based on ROCE; for 2008, a bonus of 5% will be payable if ROCE equals 29% rising to 35% if a ROCE of 39% is achieved, again with the bonus being calculated on a pro-rata basis for the achievement of a ROCE between these figures.

The Committee will review the measurement of the elements of the bonus each year.

The Committee offered to executive directors in a UK defined benefit scheme a cash alternative to pension contributions in respect of the directors’ pensionable service from 6th April 2006, i.e. “A Day” under the HMRC tax regime for pensions. The level of this cash alternative was confirmed by the Company’s actuaries. The cost of the alternative to the Company would be no greater than the cost of the pension contributions. The cash alternative has not been adopted by any of the executive directors in the scheme.

OptionsSpirax-Sarco Engineering 1992 UK and Global Share Option SchemesSpirax-Sarco Engineering Approved and Global Share Option SchemesThe Company operates share option schemes administered by the Committee which determines the grant of options under the schemes, usually once per year. These are designed to align the longer term interests of participants with those of shareholders by giving an incentive linked to added shareholder value. Following the introduction of the Performance Share Plan in 2005, it is intended that, ordinarily, executive directors will be granted awards under that plan rather than be granted options. Executive directors, senior executives and management hold options granted in previous years and it is intended that options will continue to be granted to senior executives and management. The policy is to phase options over the ten year life of the share option schemes. Options granted to each director from 1997 are subject to a performance condition which is described below.

Performance Condition for Share Option SchemesIn accordance with market practice, options granted are normally specified to be exercisable between three and ten years from the date of grant and, for grants from 1997, only if a specified performance condition is satisfied. In line with the then established market practice, the performance condition for options granted from 1997 up to 2001 requires an increase in EPS of more than 6% greater than the increase in the UK retail prices index over a period of three consecutive years between grant and exercise. For options granted from and including 2002 the performance condition requires an increase in EPS of more than 9% greater than the increase in the UK retail prices index over a period of three consecutive years between grant and exercise. For grants from and including 2005, the performance condition will, ordinarily, need to be met over the three year period from the 1st January prior to the date of grant in order for the option to become exercisable. If the condition is not met at the end of the three year period, the option will lapse. The same performance condition applies to each director. The performance condition chosen was considered appropriate because it ensured increases in the EPS were achieved having taken account of UK inflation. The auditors are asked to confirm whether the performance condition has been met. The method of assessment is considered appropriate to confirm compliance with the condition. The performance condition requires a comparison with a factor external to the Company, namely the growth in the UK retail prices index over the performance period.

Details of total share options outstanding are set out in Note 24 on page 63. The above performance conditions apply to other relevant options granted to all participants in the share option schemes.

Performance Share PlanA performance share plan for executive directors, senior executives and management was adopted at the 2005 annual general meeting. The plan allows for awards to be made each year with a market value of up to 150% of base salary. In practice the awards made to executive directors in each of the three years since the plan was introduced have generally been limited to 60% of base salary. Awards take the form of contingent rights to acquire shares, subject to the satisfaction of a performance target. To the extent they vest, awards may be satisfied in cash or in shares.

The vesting of an award will be subject to the satisfaction of a performance target. The performance target applied to awards granted in 2005 was based on the Company’s Total Shareholder Return (“TSR”) relative to the TSR of other companies included in the FTSE All-Share Engineering and Machinery Index over the three year period commencing with effect from 1st January 2005. Awards will vest on a sliding scale. For full vesting, the Company’s TSR must be at or above the upper quartile, with 25% of the shares subject to an award vesting if the Company’s TSR is at the median relative to the comparator group. Awards vest on a pro-rata straight line basis between median and upper quartile performance. For the awards granted in 2005, the comparator group consisted of the same companies comprising that sector immediately before the start of the performance period. No awards will vest under the 2005 grant. TSR was chosen as the measure of performance as the Committee felt that this achieved an appropriate alignment of the interests of the directors with those of the shareholders of the Company.


Awards made in 2006 and 2007 were subject to the same performance condition as described above save that the Company’s TSR was compared with the TSR of other companies included in the FTSE All-Share Industrial Engineering Index. This is the sector in which the Company is now included, the Engineering and Manufacturing Sector Index having been discontinued at the end of 2005.

In addition to the TSR target, for an award to vest the Committee will also, normally, need to be satisfied that the Company’s underlying financial performance has been satisfactory over the three year performance period.

Following a review of the operation of the plan and the market competitiveness of awards, the Committee has decided to make awards to executive directors in 2008 with a market value of 100% of base salary. Although relative TSR will be retained as one of the measures to determine the vesting of part of the award, a second, separate element of the award will be based upon EPS growth. The decision to adopt EPS as a specific measure to determine the vesting of part of the future awards is a reflection of the importance the Company gives to continuing growth in earnings.

Specifically for awards made after 1st January 2008, the award will be split into two separate parts amounting to 60% and 40% of salary respectively.

The vesting of each part of the overall award will be subject to the satisfaction of separate performance targets as follows:-

(i) vesting of the first part, amounting to 60% of salary, will be based on the existing TSR measure; and

(ii) vesting of the second part, amounting to 40% of salary, will be subject to achievement of a target based on cumulative growth in EPS over the whole of the three year performance period with growth measured relative to EPS in the year prior to that in which the award is made. For the awards made in 2008, 25% will vest if the compound annual growth in EPS over the three year period 2008 to 2010 is equal to 5% and 100% of the award will vest if the compound annual growth in EPS is equal to or exceeds 11%; there will be pro-rata vesting for actual growth between these two rates.

The Committee will review the measures annually.

Spirax-Sarco Engineering plc Employee Share Ownership PlanThe executive directors participate in the Employee Share Ownership Plan, as described on page 42. Participation in the Employee Share Ownership Plan is open to all eligible UK employees. No employee’s entitlement under the Employee Share Ownership Plan is subject to performance conditions. This is because the aim is to encourage increased shareholding in the Company by all eligible UK employees.

There are no other long term incentives provided to directors.

Share Ownership PolicyIt is the policy of the Board of Spirax-Sarco Engineering plc that the executive directors have a significant shareholding in the Company. The Board expects that executive directors will accumulate following appointment to the Board, a shareholding equivalent to at least 100% of basic salary and should retain a shareholding of at least this amount whilst remaining on the Board.

It is the policy of the Board to operate share based incentive schemes and the Board expects that executive directors will retain shares acquired under such schemes (after sales of such shares as are needed to settle relevant tax and national insurance charges) until the required level of shareholding is achieved. Any shares held in trust for an executive director or in the name of a connected person, e.g. spouse, will be considered as part of an executive director’s shareholding.

The Board will exercise discretion in implementing this policy where the personal circumstances of an individual executive director make that appropriate.

The policy does not require any shareholdings by non-executive directors.

PensionsThe UK executive directors, other than Mr. M. E. Vernon, are members of an HMRC registered non-contributory defined benefit pension scheme based on 1/60th of pensionable salary, for each year of pensionable service. The maximum pension is two-thirds of pensionable salary. Messrs. M. J. D. Steel, A. D. H. Black, N. Daws, D. J. Meredith and P. A. Smith accrue pro-rata additional service at a rate which gives a further two and a half years of service at age 621⁄2 although their normal retirement age is now 65. This additional service does not apply to Messrs. A. J. Scrivin and M. E. Vernon who also have a normal retirement age of 65. As previously reported for the then UK executive directors the bonus payments were no longer pensionable after 31st December 2005. For Mr. A. J. Scrivin, appointed in 2005, bonus payments were never pensionable. Mr. M. E. Vernon, in addition to membership of the Spirax Sarco Inc. defined benefit scheme, has defined contributions as set out on page 43. In total pension contributions at the rate of 25% of pensionable pay were payable from 12th June 2007 (previously at the rate of 15%). From 12th June 2007 Mr. M. E. Vernon’s pensionable pay does not include bonus payments. Mr. M. E. Vernon also has provision of a lump sum death in service benefit of four times salary.

The UK scheme provides lump sum death in service benefit of four times pensionable salary and spouses’ pensions are payable where death occurs in service or in retirement. For 2007 there are no unapproved pension arrangements in the UK in respect of UK executive directors.

The Directors’ remuneration report continued


Non-Executive DirectorsThe remuneration of non-executive directors is approved by the full Board within the limits set out in the Company’s articles of association. Their remuneration reflects the amount of time spent on the Company’s business. The non-executive directors do not participate in the bonus, share option or share ownership schemes and do not participate in the Performance Share Plan. Non executive directors’ appointments are non-pensionable.

Service ContractsThe Committee applies a policy on directors’ contracts reflecting established practice and reviews the content from time to time on professional advice. The executive directors have service contracts which are subject to 12 months’ notice.

Date of Contract Notice Period

M.J.D. Steel 30.12.92 12 monthsM.E. Vernon 12.12.07 12 monthsA.D.H. Black 18.10.98 12 monthsN.H. Daws 28.05.03 12 monthsD.J. Meredith 30.12.92 12 monthsA.J. Scrivin 15.03.05 12 monthsP.A. Smith 24.12.92 12 months

Termination payments will reflect the circumstances leading to termination of employment. Excessive compensation will not be paid. Professional advice will be obtained by the Committee to ensure legal obligations and good practice are followed.

The Company’s policy on termination payments under executive directors’ contracts is that contracts may be terminated without notice and without payment of compensation on the occurrence of certain events, such as gross misconduct. If the Company terminates an executive director’s contract without cause and in breach of the notice requirement, it will pay the appropriate value of the contract. Any rights to pensions would be dealt with under the rules of the pension scheme applicable to the director and any rights under the Company’s share plans would be dealt with in accordance with the rules of each plan.

The non-executive directors, including the Chairman, Mr. M. Townsend, do not have service contracts. They have appointment letters, normally for three year periods, and re-appointment is not automatic.

Date of Appointment Letter Notice Period

M. Townsend 11.04.06 1 monthG. Bullock 03.05.05 1 monthE. Lindh 06.04.06 1 monthW.H. Whiteley 06.04.06 1 month

POLICY ON SENIOR EXECUTIVE REMUNERATIONThe Committee determines the philosophy, principles and policy of remuneration which shall apply to the Group’s senior executives. The responsibility for determining the precise package to meet local practice and performance lies with the Chief Executive and the responsible executive director.

TOTAL SHAREHOLDER RETURNThe performance graph illustrated shows the Company’s total cumulative shareholder return for the five year period ended 31st December 2007 compared with the total cumulative shareholder return for the FTSE All-Share Industrial Engineering Index. This comparison is selected as being the most appropriate sector for the Company’s operations as the comparison automatically takes account of the impact on the Company’s shares of the market’s view of the engineering industry generally.

INFORMATION SUBJECT TO AUDITThe auditors are required to report on the information contained in the remaining sections of the Report.


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DETAILS OF INDIVIDUAL EMOLUMENTS Basic Benefits (1) Annual Total emoluments Salary/ performance excluding pension Fees related 2007 2006 bonus Total Total £ £ £ £ £

M. Townsend (2) 90,000 - - 90,000 80,000M.J.D. Steel 383,000 19,818 134,625 537,443 479,474M.E. Vernon (3) 242,012 100,258 85,067 427,337 253,351 A.D.H. Black 211,000 13,566 74,167 298,733 276,758 N.H. Daws 202,000 12,279 71,003 285,282 253,704D.J. Meredith 236,000 16,236 82,954 335,190 309,715 A.J. Scrivin 185,000 7,721 65,028 257,749 225,160P.A. Smith 175,000 7,992 61,513 244,505 219,580G. Bullock (2) 33,000 - - 33,000 30,000E. Lindh (2) 33,000 - - 33,000 30,000W.H. Whiteley (2) 46,000 - - 46,000 40,000

1,836,012 177,870 574,357 2,588,239 2,197,742

(1) Benefits arising from employment by the Company relate mainly to the provision of a company car and in the case of Mr. M. E. Vernon, also for the provision of medical insurance cover in the USA and relocation costs.

Following Mr. M. E. Vernon’s appointment as Chief Operating Officer and his transfer to the UK to carry out his duties, the Group, through Spirax Sarco Inc., has paid to Mr. M. E. Vernon the independently assessed market value of £390,250 for the purchase of his residence in South Carolina.

(2) Non-executive director.

(3) Mr. M. E. Vernon was appointed to the Board on 1st July 2006 and the figure of £253,351 is the total emoluments for the full year 2006. Of the bonus of £85,067, £5,799 was paid in the form of a 401(k) contribution in the USA.

Long Term Incentives(i) Spirax-Sarco Engineering 1992 UK and Global Share Option Schemes Spirax-Sarco Engineering Approved and Global Share Option Schemes

The interests of directors are set out below:- 31.12.06 Exercised 31.12.07 Average Date from Expiry (or date of in year (2) (or date of exercise which date (4)

appoi appointment if retirement price per exercisable (4) if later*) later) if earlier) share (3) (1) No. No. No. pence

M.J.D. Steel A 185,000 - 185,000 437.2 12.10.02 31.03.09 185,000 - 185,000

M.E. Vernon B 20,400 12,000 8,400 686.0 21.04.08 21.04.15 20,400 12,000 8,400

A.D.H. Black A 20,000 20,000 0 - - - 20,000 20,000 0

N.H. Daws A 20,000 - 20,000 541.9 25.03.07 25.03.14 B 15,000 - 15,000 394.5 14.03.06 14.03.13 35,000 - 35,000

D.J. Meredith A 87,500 15,000 72,500 472.2 12.10.02 25.03.14 87,500 15,000 72,500

A.J. Scrivin B 16,500 2,500 14,000 468.2 14.03.06 16.06.12 16,500 2,500 14,000

P.A. Smith A 40,000 - 40,000 468.2 14.03.06 31.03.09 40,000 - 40,000



(1) Options shown on line A relate to options granted to members of the Board, whereas options shown on line B relate to options granted to individuals prior to their appointment to the Board.

The exercise prices for all options shown are lower than the mid market price of the Company’s ordinary shares on 31st December 2007 (being the last trading day of the financial year).

(2) 2007 Option Mid market 2007 2006 Options exercise price on the Gain arising Gain arising exercised price date options on exercise on exercise exercised No. pence pence £ £ M.E. Vernon 12,000 541.9 1016.0 56,892 - A.D.H. Black 20,000 541.9 1040.5 99,720 115,200 N.H. Daws - - - - 135,670 D.J. Meredith 15,000 669.0 1023.0 53,100 25,050 A.J. Scrivin 2,500 669.0 1013.0 8,600 5,932 Aggregate of gains arising on exercise 218,312 281,853

(3) These are the weighted averages of the exercise prices for ordinary shares under option at 31st December 2007.(4) These are the ranges of dates between which all options which have been aggregated may be exercised.

No options were granted to directors during the year and no options held by directors lapsed during the year.

The mid market price of the ordinary shares on 31st December 2007 was 878.0p. During the period from 1st January 2007 to 31st December 2007 the ordinary mid market share price ranged between 1081.0p and 870.0p.

Options granted from 1997 are subject to the performance conditions described on page 37.

There have been no changes in the number of share options as shown on pages 40 and 41 since 31st December 2007.

(ii) Performance Share PlanThe interests of directors are set out below:-

Awarded during year ended Total awards 31.12.05 (1) 31.12.06 (2) 31.12.07 (3) as at 31.12.07 as at 29.02.08M.J.D. Steel (4) 27,268 21,875 22,538 71,681 44,413M.E. Vernon - 12,567 28,826 41,393 41,393A.D.H. Black 15,412 12,500 12,416 40,328 24,916N.H. Daws 13,803 11,375 11,887 37,065 23,262D.J. Meredith 17,445 14,000 13,887 45,332 27,887A.J. Scrivin 12,702 10,250 10,886 33,838 21,136P.A. Smith (4) 12,448 10,000 10,298 32,746 20,298

(1) The performance conditions as at 31st December 2007 were not met and therefore those shares awarded during the year ending 31st December 2005 lapsed.

End of period over which performance conditions measured:-

(2) 31st December 2008;(3) 31st December 2009;(4) 31st March 2008 (retirement date).

The performance conditions are described on pages 37 and 38.

The average mid market price on the five days from 19th to 23rd March 2007 was 1019.6p. This was applied in determining the number of shares subject to awards granted on 26th March 2007. The mid market price of the shares on that date was 1020.0p.

The mid market price on 7th September 2007 was 975.0p. This was applied in determining the 17,538 shares subject to the additional award granted to Mr. M. E. Vernon on 10th September 2007. The mid market price of the shares on that date was 1013.0p.


(iii) Spirax-Sarco Engineering plc Employee Share Ownership PlanThe Company operates an Employee Share Ownership Plan in which all the executive directors, with the exception of Mr. M. E. Vernon, are eligible to participate on the same basis as all other eligible UK employees. For the Plan period the individual director’s contributions are limited to a maximum of £1,500 per annum under HMRC rules. The trustee of the Plan provides a matching share for each share purchased under the Plan on behalf of the director which is the same basis as for other participating employees. Dividends paid on the partnership and matching shares are reinvested and held by the trustee as dividend shares. Matching shares and dividend shares may generally only be released three years after they were purchased by the trustee. In order to comply with the age discrimination legislation, the retirement age in the Plan was changed from 65 to 50.

Interest at Partnership Matching Dividend Interest at Period of 31.12.06 shares shares shares 31.12.07 qualifying purchased (1) awarded (1) awarded (2) conditions (3)

M.J.D. Steel 3,494 162 162 96 3,914 3 yearsA.D.H. Black 3,389 162 162 92 3,805 3 yearsN.H. Daws 3,494 162 162 96 3,914 3 yearsD.J. Meredith 3,494 162 162 96 3,914 3 yearsA.J. Scrivin 902 162 162 26 1,252 3 yearsP.A. Smith 3,494 162 162 96 3,914 3 years (1) Partnership shares were purchased, at a price of 923.333p, and matching shares were awarded on 5th October 2007. The mid market price of the shares on that date was 1040p.(2) Dividend shares were awarded on 21st May 2007, on which date the mid market price of the shares was 1014.5p, and on 9th November 2007, on which date the mid market price of the shares was 1061p.(3) Partnership shares are not subject to qualifying conditions.

No matching shares or dividend shares were released from the Plan or forfeited during the year.

DIRECTORS’ PENSIONSThe UK executive directors, other than Mr. M. E. Vernon, are members of defined benefit pension arrangements. Mr. M. E. Vernon is a member of a defined benefit scheme provided by Spirax Sarco Inc. The information below is consistent with the presentation used last year and sets out the disclosures under the Stock Exchange Listing Rules and the Companies Act 1985.

Age Accrued Accrued Change in Change in Transfer Transfer Transfer Change in attained pension pension accrued accrued value of value of value of total at at at pension pension change in accrued accrued transfer 31.12.07 31.12.06 31.12.07 during during accrued pension at pension at value the year the year (1) pension (1) 31.12.06 31.12.07 £pa £pa £pa £pa £ £ £ £

M.J.D. Steel 62 246,287 262,139 15,852 6,128 122,300 4,451,000 5,120,000 669,000A.D.H. Black (2) 50 76,471 79,410 2,939 0 0 653,000 690,000 37,000N.H. Daws 45 82,715 90,829 8,114 4,849 35,300 569,000 639,000 70,000D.J. Meredith 48 95,171 99,405 4,234 476 3,900 764,000 814,000 50,000A.J. Scrivin 60 105,233 121,792 16,559 12,404 233,000 1,465,000 1,938,000 473,000P.A. Smith 59 105,571 112,466 6,895 2,727 51,200 1,746,000 1,990,000 244,000

(1) Net of deferred pension revaluation at a rate of 3.9% per annum.(2) Benefits shown net of pension sharing order, currently worth £27,700 per annum.

The following is additional information relating to UK executive directors’ pensions:

(i) Dependant’s pensionOn the death of a director in service, a spouse’s pension equal to one-half of the director’s pension based on pensionable service to the date of death is payable. On the death of a director after payment of the pension commences, a spouse’s pension of one-half of the director’s pension entitlement at the date of death, ignoring commutation and any early retirement actuarial reduction, is payable; in addition directors’ pensions are guaranteed to be paid for five years from retirement.

(ii) Early retirement rightsAfter leaving the service of the Company, a director has the right to draw his accrued pension at any time after his 60th birthday with no reduction, with the exception of Mr. A. J. Scrivin.

(iii) Pension increasesPensions are subject to annual increases in line with the annual rise in the RPI subject to a maximum of 5% per annum. The Trustees and the Company have the discretion to apply a greater increase.



(iv) Other discretionary benefitsThere are no discretionary practices which are taken into account in calculating transfer values on leaving service.

Mr. M. E. Vernon’s defined benefit pension arrangements are as follows:-

Age Accrued Accrued Change in Change in Transfer Transfer Transfer Change in attained pension pension accrued accrued value of value of value of total at at at pension pension change in accrued accrued transfer 31.12.07 31.12.06 31.12.07 during the during the accrued pension at pension at value year year (1) pension (1) 31.12.06 31.12.07 £pa £pa £pa £pa £ £ £ £

M. E. Vernon 54 4,900 6,433 1,533 1,490 9,254 32,773 45,589 12,816

(1) Net of inflation at a rate of 2.8% per annum.

The following is additional information relating to Mr. M. E. Vernon’s pension:

(i) Dependant’s pensionOn the death of a director in service, a spouse’s pension equal to one-half of the director’s pension based on pensionable service to the date of death is payable. After payment of the pension commences the accrued pension shown has no attaching spouse’s pension. However at retirement the director has the option to reduce the director’s own pension to provide for a spouse’s pension after death.

(ii) Early retirement rightsAfter leaving the service of the Company, a director has the right to draw his accrued pension at any time after his 65th birthday with no reduction.

Mr. M. E. Vernon will be able to commence his pension upon retirement after five years’ of service (6th January 2008), with the pension being reduced. The annual reductions for early retirement are 3.0% for each year from age 65 to age 60 and 5.0% for each year from age 60 to earliest retirement age.

(iii) Pension increasesThe pension has no guaranteed increases. Spirax Sarco Inc. has the discretion to provide increases.

(iv) Other discretionary benefitsAdditionally, Mr. M. E. Vernon benefited from contributions to defined contribution schemes through the Spirax Sarco Inc. Section 401(k) payments and by supplementary payments to a defined contributions scheme in the USA on the qualifying earnings above the Internal Revenue Service pensionable salary limit for the defined benefit scheme. The total contributions made by the Group were £54,651.

Signed byM. Townsend Chairmanon behalf of the Board


Statement of Directors’ responsibilities in respect of the Annual Report and Accounts

The directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRS as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

The Group and parent company financial statements are required by law and IFRS as adopted by the EU to present fairly the financial position of the Group and the parent company and the performance for that period; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

In preparing each of the Group and parent company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRS as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and the Corporate Governance Statement that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s web site: www.SpiraxSarcoEngineering.com. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SPIRAX-SARCO ENGINEERING PLCWe have audited the Group and parent company financial statements of Spirax-Sarco Engineering plc for the year ended 31st December 2007 ("the financial statements") which comprise the Group Income Statement, the Group and parent company Balance Sheets, the Group and parent company Cash Flow Statements, the Group and parent company Statements of Recognised Income and Expenses and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.

This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. 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 purposes. 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.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU are set out in the Statement of Directors’ Responsibilities on page 44.

Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. The information given in the Directors’ Report includes that information presented in the Chairman's Statement and Business Review that is cross referred from the Directors' Report.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.

We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

BASIS OF AUDIT OPINIONWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited.

OPINIONIn our opinion: • the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the group’s affairs as at 31st December 2007 and of its profit for the year then ended; • the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31st December 2007;• the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation; and• the information given in the Directors’ Report is consistent with the financial statements.

KPMG Audit Plc London 10th March 2008Chartered Accountants, Registered Auditor

Auditors' report


Before Before

Adjustment Adj't* Total Adjustment Adj't* Total

2007 2007 2007 2006 2006 2006

notes £000 £000 £000 £000 £000 £000

Revenue 2 417,317 - 417,317 384,249 - 384,249

Operating costs 3 (348,597) (384) (348,981) (321,958) (350) (322,308)

Operating profit 2 68,720 (384) 68,336 62,291 (350) 61,941

Financial expenses (13,248) - (13,248) (11,722) - (11,722)Financial income 15,688 - 15,688 13,757 - 13,757

Net financing income 5 2,440 - 2,440 2,035 - 2,035

Share of profit of associates 1,636 (249) 1,387 1,368 - 1,368

Profit before taxation 6 72,796 (633) 72,163 65,694 (350) 65,344

Taxation 8 (22,973) - (22,973) (21,278) - (21,278)

Profit for the period 49,823 (633) 49,190 44,416 (350) 44,066

Attributable to: Equity holders of the parent 49,734 (633) 49,101 44,269 (350) 43,919 Minority interest 89 - 89 147 - 147

Profit for the period 49,823 (633) 49,190 44,416 (350) 44,066

Earnings per share 10Basic earnings per share 64.7p 57.7pDiluted earnings per share 64.4p 57.1p

Dividends 11Dividends per share 29.9p 26.5pDividends paid during the year (per share) 27.3p 24.5p

* Amortisation of acquisition-related intangibles. Total 2007 is £633,000 (2006: £350,000) of which £249,000 relates to Associates (2006: nil). On this basis, the basic earnings per share for 2007 is 65.5p (2006: 58.1p).

All amounts relate to continuing operations.

The notes on pages 50 to 79 form an integral part of the accounts.

Group income statementfor the year ended 31st December 2007


THE GROUP PARENT COMPANY

2007 2006 2007 2006 notes £000 £000 £000 £000

ASSETSNon-current assetsProperty, plant and equipment 12 93,933 88,802 - -Goodwill 13 18,697 17,541 - -Other intangible assets 13 9,663 8,866 - -Prepayments 986 352 - -Post-retirement benefits 29 1,095 - 538 -Loans to subsidiaries 14 - - 16,013 35,392Investment in subsidiaries 15 - - 47,055 46,389Investment in associates 16 7,937 3,790 220 -Deferred tax 17 11,659 13,738 433 763

143,970 133,089 64,259 82,544

Current assetsInventories 18 73,824 67,707 - -Trade receivables 98,067 90,023 - -Due from subsidiaries - - 20,682 25,008Other current assets 19 9,755 8,382 192 362Taxation recoverable 949 1,746 - -Cash and cash equivalents 30 38,844 22,085 10,693 2,000

221,439 189,943 31,567 27,370

Total assets 365,409 323,032 95,826 109,914

EQUITY AND LIABILITIESCurrent liabilitiesTrade and other payables 20 58,832 50,372 1,726 1,277Bank overdrafts 30 987 3,986 - 19Short term borrowing 30 1,717 5,934 - -Current portion of long term borrowings 30 78 4,669 - -Current tax payable 21 8,321 7,445 1,120 726

69,935 72,406 2,846 2,022

Net current assets 151,504 117,537 28,721 25,348

Non-current liabilitiesLong term borrowings 30 20,231 14,050 - -Deferred tax 17 8,307 6,386 - -Post-retirement benefits 29 22,628 29,592 - 3,096Provisions 23 1,343 876 - -Due to subsidiaries - - 941 941

52,509 50,904 941 4,037

Total liabilities 122,444 123,310 3,787 6,059

Net assets 2 242,965 199,722 92,039 103,855

EquityShare capital 24 19,299 19,296 19,299 19,296Share premium account 47,267 47,228 47,267 47,228Other reserves 5,719 (1,850) 3,415 2,749Retained earnings 169,866 133,835 22,058 34,582

Equity attributable to equity holders of the parent 25 242,151 198,509 92,039 103,855Minority interest 814 1,213 - -

Total equity 242,965 199,722 92,039 103,855

Total equity and liabilities 365,409 323,032 95,826 109,914

These accounts were approved by the Board of Directors on 10th March 2008 and signed on its behalf by:

Directors M.J.D. Steel D.J. Meredith

Balance sheetsat 31st December 2007


Statements of recognised income and expense for the year ended 31st December 2007


2007 2006 2007 2006

£000 £000 £000 £000

Actuarial loss on post retirement benefits (877) (2,939) (98) (800)

Deferred tax on actuarial loss on post retirement benefits 279 1,142 - (330)

Foreign exchange translation differences 7,650 (9,574) - -

(Loss)/Gain on cash flow hedges (81) 170 - -

Income and expense recognised directly in equity 6,971 (11,201) (98) (1,130)

Profit for the period 49,190 44,066 4,766 19,089

Total recognised income and expense for the period 56,161 32,865 4,668 17,959

Attributable to:

Equity holders of the parent 56,072 32,718 4,668 17,959

Minority interest 89 147 - -

Total recognised income and expense for the period 56,161 32,865 4,668 17,959


Cash flow statementsfor the year ended 31st December 2007


2007 2006 2007 2006

notes £000 £000 £000 £000

Cash flows from operating activitiesProfit before taxation 72,163 65,344 5,066 21,146

Depreciation and amortisation 14,231 13,364 - -

Dividends received - - (6,500) (31,661)

Share of profit of associates (1,387) (1,368) - -

Equity settled share plans 1,259 860 497 353

Net finance income (2,440) (2,035) (1,133) (1,242)

Exchange adjustments - - (109) 459

Operating cash flow before changes in working capital

and provisions 83,826 76,165 (2,179) (10,945)

Increase in trade and other receivables (5,244) (12,662) 170 124

Decrease in amounts due from subsidiaries - - 23,705 (22,773)

Increase in inventories (3,999) (6,248) - -

Decrease in provisions and post-retirement benefits (5,726) (15,887) (2,781) (2,925)

Increase in trade and other payables 5,671 5,184 449 (161)

Decrease in amounts due to subsidiaries - - - (14)

Cash generated from operations 74,528 46,552 19,364 (36,694)

Interest paid (1,699) (1,137) (219) (55)

Income taxes paid (18,162) (16,484) 394 110

Net cash from operating activities 54,667 28,931 19,539 (36,639)

Cash flows from investing activitiesPurchase of property, plant and equipment (13,826) (17,935) - -

Proceeds from sale of property, plant and equipment 599 660 - -

Purchase of software and other intangibles (1,693) (1,678) - -

Development expenditure capitalised (1,604) (989) - -

Acquisition of businesses (1,170) (3,969) (220) (158)

Interest received 906 983 464 718

Dividends received 557 477 6,500 31,661

Net cash used in investing activities (16,231) (22,451) 6,744 32,221

Cash flows from financing activitiesProceeds from issue of share capital 42 1,132 42 1,132

Proceeds from reissue of treasury shares 3,115 2,696 3,115 2,696

Treasury shares purchased - (18,082) - (18,082)

Repayment of borrowings 30 (2,543) (7,544) - -

Payment of finance lease liabilities 30 (20) (88) - -

Dividends paid (including minorities) (20,828) (18,843) (20,728) (18,715)

Net cash used in financing activities (20,234) (40,729) (17,571) (32,969)

Net increase in cash and cash equivalents 30 18,202 (34,249) 8,712 (37,387)

Cash and cash equivalents at beginning of period 18,099 53,093 1,981 39,368

Exchange movement 1,556 (745) - -

Cash and cash equivalents at end of period 30 37,857 18,099 10,693 1,981

Borrowings and finance leases (22,026) (24,653) - -

Net cash/(borrowings) 30 15,831 (6,554) 10,693 1,981

* The cash flow statement for 1999 has been restated for cash and overdrafts. Net debt is unchanged.49Spirax-Sarco Engineering plc

1 ACCOUNTING POLICIES

Basis of preparationThe consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) that have been adopted by the European Union (EU).

The preparation of consolidated accounts in conformity with IFRS requires the directors to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The key areas where estimates have been used and assumptions applied are in provisions, impairment testing of goodwill and in assessing the defined benefit pension scheme liabilities.

The following adopted IFRS was available for early application but has not been applied by the Group in these accounts:

• IFRS 8, Operating Segments

The company does not expect the above amendments to have any significant impact on the accounts for the period commencing 1st January 2008.

The consolidated accounts are presented in pounds sterling, which is the company's functional currency.

Basis of accounting(i) SubsidiariesThe Group accounts include the results of the company and all its subsidiary undertakings. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The accounts of subsidiaries are included in the consolidated accounts from the date that control commences until the date that control ceases.

(ii) AssociatesAssociates are those entities for which the Group has significant influence, but not control, over the financial and operating policies. The accounts include the Group's share of the total recognised income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.

(iii) Transactions eliminated on consolidationIntragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the accounts. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group's interest in the entity.

(iv) CompanyUnder Section 230 (4) of the Companies Act 1985 the company is exempt from the requirement to present its own income statement.

Foreign currency(i) On consolidationThe assets and liabilities of foreign operations are translated into sterling at exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into sterling at average rates of exchange ruling during the year.

Exchange differences arising from the translation of the net investment in foreign operations are taken to a seperate translation reserve within equity. They are recycled and recognised in the income statement upon disposal of the operation. In respect of all foreign operations, any differences that have arisen before 1st January 2004, the date of transition to IFRS, are not presented as a separate component of equity.

Notes to the accounts


(ii) Foreign currency transactionsTransactions in foreign currencies are translated to the respective currencies of the Group entities at the foreign exchange rate at the date of the transaction. Monetary assets and liabilities at the balance sheet date denominated in a currency other than the functional currency of the entity are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates fair value was determined.

Cash flow hedgesWhere a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable forecasted transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. The associated gain or loss is removed from equity and recognised in the income statement in the period in which the transaction to which it relates occurs.

Hedge of net investment in foreign operationsThe portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised directly in a separate translation reserve within equity. The ineffective portion is recognised immediately in the income statement.

Property, plant and equipmentItems of property, plant and equipment are stated at cost or deemed cost, less accumulated depreciation.

Certain items of property, plant and equipment that had been revalued to fair value prior to 1st January 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation.

Depreciation is charged to the income statement on a straight-line basis at rates which write down the value of assets to their residual values over their estimated useful lives. Land is not depreciated. The principal rates are as follows;

Freehold buildings 1.5% Office furniture and fittings 10% Motor vehicles 20%Plant and machinery 10 - 12.5% Office equipment 12.5-20% Tooling and patterns 10%

The depreciation rates are reassessed annually.

Intangible assets(i) GoodwillAll business combinations after 1st January 2004 are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. In respect of acquisitions prior to 1st January 2004, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous UK GAAP.

(ii) Research and developmentExpenditure on research and development is charged to the income statement in the period in which it is incurred except that, development expenditure is capitalised where the development costs relate to new or substantially improved products that are subsequently to be released for sale and will generate future economic benefits. The expenditure capitalised includes the cost of materials and direct labour. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and any impairment losses.

(iii) Other intangible assetsIntangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation (see below) and any impairment losses.

(iv) AmortisationAmortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date they are available for use. Goodwill and intangible assets are tested for impairment annually. The principal amortisation rates are as follows;

Capitalised development costs 20% Manufacturing designs andComputer software 12.5 - 20% core technology 10%Customer relationships 20% Non compete undertaking 50%Brand names and trademarks 10 - 20%


1 ACCOUNTING POLICIES (continued)

InventoriesInventories are valued at the lower of cost, including overheads where appropriate, and estimated net realisable value. Provision is made for slow-moving and obsolete items based on an assessment of technological and market developments and on an analysis of usage.

Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. 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.

Employee benefits(i) Defined contribution plansObligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

(ii) Defined benefit plansThe costs of providing pensions under defined benefit schemes are calculated in accordance with the advice of qualified actuaries and spread over the period during which benefit is expected to be derived from the employees' services. The Group's net obligation in respect of defined benefit pensions is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted at rates reflecting the yields on AA credit rated corporate bonds that have maturity dates approximating the terms of the Group's obligations to determine its present value. Pension scheme assets are measured at fair value at the balance sheet date. Actuarial gains and losses, differences between the expected and actual returns, and the effect of changes in actuarial assumptions are recognised in the Statement of Recognised Income and Expense in the year they arise. Any scheme surplus (to the extent it is considered recoverable) or deficit is recognised in full in the balance sheet.

The cost of other post-employment liabilities are calculated in a similar way to defined benefit pension schemes and spread over the period which benefit is expected to be derived from the employees' services, in accordance with the advice of qualified actuaries.

(iii) Employee share plansIncentives in the form of shares are provided to employees under share option and share award schemes. The fair value of these options and awards at their date of grant is charged to the income statement over the relevant vesting periods with a corresponding increase in equity. The value of the charge is adjusted to reflect expected and actual levels of options vesting.

(iv) Long term share incentive plansThe fair value of awards is measured at the date of grant and the cost spread over the vesting period. The amount recognised as an expense is not adjusted to reflect market based performance conditions.

RevenueRevenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from projects or service contracts is recognised as income in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed depending on the specific circumstances of each case. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or associated costs, or there is the possibility of return of the goods. No revenue is recognised if there is significant continuing management involvement with the goods.

As soon as the outcome of a project or service contract can be estimated reliably, revenue and expenses are recognised in the income statement in proportion to the stage of completion of the project or service contract. An expected loss on a project or service contract is recognised immediately in the income statement.

Leases(i) Operating leasesPayments made under operating leases are charged to the income statement on a straight-line basis over the term of the lease.

(ii) Finance leasesLeases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases as if the asset had been purchased outright. Assets acquired under finance leases are recognised as assets of the Group and the capital elements of the leasing commitments are shown as obligations in creditors. Depreciation is charged on a consistent basis with similar owned assets or over the lease term if shorter. The interest element of the lease payment is charged to the income statement on a basis which produces a consistent rate of charge over the period of the liability.

Notes to the accounts continued


TaxationThe tax charge comprises current and deferred tax. Income tax expense is recognised in the Income Statement unless it relates to items recognised directly in equity, when it is also recognised in equity. Current tax is the expected tax payable on the profit for the year and any adjustments in respect of previous years using tax rates enacted or substantively enacted at the reporting date. Deferred tax is recognised using the balance sheet liability method, providing for temporary differences arising between the tax base of assets and liabilities, and their carrying amounts in the accounts. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax is provided using rates of tax that have been enacted or substantively enacted at the balance sheet date or the date that the temporary differences are expected to reverse. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Share capitalWhen share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity.

Share options granted to subsidiary employeesThe Parent company grants share options over its own ordinary shares directly to employees of subsidiary companies. These employees provide services to the subsidiary companies. The fair value of the share options granted is recognised as a capital contribution to the subsidiary companies. This is accounted for as an increase in investments with a corresponding increase in a non-distributable component of equity.

2 SEGMENTAL REPORTING

2007 Primary Segment UK & Republic Continental North Asia Rest of Total

Revenue by geographical of Ireland Europe America the world

location of operation £000 £000 £000 £000 £000 £000

Total revenue of operation 117,220 189,876 81,549 79,820 54,086 522,551Intra-divisional revenue (48) (16,631) (881) (620) (846) (19,026)Inter-divisional revenue (58,630) (20,217) (753) (2,267) (4,341) (86,208)

Sales to customers 58,542 153,028 79,915 76,933 48,899 417,317

Profit from operations 13,314 26,223 7,138 16,641 5,020 68,336

Operating profit margin (based on total revenue of operation) 11.4% 13.8% 8.8% 20.8% 9.3% 13.1%

Total operating profit margin (based on total sales to customers) 16.4%

Share of profit of associates - - 668 719 - 1,387

Revenue by geographical location of customers 43,993 153,661 80,800 85,252 53,611 417,317

Segment assets 78,721 105,655 42,750 51,937 34,894 313,957Segment liabilities (24,318) (35,052) (8,055) (7,375) (8,003) (82,803)

231,154Deferred tax 3,352Current tax payable net of tax recoverable (7,372)Net cash (note 30) 15,831

Net assets 242,965

Capital additions, tangible and intangible, by segment 6,502 5,231 1,390 1,883 2,814 17,820Depreciation and amortisation by segment 5,664 4,101 1,948 1,182 1,336 14,231

Secondary Segment Spirax Sarco Watson-Marlow Total Bredel

£000 £000 £000

Revenue by business operation 361,611 55,706 417,317Segment assets 276,015 37,942 313,957Capital additions, tangible and intangible, by segment 15,870 1,950 17,820


2 SEGMENTAL REPORTING (continued)2006 Primary Segment UK & Republic Continental North Asia Rest of Total

Revenue by geographical of Ireland Europe America the world

location of operation £000 £000 £000 £000 £000 £000

Total revenue of operation 107,922 172,382 80,610 72,208 48,273 481,395Intra-divisional revenue (91) (15,455) (891) (554) (247) (17,238)Inter-divisional revenue (53,555) (19,719) (757) (2,043) (3,834) (79,908)

Sales to customers 54,276 137,208 78,962 69,611 44,192 384,249

Profit from operations 10,957 22,435 8,732 15,120 4,697 61,941

Operating profit margin (based on total revenue of operation) 10.2% 13.0% 10.8% 20.9% 9.7% 12.9%

Total operating profit margin (based on total sales to customers) 16.1%

Share of profit of associates - - 554 814 - 1,368

Revenue by geographical location of customers 40,695 138,299 79,956 77,138 48,161 384,249

Segment assets 71,210 94,633 42,874 46,941 29,805 285,463Segment liabilities (27,275) (33,570) (7,667) (6,355) (5,973) (80,840)

204,623Deferred tax 7,352Current tax payable net of tax recoverable (5,699)Net borrowings (note 30) (6,554)

Net assets 199,722

Capital additions, tangible and intangible, by segment 5,166 4,116 2,825 5,481 3,307 20,895Depreciation and amortisation by segment 5,716 3,867 1,821 885 1,075 13,364

Secondary Segment Spirax Sarco Watson-Marlow Total Bredel

£000 £000 £000

Revenue by business operation 332,655 51,594 384,249Segment assets 251,285 34,178 285,463Capital additions, tangible and intangible, by segment 19,363 1,532 20,895

3 OPERATING COSTS 2007 2006 £000 £000

Change in stocks of finished goods and work in progress (1,638) (2,510)Raw materials and consumables 122,363 109,676Staff costs (note 4) 147,815 140,989 Depreciation and amortisation 14,231 13,364Other operating charges 66,210 60,789

348,981 322,308

Amortisation of acquisition-related intangible assets acquired was £384,000 (2006: £350,000) and amortisation of capitalised development costs was £1,086,000 (2006: £994,000).



4 STAFF COSTS AND NUMBERS The aggregate payroll costs of persons employed by the Group were as follows: 2007 2006 £000 £000

Wages and salaries 117,938 111,120 Social security costs 19,269 18,636 Other pension costs 10,608 11,233

147,815 140,989

The average number of persons employed by the Group (including directors) during the year was as follows: 2007 2006 Number Number

United Kingdom 1,172 1,160 Overseas 2,997 2,943

4,169 4,103

5 NET FINANCING INCOME 2007 2006 £000 £000

Financial expensesBank and other borrowing interest payable (1,699) (1,137)Interest on pension scheme liabilities (11,549) (10,585)

(13,248) (11,722)

Financial incomeBank interest receivable 906 1,038Expected return on pension scheme assets 14,782 12,719

15,688 13,757

Net financing income 2,440 2,035

Net pension scheme financial income 3,233 2,134Net bank interest (793) (99)

Net financing income 2,440 2,035

6 PROFIT BEFORE TAXATION Profit before taxation is shown after charging: 2007 2006 £000 £000

Depreciation of tangible fixed assets held under finance leases 138 164Hire of plant and machinery 423 382Other operating leases 2,806 2,837Research and development 4,662 4,833

Auditor's remuneration 2007 2006 £000 £000

Fees payable to the company's auditor for the audit of the company's annual accounts 164 134Fees payable to the company's auditor and its associates for other services:The audit of the company's subsidiaries, pursuant to legislation 838 695Tax services 421 198Services relating to information technology - 2Internal audit services - 40Other services 107 39

1,530 1,108


7 DIRECTORS’ EMOLUMENTSDetails of directors’ emoluments, share plans and long term share incentive plan and pension benefits are shown in the Directors’ Remuneration Report on pages 36 to 43. Directors represent the key management personnel of the Group under the terms of IAS 24: Related Party Disclosures.

8 TAXATION 2007 2006 £000 £000

Analysis of charge in periodUK corporation taxCurrent tax on income for the period 13,850 7,918Adjustments in respect of prior periods (1,057) (207)

12,793 7,711

Double taxation relief (11,871) (7,570)

922 141

Foreign tax Current tax on income for the period 18,291 16,561Adjustments in respect of prior periods 40 (79)

18,331 16,482

Total current tax charge 19,253 16,623Deferred tax - UK 2,775 3,116Deferred tax - Foreign 945 1,539

Tax on profit on ordinary activities 22,973 21,278

Reconciliation of effective tax rate 2007 2006 £000 £000

Profit before tax 72,163 65,344

Tax using the UK corporation tax rate of 30% (2006: 30%) 21,649 19,603Effect of higher overseas tax rates 320 435Associated companies (416) (410)Non-deductible expenditure 1,475 1,064Overprovided in prior years (834) (300)Other reconciling items 779 886

Total tax in income statement 22,973 21,278

Factors that may affect the future tax charges:The Group’s tax charge in future years is likely to be affected by the proportion of profits arising and the effective tax rates in the various territories in which the Group operates. No UK tax (after double tax relief for underlying tax) is expected to be payable on the future remittance of the retained earnings of overseas subsidiaries. The impact of higher tax rates on overseas earnings has reduced due to a change in the profit mix and partly due to a decrease in global tax rates.

Taxation recognised directly in equity 2007 2006 £000 £000

Relating to:Equity settled transactions 401 230On actuarial gains and losses 279 1,142

680 1,372



9 PROFIT FOR THE FINANCIAL YEAR ATTRIBUTABLE TO SHAREHOLDERSProfit dealt with in the accounts of Spirax-Sarco Engineering plc was £4,935,000 (2006: £19,090,000). Included in this amount are dividends from subsidiary undertakings of £6.500,000 (2006: £22,669,000).

10 EARNINGS PER SHARE 2007 2006 £000 £000

Profit attributable to equity holders of the parent 49,101 43,919

Weighted average shares in issue 75,889,850 76,161,612Dilution 365,911 733,050

Diluted weighted average shares in issue 76,255,761 76,894,662

Basic earnings per share 64.7p 57.7p

Diluted earnings per share 64.4p 57.1p

Adjusted profit attributable to equity holders of the parent 49,734 44,269

Basic adjusted earnings per share 65.5p 58.1p

The dilution is in respect of unexercised share options and the performance share plan.

11 DIVIDENDS 2007 2006 £000 £000

Amounts paid in the yearFinal dividend for the year ended 31st December 2006 of 19.0p (2005: 17.0p) per share 14,413 13,047Interim dividend for the year ended 31st December 2007 of 8.3p (2006: 7.5p) per share 6,315 5,668

20,728 18,715

Amounts arising in respect of the yearInterim dividend for the year ended 31st December 2007 of 8.3p (2006: 7.5p) per share 6,315 5,668Proposed final dividend for the year ended 31st December 2007 of 21.6p (2006: 19.0p) per share 16,439 14,370

22,754 20,038

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these accounts.


12 PROPERTY, PLANT AND EQUIPMENT THE GROUP Land and buildings Fixtures, fittings, Short Plant and tools and Freehold leasehold machinery equipment Total £000 £000 £000 £000 £000 Cost or deemed cost: At 1st January 2006 51,918 1,076 92,567 46,286 191,847Exchange adjustments (1,838) (98) (2,701) (1,649) (6,286) 50,080 978 89,866 44,637 185,561Additions 5,169 24 9,049 3,265 17,507Disposals (84) (30) (3,750) (1,172) (5,036)At 31st December 2006 55,165 972 95,165 46,730 198,032Depreciation: At 1st January 2006 9,719 309 59,312 36,755 106,095 Exchange adjustments (381) (32) (1,441) (1,237) (3,091) 9,338 277 57,871 35,518 103,004Charged in year 1,003 26 6,906 3,014 10,949Disposals (21) (27) (3,535) (1,140) (4,723)At 31st December 2006 10,320 276 61,242 37,392 109,230Net book value: At 31st December 2006 44,845 696 33,923 9,338 88,802At 1st January 2006 42,199 767 33,255 9,531 85,752Cost or deemed cost: At 1st January 2007 55,165 972 95,165 46,730 198,032Exchange adjustments 2,190 47 2,580 1,102 5,919 57,355 1,019 97,745 47,832 203,951Additions 3,305 236 7,491 3,250 14,282Disposals (93) (89) (2,392) (2,416) (4,990)At 31st December 2007 60,567 1,166 102,844 48,666 213,243Depreciation: At 1st January 2007 10,320 276 61,242 37,392 109,230 Exchange adjustments 450 12 1,443 881 2,786 10,770 288 62,685 38,273 112,016Charged in year 1,103 39 7,687 2,919 11,748Disposals (40) (80) (2,028) (2,306) (4,454)At 31st December 2007 11,833 247 68,344 38,886 119,310Net book value: At 31st December 2007 48,734 919 34,500 9,780 93,933

Included in the above are finance leases with a net book value of £1,413,000 (2006: £1,438,000).

13 GOODWILL AND OTHER INTANGIBLE ASSETS THE GROUP Acquired Software and Total intangibles Development other intangibles intangibles Goodwill £000 £000 £000 £000 £000Cost or valuation:At 1st January 2006 2,250 4,812 12,311 19,373 15,033Exchange adjustments (284) (33) (243) (560) (906) 1,966 4,779 12,068 18,813 14,128Additions 763 979 1,646 3,388 3,413Disposals - - (45) (45) -At 31st December 2006 2,729 5,758 13,669 22,156 17,541Amortisation: At 1st January 2006 182 2,084 8,750 11,016 - Exchange adjustments (22) (9) (165) (196) - 160 2,075 8,585 10,820 -Charged in year 330 990 1,202 2,522 -Disposals - - (52) (52) -At 31st December 2006 490 3,065 9,735 13,290 -Net book value: At 31st December 2006 2,239 2,693 3,934 8,866 17,541At 1st January 2006 2,068 2,728 3,561 8,357 15,033



THE GROUP Acquired Software and Total intangibles Development other intangibles intangibles Goodwill £000 £000 £000 £000 £000 Cost or valuation:At 1st January 2007 2,729 5,758 13,669 22,156 17,541Exchange adjustments 46 80 473 599 709 2,775 5,838 14,142 22,755 18,250Additions 160 1,608 1,770 3,538 447Disposals - (6) (202) (208) -At 31st December 2007 2,935 7,440 15,710 26,085 18,697Amortisation: At 1st January 2007 490 3,065 9,735 13,290 - Exchange adjustments 19 46 376 441 - 509 3,111 10,111 13,731 -Charged in year 394 1,101 1,399 2,894 -Disposals - (3) (200) (203) -At 31st December 2007 903 4,209 11,310 16,422 -Net book value: At 31st December 2007 2,032 3,231 4,400 9,663 18,697

ImpairmentThere was no impairment of goodwill during 2007.

For the purposes of impairment testing of goodwill, goodwill values have been compared against discounted forecast cash flows of the relevant cash-generating unit on a value in use basis. The forecasts include profit before tax increases based on appropriate growth rate assumptions and the corresponding post tax cash flows. A discount rate of 10% has been applied to the calculations.

The carrying amounts of goodwill allocated to cash-generating units are as follows: 2007 2006 £000 £000 Spirax UltraPure, LLC, USA 2,746 2,464M & M product unit 2,696 2,478Spirax Sarco, Inc. USA 2,526 2,566Alitea product unit 2,281 2,193UK Supply product unit 1,745 1,604Spirax-Sarco S.A.S. France 1,174 1,080Watson-Marlow Bredel, South Africa 1,104 1,088Mitech product unit 968 943Other cash-generating units 3,457 3,125 18,697 17,541

14 LOANS TO SUBSIDIARIES PARENT COMPANY 2007 2006 £000 £000 Cost: At 1st January 36,434 14,871Exchange adjustments 109 (459) 36,543 14,412Loans (19,488) 22,022At 31st December 17,055 36,434

Amounts written off: At 1st January and 31st December 1,042 1,042Net book value: At 31st December 16,013 35,392


15 INVESTMENT IN SUBSIDIARIES PARENT COMPANY 2007 2006 £000 £000

Cost: At 1st January 47,383 48,305Transfer - (1,839)Share options issued to subsidiary company employees 666 917

At 31st December 48,049 47,383

Amounts written off: At 1st January and 31st December 994 994

Net book value: At 31st December 47,055 46,389

Investments are stated at cost less provisions for any impairment in value.

Details relating to subsidiary undertakings are given on the back cover. Except where stated all classes of shares were 100% owned by the Group at 31st December 2007. The country of incorporation of the principal Group companies is the same as the country of operation with the exception of companies operating in the United Kingdom which are incorporated in Great Britain. Eirdata Environmental Services Ltd. is incorporated in Eire. All are in the fluid control business except Spirax-Sarco Investments Ltd., Spirax-Sarco Overseas Ltd., Sarco International Corp., Watson-Marlow Bredel Holdings B.V., Spirax-Sarco Engineering S.L., Spirax-Sarco Engineering B.V. and Spirax-Sarco Investments B.V. which are investment holding companies.

16 INVESTMENT IN ASSOCIATES THE GROUP 2007 2006 £000 £000

Cost of investment 5,212 645Share of total equity 2,725 3,145

7,937 3,790

Summarised aggregated financial information (total business)

Revenue 17,816 15,080Profit for the period 3,194 3,164Assets 11,792 11,776Liabilities 4,403 2,909

Details of the Group’s associates at 31st December 2007 are as follows:Name of associate Country of Proportion of Principal incorporation ownership activity and operation interest and voting power held

Spirax-Marshall Ltd. India 49.3% Manufacturing and SellingSpirax-Sarco Mexicana S.A. Mexico 49.0% Manufacturing and Selling

On 4th April 2007 Spirax-Marshall Ltd. in India completed a buy-back and cancellation of 179,064 shares for consideration of £4,100,000. This took the Group's shareholding from 40% to 49.3%. To reflect Spirax Sarco's accounting policies intangibles have now been recognised in the cost of investment for the total 49.3% share at a valuation of £3,504,000. The cost of investment also includes goodwill of £843,000 and expenses of £220,000 on the additional 9.3% acquired. Amortisation of intangibles of £249,000 was charged in the year.



17 DEFERRED TAX ASSETS AND LIABILITIESRecognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following: THE GROUP Assets Liabilities Net 2007 2006 2007 2006 2007 2006

£000 £000 £000 £000 £000 £000

Accelerated capital allowances 142 11 (2,853) (3,695) (2,711) (3,684)Provisions 4,651 4,204 (44) (1,188) 4,607 3,016Losses 810 475 - (1) 810 474Inventory 359 170 (1,567) (1,211) (1,208) (1,041)Pensions 7,109 9,836 (4,311) (2,540) 2,798 7,296Other temporary differences 6,418 3,540 (7,362) (2,249) (944) 1,291

Tax assets/(liabilities) 19,489 18,236 (16,137) (10,884) 3,352 7,352Net off (liabilities)/assets (7,830) (4,498) 7,830 4,498 - -

Net tax assets/(liabilities) 11,659 13,738 (8,307) (6,386) 3,352 7,352

Movement in deferred tax during the year

2006 THE GROUP 1 January Recognised Recognised 31 December 2006 in income in equity 2006

£000 £000 £000 £000

Accelerated capital allowances (3,698) (175) 189 (3,684)Provisions 4,001 (1,003) 18 3,016Losses 354 174 (54) 474Inventory (1,087) (98) 144 (1,041)Pensions 11,489 (4,744) 551 7,296Other temporary differences (251) 1,191 351 1,291 10,808 (4,655) 1,199 7,352

2007 THE GROUP 1 January Recognised Recognised 31 December 2007 in income in equity 2007

£000 £000 £000 £000

Accelerated capital allowances (3,684) 1,528 (555) (2,711)Provisions 3,016 1,443 148 4,607Losses 474 (551) 887 810Inventory (1,041) (104) (63) (1,208)Pensions 7,296 (4,520) 22 2,798Other temporary differences 1,291 (1,516) (719) (944) 7,352 (3,720) (280) 3,352

Movement in deferred tax during the year

2006 PARENT COMPANY 1 January Recognised Recognised 31 December 2006 in income in equity 2006

£000 £000 £000 £000

Pensions 2,624 (2,294) (330) -Other temporary differences 632 164 (33) 763 3,256 (2,130) (363) 763

2007 PARENT COMPANY 1 January Recognised Recognised 31 December 2007 in income in equity 2007

£000 £000 £000 £000

Pensions - - - -Other temporary differences 763 (131) (199) 433 763 (131) (199) 433


18 INVENTORIES THE GROUP 2007 2006 £000 £000

Raw materials and consumables 27,680 25,098Work in progress 12,179 11,393Finished goods and goods for resale 33,965 31,216

73,824 67,707

19 OTHER CURRENT ASSETS THE GROUP PARENT COMPANY

2007 2006 2007 2006 £000 £000 £000 £000

Other receivables 5,873 4,663 148 138 Prepayments and accrued income 3,882 3,719 44 224

9,755 8,382 192 362

20 TRADE AND OTHER PAYABLES THE GROUP PARENT COMPANY

2007 2006 2007 2006 £000 £000 £000 £000

Trade payables 22,255 19,928 - -Bills of exchange payable 1,207 1,188 - - Social security 3,255 2,807 - -Other payables 13,554 10,651 432 432 Accruals 18,561 15,798 1,294 845

58,832 50,372 1,726 1,277

21 CURRENT TAX PAYABLE THE GROUP PARENT COMPANY

2007 2006 2007 2006 £000 £000 £000 £000

UK Corporation tax 2,284 762 1,120 726Foreign tax payable 6,037 6,683 - -

8,321 7,445 1,120 726

22 OBLIGATIONS UNDER FINANCE LEASES THE GROUP

Minimum Present value lease payments lease payments

2007 2006 2007 2006 £000 £000 £000 £000

Amount payableWithin 1 year 73 52 54 331-5 years inclusive 220 192 178 143After 5 years 68 109 66 102

361 353 298 278Add future finance charges 63 75

Minimum lease payments 361 353 361 353

Less: Due for settlement in <1 year 54 33

Due for settlement in >1 year 307 320



23 PROVISIONS THE GROUP

Warranty and other provisions 2007 2006 £000 £000

Provisions at 1st January 876 747Exchange adjustments 32 (4)

908 743Net charge for the year 435 133

Provisions at 31st December 1,343 876

24 CALLED UP SHARE CAPITAL THE GROUP PARENT COMPANY

2007 2006 2007 2006 £000 £000 £000 £000

Ordinary shares of 25p each: Authorised 120,000,000 30,000 30,000 30,000 30,000Allotted, called up and fully paid 77,194,904 19,299 19,296 19,299 19,296

10,000 ordinary shares, having an aggregate nominal value of £2,500, were issued during the year pursuant to the Spirax-Sarco Engineering Share Option Schemes for a consideration of £41,525 received by the Company.

At 31st December 1,092,115 treasury shares were available for use in connection with the Group's Employee Share Schemes.

Directors and 112 other senior employees and former employees of the Group have been granted options to purchase 1,594,207 ordinary shares with an aggregate nominal value of £398,552 (Note 29).

25 SHARE CAPITAL AND RESERVES

THE GROUP

Share Cash flow Capital Share premium Translation hedge redemption Retained Total capital account reserve reserve reserve earnings equity £000 £000 £000 £000 £000 £000 £000

Balance at 1st January 2006 19,238 46,154 5,774 (52) 1,832 124,672 197,618Total recognised income and expense - - (9,574) 170 - 42,122 32,718Dividends paid - - - - - (18,715) (18,715)Equity settled share plans net of tax - - - - - 1,142 1,142Proceeds from issue of share capital 58 1,074 - - - - 1,132Treasury shares purchased - - - - - (18,082) (18,082)Treasury shares reissued - - - - - 3,777 3,777Loss on the reissue of treasury shares - - - - - (1,081) (1,081)

Balance at 31st December 2006 19,296 47,228 (3,800) 118 1,832 133,835 198,509


25 SHARE CAPITAL AND RESERVES (continued)

Share Cash flow Capital Share premium Translation hedge redemption Retained Total capital account reserve reserve reserve earnings equity £000 £000 £000 £000 £000 £000 £000

Balance at 1st January 2007 19,296 47,228 (3,800) 118 1,832 133,835 198,509Total recognised income and expense - - 7,650 (81) - 48,503 56,072Dividends paid - - - - - (20,728) (20,728)Increased investment in associated company - - - - - 2,946 2,946Equity settled share plans net of tax - - - - - 2,195 2,195Proceeds from issue of share capital 3 39 - - - - 42Treasury shares reissued - - - - - 5,457 5,457Loss on the reissue of treasury shares - - - - - (2,342) (2,342)

Balance at 31st December 2007 19,299 47,267 3,850 37 1,832 169,866 242,151

PARENT COMPANY

Share Share Cash flow Capital Share premium based hedge redemption Retained Total capital account payments reserve reserve earnings equity £000 £000 £000 £000 £000 £000 £000

Balance at 1st January 2006 19,238 46,154 - - 1,832 50,404 117,628Total recognised income and expense - - - - - 17,959 17,959Dividends paid - - - - - (18,715) (18,715)Equity settled share plans net of tax - - - - - 320 320Proceeds from issue of share capital 58 1,074 - - - - 1132Treasury shares purchased - - - - - (18,082) (18,082)Treasury shares reissued - - - - - 3,777 3,777Loss on the reissue of treasury shares - - - - - (1,081) (1,081)Investment in subsidiaries in relation to share options granted - - 917 - - - 917

Balance at 31st December 2006 19,296 47,228 917 - 1,832 34,582 103,855

Share Share Share Cash flow Capital Retained Total capital premium based hedge redemption earnings equity account payments reserve reserve £000 £000 £000 £000 £000 £000 £000

Balance at 1st January 2007 19,296 47,228 917 - 1,832 34,582 103,855Total recognised income and expense - - - - - 4,668 4,668Dividends paid - - - - - (20,728) (20,728)Equity settled share plans net of tax - - - - - 421 421Proceeds from issue of share capital 3 39 - - - - 42Treasury shares reissued - - - - - 5,457 5,457Loss on the reissue of treasury shares - - - - - (2,342) (2,342)Investment in subsidiaries in relation to share options granted - - 666 - - - 666

Balance at 31st December 2007 19,299 47,267 1,583 - 1,832 22,058 92,039



26 RETURN ON CAPITAL EMPLOYED THE GROUP 2007 2006 £000 £000

Capital employed Property, plant and equipment 93,933 88,802Prepayments 986 352Inventories 73,824 67,707Trade receivables 98,067 90,023Other current assets 9,755 8,382Tax recoverable 949 1,746Trade and other payables (58,832) (50,372)Current tax payable (8,321) (7,445)

Capital employed 210,361 199,195

Average capital employed 204,778 193,691

Operating profit 68,336 61,941Acquisition intangibles amortisation 384 350

68,720 62,291

Return on capital employed 33.6% 32.2%

27 CAPITAL COMMITMENTS THE GROUP PARENT COMPANY

2007 2006 2007 2006 £000 £000 £000 £000

Capital expenditure contracted for but not provided 2,997 286 - -

28 OPERATING LEASE OBLIGATIONS THE GROUP 2007 2006 £000 £000

Commitments under non-cancellable leases due as follows: Within 1 year 2,098 1,630 1-5 years inclusive 3,122 3,407 After 5 years 10 14

5,230 5,051

29 EMPLOYEE BENEFITSPension plans - The Group

The Group is accounting for pension costs in accordance with International Accounting Standard 19.

The disclosures shown here are in respect of the Group’s Defined Benefit Obligations. Other plans operated by the Group were either Defined Contribution plans or were deemed immaterial for the purposes of IAS 19 reporting.

The total expense relating to the Group’s Defined Contribution pension plans in the current year was £2,850,000 (2006 £2,749,000).

Of the Defined Benefit plans, the plans in the UK and USA hold most of the liability. The post-retirement mortality assumptions in respect of these plans may therefore be considered material. The UK schemes assume that post-retirement mortality follows the PM/FA92c2012 table. The figures disclosed assume that a male member will survive 19 years from age 65 and a female member for 22 years. These figures reflect a change from the mortality assumptions used at the last formal actuarial valuation following the generally recognised trend of increased longevity. The USA schemes use the 1983 Group Annuitant Mortality (GAM) table. These assumptions will be regularly reviewed in light of scheme specific experience and more widely available statistics.


29 EMPLOYEE BENEFITS (continued)

The financial assumptions used at 31st December were: Assumptions weighted by value of liabilities % per annum

UK pensions Overseas pensions and medical 2007 2006 2007 2006

Rate of increase in salaries 4.4 3.9 3.6 3.5Rate of increase in pensions 3.3 2.9 1.8 1.8Rate of price inflation 3.3 2.9 2.6 2.6Discount rate 5.9 5.1 5.9 5.3Medical trend rate 5.0 5.0

The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions, which, due to the timescale covered, may not necessarily be borne out in practice.

Assumptions weighted by value of assets % per annum

UK pensions Overseas pensions and medical 2007 2006 2007 2006

Expected rate of return on assets (weighted average) 7.3 7.2 6.7 7.2Equities 8.1 7.9 8.0 8.3Bonds 4.5 4.8 4.3 5.1Other 5.2 5.8 4.7 4.7

The market value of the schemes’ assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, at 31st December 2007 were: UK pensions Overseas pensions Total and medical 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000

Equities 138,805 132,459 14,142 15,024 152,947 147,483Bonds 31,173 27,640 6,569 4,984 37,742 32,624 Other 14,610 16,227 3,221 2,348 17,831 18,575

Total market value in aggregate 184,588 176,326 23,932 22,356 208,520 198,682

The actual return on plan assets was £3.7 million (2006 £15.3 million). The effect of an increase of one percentage point and the effect of a decrease of one percentage point in the assumed medical trend rates is as follows: Overseas Total 1% 1% 1% 1% increase decrease increase decrease £000 £000 £000 £000

Aggregate of service cost & interest cost components of post-retirement medical plans 4 (3) 4 (3)Accumulated post-employment benefit obligation for medical costs 18 (15) 18 (15)



The amounts recognised in the consolidated balance sheet are determined as follows:

UK pensions Overseas pensions Total and medical 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000

Fair value of schemes’ assets 184,588 176,326 23,932 22,356 208,520 198,682 Present value of funded schemes’ liabilities (192,612) (191,980) (25,591) (24,104) (218,203) (216,084)

(Deficit) in the funded schemes (8,024) (15,654) (1,659) (1,748) (9,683) (17,402)Present value of unfunded schemes’ liabilities - - (11,850) (12,190) (11,850) (12,190)

Retirement benefit liability recognised in the balance sheet (8,024) (15,654) (13,509) (13,938) (21,533) (29,592)Related deferred tax asset 2,247 4,696 4,573 4,695 6,820 9,391

Net pension liability (5,777) (10,958) (8,936) (9,243) (14,713) (20,201)

The movements in the Defined Benefit Obligation (“DBO”) recognised in the balance sheet during the year were: UK pensions Overseas pensions Total and medical 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000

Defined benefit obligation at beginning of year (191,980) (178,600) (36,294) (38,555) (228,274) (217,155)Current service cost (6,540) (6,491) (1,377) (1,633) (7,917) (8,124)Past service cost - (375) - - - (375)Interest cost (9,660) (8,715) (1,952) (1,785) (11,612) (10,500)Contributions by members (98) (101) (69) (44) (167) (145) Actuarial gain/(loss) 16,708 (5,431) 1,362 (408) 18,070 (5,839)Actual benefit payments 5,871 7,252 1,905 2,934 7,776 10,186 Settlement, curtailment - - 115 - 115 - Experience gain/(loss) (6,913) 481 - - (6,913) 481 Currency gain/(loss) - - (1,131) 3,197 (1,131) 3,197

Defined benefit obligation at end of year (192,612) (191,980) (37,441) (36,294) (230,053) (228,274)

The movements in the fair value of plan assets during the year were: UK pensions Overseas pensions Total and medical 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000

Value of assets at beginning of year 176,326 152,300 22,356 19,048 198,682 171,348 Expected return on assets 13,087 11,216 1,726 1,415 14,813 12,631 Actuarial gain/(loss) (10,257) 2,041 (838) 622 (11,095) 2,663 Contributions paid by employer 11,205 17,920 2,279 6,316 13,484 24,236 Contributions paid by members 98 101 69 44 167 145 Actual benefit payments (5,871) (7,252) (1,905) (2,934) (7,776) (10,186)Settlement, curtailment - - - - - -Currency gain/(loss) - - 245 (2,155) 245 (2,155)

Value of assets at end of year 184,588 176,326 23,932 22,356 208,520 198,682

The estimated employer contributions to be made in 2008 are £6,520,000.



The history of experience adjustments is as follows: 2007 2006 2005 2004 £000 £000 £000 £000

Defined benefit obligation at end of year (230,053) (228,274) (217,155) (180,702)

Fair value of schemes’ assets 208,520 198,682 171,348 139,367

Retirement benefit liability recognised in the balance sheet (21,533) (29,592) (45,807) (41,335)

Experience adjustment on schemes' liabilities (6,913) 481 411 6,589

As a percentage of schemes’ liabilities 3.0% 0.2% 0.2% 3.6%

Experience adjustment on schemes’ assets (11,095) 2,663 14,330 3,641

As a percentage of schemes’ assets 5.3% 1.3% 8.4% 2.6%

The expense recognised in the income statement was as follows: UK pensions Overseas pensions Total and medical 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000

Current service cost (6,540) (6,491) (1,333) (1,699) (7,873) (8,190)Past service cost - (375) - - - (375)Settlement curtailment and termination benefits - - 115 - 115 - Interest on schemes’ liabilities (9,660) (8,715) (1,889) (1,870) (11,549) (10,585)Expected return on schemes’ assets 13,087 11,216 1,695 1,503 14,782 12,719

Total expense recognised in income statement (3,113) (4,365) (1,412) (2,066) (4,525) (6,431)

The expense is recognised in the following line items in the income statement:

2007 2006 £000 £000

Operating costs (7,758) (8,565)Financial expenses (11,549) (10,585)Financial income 14,782 12,719

Total expense recognised in income statement (4,525) (6,431)

Statement of recognised income and expense (SORIE) UK pensions Overseas pensions Total and medical 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000

Actuarial loss recognised in SORIE (462) (2,861) (415) (78) (877) (2,939)

Deferred tax on actuarial amount recognised in SORIE 129 858 150 284 279 1,142

Cumulative loss recognised in SORIE at beginning of year (3,433) (1,430) (1,467) (1,673) (4,900) (3,103)

Cumulative loss recognised in SORIE at end of year (3,766) (3,433) (1,732) (1,467) (5,498) (4,900)

Pension plans - Parent company

The parent company is accounting for pension costs in accordance with International Accounting Standard 19.

The disclosures shown here are in respect of the parent company’s Defined Benefit Obligations. Other plans operated by the parent company were Defined Contribution plans.

The total expense relating to the parent company’s Defined Contribution pension plans in the current year was £3,070 (2006 £2,987).



The post-retirement mortality assumptions in respect of the parent company Defined Benefit Scheme follows the PM/FA92c2012 table. The figures disclosed assume that a male member will survive 19 years from age 65 and a female member for 22 years. These figures reflect a change from the mortality assumptions used at the last formal actuarial valuation following the generally recognised trend of increased longevity. These assumptions will be regularly reviewed in light of scheme specific experience and more widely available statistics.

The financial assumptions used at 31st December were: Assumptions weighted by value of liabilities % per annum

UK pensions 2007 2006

Rate of increase in salaries 4.8 4.4Rate of increase in pensions 3.3 2.9Rate of price inflation 3.3 2.9Discount rate 5.9 5.1

The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions, which, due to the timescale covered, may not necessarily be borne out in practice.

Assumptions weighted by value of liabilities % per annum

UK pensions 2007 2006

Expected rate of return on assets (weighted average) 7.3 7.2Equities 8.1 7.9Bonds 4.5 4.8Other 5.2 5.8

The market value of the schemes’ assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, at 31st December 2007 were: UK pensions 2007 2006 £000 £000

Equities 30,683 28,987Bonds 6,931 6,442Other 3,624 2,794

Total market value in aggregate 41,238 38,223

The actual return on plan assets was £0.6 million (2006 £3.0 million).

The amounts recognised in the consolidated balance sheet are determined as follows: UK pensions 2007 2006 £000 £000

Fair value of schemes’ assets 41,238 38,223Present value of funded schemes’ liabilities (40,700) (41,319)

Retirement benefit asset/(liability) recognised in the balance sheet 538 (3,096)Related deferred tax - -

Net pension asset/(liability) 538 (3,096)



The movements in the Defined Benefit Obligation ("DBO") recognised in the balance sheet during the year were: UK pensions 2007 2006 £000 £000

Defined benefit obligation at beginning of year (41,319) (40,300)Current service cost (1,100) (1,024)Past service costs - (375)Interest cost (2,069) (1,954)Change in assumptions on DBO 2,300 (1,374)Actual benefit payments 1,520 3,593 Experience (loss)/gain (32) 115

Defined benefit obligation at end of year (40,700) (41,319) The movements in the fair value of plan assets during the year were: UK pensions 2007 2006 £000 £000

Value of assets at beginning of year 38,223 34,500Expected return on assets 2,956 2,533Actuarial (loss)/gain (2,366) 459Contributions paid by employer 3,945 4,324Actual benefit payments (1,520) (3,593)

Value of assets at end of year 41,238 38,223 The estimated employer contributions to be made in 2008 are £800,000.

The history of experience adjustments is as follows: 2007 2006 2005 2004 £000 £000 £000 £000

Defined benefit obligation at end of year (40,700) (41,319) (40,300) (33,700)

Fair value of schemes’ assets 41,238 38,223 34,500 28,300

Retirement benefit asset/(liability) recognised in the balance sheet 538 (3,096) (5,800) (5,400)

Experience adjustment on schemes' liabilities (32) 115 (1,400) 1,000

As a percentage of schemes’ liabilities 0.1% 0.3% 3.5% 3.0%

Experience adjustment on schemes’ assets (2,366) 459 3,100 800

As a percentage of schemes’ assets 5.7% 1.2% 9.0% 2.8% The expense recognised in the income statement was as follows: UK pensions 2007 2006 £000 £000

Current service cost (1,100) (1,024)Past service cost - (375)Interest on schemes’ liabilities (2,069) (1,954)Expected return on schemes’ assets 2,956 2,533

Total expense recognised in income statement (213) (820) Statement of recognised income and expense (SORIE) UK pensions 2007 2006 £000 £000

Actuarial loss recognised in SORIE (98) (800)

Deferred tax on actuarial amount recognised in SORIE - (330)

Cumulative loss recognised in SORIE at beginning of year (1,816) (686)

Cumulative loss recognised in SORIE at end of year (1,914) (1,816)



Share-based payments - The GroupDisclosures of the share-based payments offered to employees are set out below. More detail on each scheme is given in the Directors' Remuneration report on pages 36 to 43. The charge to the income statement in respect of share-based payments is made up as follows.

2007 2006 £000 £000

Share Option Scheme 695 495Performance Share Plan 468 290Employee Share Ownership Plan 631 579

Total expense recognised in income statement 1,794 1,364

a) Share Option SchemeThe Group operates equity settled share option schemes for employees. Awards are determined by the Remuneration Committee whose objective is to align the interests of employees with those of shareholders by giving an incentive linked to added shareholder value. Options are subject to performance conditions, which if met make the options exercisable between the third and tenth anniversary of the date of grant. For options granted from 1995 to 2001 the performance condition is an increase in EPS of more than 6% greater than the increase in the UK retail prices index over a consecutive three year period between grant and exercise. From and including the 2002 options the increase in EPS was revised to 9% greater than the increase in the UK retail price index over a three year consecutive period and from 2006 the performance condition needs to be met over the three year period from 1st January prior to the date of the grant. If the condition is not met at the end of the three year period the option will lapse.

The share options granted have been measured by Watson Wyatt LLP, Actuaries and Consultants, using the Present Economic Value (“PEV”) valuation methodology. The relevant disclosures in respect of the share option scheme grants are set out below. 2003 2004 2005 2006 2007 Grant Grant Grant Grant Grant

Grant date 14th March 25th March 21st April 24th March 26th MarchExercise price 394.5p 541.9p 686.0p 960.0p 1019.6pNumber of employees 70 74 66 67 67Shares under option 411,000 410,500 359,600 340,600 337,400Vesting period 3 years 3 years 3 years 3 years 3 years Expected volatility 25% 25% 20% 20% 20%Risk-free interest rate 4.2% 4.6% 4.6% 4.4% 5.1%Expected dividend yield 4.5% 4.5% 4.0% 2.5% 2.5%Fair value 65.0p 88.4p 121.5p 209.3p 236.8p

The number and weighted average exercise prices of share options are as follows:Option (exercise price) Outstanding at Granted Exercised Lapsed Outstanding at start of year during year during year during year end of year

1997 grant (669p) 33,278 (33,278) -1998 grant (420p) 14,000 (7,500) 6,5001999 grant (525p) 60,000 (5,000) 55,0002000 grant (319.2p) 49,000 (2,500) 46,5002001 grant (397.7p) 71,000 (3,500) 67,5002002 grant (436p) 84,000 (8,000) 76,0002003 grant (394.5p) 220,330 (70,106) 150,2242004 grant (541.9p) 401,000 (209,717) (5,000) 191,2832005 grant (686p) 354,700 (16,800) 337,9002006 grant (960p) 335,000 (9,100) 325,9002007 grant (1019.6p) 337,400 337,400

1,622,308 337,400 (339,601) (25,900) 1,594,207

Weighted average exercise price £6.22 £10.20 £5.15 £7.82 £7.26

Weighted average contractual life remaining 6.89 years

Performance conditions in respect of all exercisable shares have been met.



b) Performance Share PlanAwards under the Performance Share Plan are made to executive directors and take the form of contingent rights to acquire shares, subject to the satisfaction of a performance target. To the extent that they vest, awards may be satisfied in cash or in shares. The performance target is based on the Company's total shareholder return ("TSR") relative to the TSR of other companies included in the FTSE All-Share Industrial Engineering Sector over a three year performance period where awards will vest on a sliding scale. All shares within an award will vest if the Company's TSR is at or above the upper quartile. 25% will vest if the TSR is at the median and the number of shares that will vest will be calculated pro-rata on a straight line basis between 25% and 100% if the Company's TSR falls between the median and the upper quartile. No shares will vest if the Company's TSR is below the median.

Shares awarded under the Performance Share Plan have been valued by Towers Perrin using the Monte Carlo simulation valuation methodology. The relevant disclosures in respect of the Performance Share Plan grants are set out below. 2005 2006 2007 2007 Grant Grant Grant Grant

Grant date 20th May 24th March 26th March 10th SeptemberMid market share price at grant date 708.5p 960.0p 1019.6p 975.0p Number of employees 7 7 7 1Shares under scheme 115,168 92,567 93,200 17,538Vesting period 3 years 3 years 3 years 3 yearsProbability of vesting 51% 51% 48% 47%Probability of ceasing employment before vesting zero zero zero zeroFair value 361.3p 489.6p 489.4p 458.3p

c) Employee Share Ownership PlanUK employees are eligible to participate in the Employee Share Ownership Plan (“ESOP”). The aim of the Plan is to encourage increased shareholding in the Company by all UK employees and so there are no performance conditions. Employees are invited to join the Plan when an offer is made each year. Individuals save for 12 months during the accumulation period and subscribe for shares at the lower of the price at the beginning and the end of the accumulation period under Inland Revenue rules. The Company provides a matching share for each share purchased by the individual.

Shares issued under the Employee Share Ownership Scheme have been measured by Watson Wyatt LLP, Actuaries and Consultants, using the Present Economic Value (“PEV”) valuation methodology. The relevant disclosures in respect of the Employee Share Ownership Plans are set out below. 2003 2004 2005 2006 2007* ESOP ESOP ESOP ESOP ESOPGrant date 1st October 1st October 1st October 1st October 1st October Exercise price 548.2p 599.0p 785.7p 923.3p 1019.3pNumber of employees 761 810 847 910 946Shares under scheme 84,993 86,241 70,227 67,380 66,525Vesting period 3 years 3 years 3 years 3 years 3 yearsExpected volatility 25.0% 20.0% 20.0% 20.0% 20.0%Risk free interest rate 4.0% 4.6% 4.3% 5.0% 5.2%Expected dividend yield 4.5% 4.0% 3.0% 2.5% 2.5%Fair value 574.0p 622.0p 827.3p 982.4p 1086.6p* The accumulation period for the 2007 ESOP ends in September 2008, therefore some figures are projections

Share-based payments - Parent CompanyDisclosures of the share-based payments offered to employees of the parent company are set out below. The description and operation of each scheme is the same as outlined in the Group disclosure set out above.

a) Share Option SchemeThe equity settled share options issued to employees of the parent company are charged in the parent company’s income statement. The relevant disclosures in respect of the share option scheme grants are set out below. 2003 2004 2005 2006 2007 Grant Grant Grant Grant Grant

Grant date 14th March 25th March 21st April 24th March 26th MarchExercise price 394.5p 541.9p 686.0p 960.0p 1019.6pNumber of employees 7 8 2 2 2Shares under option 133,000 137,753 8,400 9,500 8,500Vesting period 3 years 3 years 3 years 3 years 3 years Expected volatility 25% 25% 20% 20% 20%Risk-free interest rate 4.2% 4.6% 4.6% 4.4% 5.1%Expected dividend yield 4.5% 4.5% 4.0% 2.5% 2.5%Fair value 65.0p 88.4p 121.5p 209.3p 236.8p



The number and weighted average exercise prices of share options are as follows:Option (exercise price) Outstanding at Granted Exercised Lapsed Outstanding at start of year during year during year during year end of year

1997 grant (669p) 15,000 (15,000) 1999 grant (525p) 40,000 40,0002000 grant (319.2p) 25,000 25,0002001 grant (397.7p) 35,000 35,0002002 grant (436p) 47,500 47,5002003 grant (394.5p) 90,000 90,0002004 grant (541.9p) 137,753 (43,500) 94,2532005 grant (686p) 8,400 8,4002006 grant (960p) 9,500 (3,500) 6,0002007 grant (1019.6p) 8,500 8,500

408,153 8,500 (58,500) (3,500) 354,653Weighted average exercise price £4.87 £10.20 £5.74 £9.60 £4.80

Weighted average contractual life remaining 4.75 years

Performance conditions in respect of all exercisable shares have been met.

b) Performance Share PlanThe relevant disclosures in respect of the Performance Share Plan grants are set out below. 2005 2006 2007 2007 Grant Grant Grant Grant

Grant date 20th May 24th March 26th March 10th SeptemberMid market share price at grant date 708.5p 960.0p 1019.6p 975.0p Number of employees 7 7 7 1Shares under scheme 115,168 92,567 93,200 17,538Vesting period 3 years 3 years 3 years 3 yearsProbability of vesting 51% 51% 48% 47%Probability of ceasing employment before vesting zero zero zero zeroFair value 361.3p 489.6p 489.4p 458.3p

30 ANALYSIS OF CHANGES IN NET CASH THE GROUP At 1st January Exchange At 31st December 2007 Cash flow movement 2007 £000 £000 £000 £000

Current portion of long term borrowings (4,669) (7,606) (78)Non-current portion of long term borrowings (14,050) (29,765) (20,231)Short term borrowings (5,934) (1,717)Total borrowings (24,653) (37,370) (22,026)

Comprising: Borrowings (24,300) 2,543 92 (21,665)Finance Leases (353) 20 (28) (361) (24,653) 2,563 64 (22,026)

Cash and cash equivalents 22,085 15,188 1,571 38,844Bank overdrafts (3,986) 3,014 (15) (987)Net cash and cash equivalents 18,099 18,202 1,556 37,857

Net cash (6,554) 20,765 1,620 15,831

31 RELATED PARTY TRANSACTIONS

2007 2006THE GROUP £000 £000

Sales to associated companies 768 615Dividends from associated companies 557 477Amounts due from associated companies at 31st December 321 310


31 RELATED PARTY TRANSACTIONS (continued) 2007 2006PARENT COMPANY £000 £000

Dividends received from subsidiaries 6,500 31,661Loans and amounts due from subsidiaries at 31st December 36,695 60,400Amounts due to subsidiaries at 31st December 941 941 The transactions above were priced on an arm’s length basis. 32 PURCHASE OF BUSINESSES 2007The acquisition of the Watson-Marlow business in Denmark from A/S Christian Berner was completed on 30th January 2007. The acquisition was accounted for by the acquisition method of accounting. Consideration of £292,000 was paid on completion. To reflect Spirax Sarco's accounting policies the consideration has been split between intangibles £160,000, goodwill £126,000 and expenses £6,000, to arrive at fair value.

The acquisition of the minority owned 20% of Spirax UltraPure LLC of Florida, USA was completed on 9th August 2007. Consideration of £612,000 was paid on completion, which included goodwill of £321,000.

On 11th February 2008 the Group acquired the entire share capital of Flexicon A/S based in Denmark for consideration of DKK 141,000,000 (£14,100,000). The transaction also resulted in the Group obtaining full ownership of Flexicon's distribution company for the USA, Flexicon America Inc. An exercise to assess the fair value of net assets under Spirax Sarco's accounting policies is being undertaken.

2006 AFTCO, LLC Spirax UltraPure, LLC

USA USA Total

Book Fair value Fair Book Fair value Fair Fair

value adjustments value value adjustments value value

£000 £000 £000 £000 £000 £000 £000

Fixed assets Property, plant and equipment 11 - 11 117 - 117 128 Intangibles - 319 319 444 444 763

11 319 330 117 444 561 891

Current assets Inventories 277 - 277 187 - 187 464 Trade receivables 103 - 103 150 - 150 253 Other receivables 7 - 7 11 - 11 18

387 0 387 348 0 348 735

Total assets 398 319 717 465 444 909 1,626

Deferred tax liabilities - -

Current liabilities Trade payables 138 - 138 121 - 121 259 Other payables 26 - 26 4 - 4 30

164 0 164 125 0 125 289

Long term liabilities 29 - 29 10 - 10 39

Total liabilities 193 0 193 135 0 135 328

Total net assets 205 319 524 330 444 774 1,298Goodwill 949 2,464 3,413

Purchase consideration 1,473 3,238 4,711

Satisfied by Cash paid 1,221 2,075 3,296 Deferred consideration 132 374 506 Expenses 120 177 297 Minority share of consideration - 612 612

1,473 3,238 4,711

Analysis of net flow of cash and cash equivalents in respect of purchase of subsidiariesCash consideration 3,493Expenses 318Deferred consideration on Eirdata Environmental Services Ltd acquisition 158

Net cash outflow 3,969



1 The acquisition of the assets and business of AFTCO, LLC of Florida, USA from AMJ Equipment Corporation, also of Florida, USA was completed on 6th April 2006. The acquisition was accounted for by the acquisition method of accounting. Consideration of £1,221,000 was paid on completion. The book value of intangibles has been adjusted to reflect Spirax Sarco’s accounting policies in order to arrive at their fair value.

2 The acquisition of 80% of the business and assets of UltraPure Group, Inc of Florida, USA through its newly formed subsidiary company Spirax UltraPure, LLC was completed on 7th July 2006. The acquisition was accounted for by the acquisition method of accounting. Consideration of £2,075,000 was paid on completion. The book value of intangibles has been adjusted to reflect Spirax Sarco's accounting policies in order to arrive at their fair value. 33 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The Group does not enter into significant derivative transactions. The Group's principal financial instruments comprise bank loans, cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained fundamentally unchanged since the beginning of 2000. Credit riskThe Group sells products and services to customers around the world and it's customer base is varied in size and industry sector. The Group operates credit control policies to assess customers credit rating and provides for any debt that is identified as non collectable. Historically losses from trade receivables have been low. Interest rate riskThe Group borrows in desired currencies at both fixed and floating rates of interest as appropriate to the purposes of the borrowing depending on which gives best value. Liquidity riskThe Group's objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, loans and finance leases as appropriate. Foreign currency riskThe Group has operations around the world and therefore its balance sheet can be affected significantly by movements in the rate of exchange between sterling and various other currencies particularly the US dollar and euro. The Group seeks to mitigate the effect of this structural currency exposure by borrowing in these currencies where appropriate while maintaining a low cost of debt.

The Group also has transactional currency exposures principally as a result of trading between Group companies. Such exposures arise from sales or purchases by an operating unit in currencies other than the unit's functional currency. Net cash flows between any two currencies of less than £1m per annum would not usually be considered sufficiently material to warrant forward cover. Forward cover is not taken out more than twelve months in advance or for more than 80% of the forecast exposure. Interest rate risk profile of financial liabilitiesThe interest rate profile of the financial liabilities of the Group as at 31st December was as follows: 2006 THE GROUP Fixed rate Floating rate Financial liabilities financial financial on which no Total liabilities liabilities interest is paid £000 £000 £000 £000

Euro 17,962 807 4,325 12,830US dollar 11,971 - 10,204 1,767Other 29,285 6,225 7,078 15,982

59,218 7,032 21,607 30,579 2007 THE GROUP Fixed rate Floating rate Financial liabilities financial financial on which no Total liabilities liabilities interest is paid £000 £000 £000 £000

Euro 14,920 1,041 172 13,707US dollar 11,535 - 10,050 1,485Other 32,367 4,460 7,290 20,617

58,822 5,501 17,512 35,809


33 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued)In respect of fixed rate financial liabilities the interest rate for euro financial liabilities is 4.9% fixed for 0.1 years. The interest rate for Korean Won financial liabilities is 5.9% fixed for 0.5 years.

2006 THE PARENT Fixed rate Floating rate Financial liabilities financial financial on which no Total liabilities liabilities interest is paid £000 £000 £000 £000

Euro - - - -US dollar - - - -Other (Sterling) 451 - 19 432

451 - 19 432

2007 THE PARENT Fixed rate Floating rate Financial liabilities financial financial on which no Total liabilities liabilities interest is paid £000 £000 £000 £000

Euro - - - -US dollar - - - -Other (Sterling) 432 - - 432

432 - - 432

The benchmark rates for the floating rate financial liabilities are as follows:US dollar LIBOREuro LIBOR/EURIBOR

Terms and debt repayment scheduleThe terms and conditions of outstanding loans were as follows:

2007 2006 Currency Nominal Year of Carrying Carrying interest rate maturity value value £000 £000

Unsecured Bank Facility € 4.90% 2008 747 -Unsecured Bank Facility $ 4.70% 2008 10,050 10,204 Unsecured Bank Facility CZK 5.30% 2012 635 563 Unsecured Bank Facility WON 5.90% 2012 2,737 281 Unsecured Bank Facility Yen 1.40% - 3,373 3,216 Unsecured Bank Facility Ringgit 2.58% 2011 5 10Unsecured Bank Facility Rand Prime 2013+ 3,148 3,214 Unsecured Bank Facility WON 6.70% 2008 1,717 5,934Unsecured Bank Facility € - - - 4,054Unsecured Bank Facility £ - - - 19 Unsecured Bank Facility CHF - - 18 Unsecured Bank Facility € Prime 2008 172 773 Unsecured Bank Facility NZ $ 8.50% 2008 68 - Finance Leases € 4.10% 2008-2013+ 296 305 Finance Leases Roubles 2008-2013+ 65 45Finance Leases Rand - - - 3

23,013 28,639



}

Interest rate risk profile of financial assetsThe interest rate profile of the financial assets of the Group as at 31st December was as follows:

2006 THE GROUP Floating rate Financial assets financial on which no Total assets interest is earned £000 £000 £000

Sterling 14,367 2,000 12,367Other 102,404 16,095 86,309

116,771 18,095 98,676

2007 THE GROUP Floating rate Financial assets financial on which no Total assets interest is earned £000 £000 £000

Sterling 23,853 6,601 17,252Other 118,737 21,758 96,979

142,590 28,359 114,231

2006 THE PARENT Floating rate Financial assets financial on which no Total assets interest is earned £000 £000 £000

Sterling 2,138 2,000 138Other - - -

2,138 2,000 138

2007 THE PARENT Floating rate Financial assets financial on which no Total assets interest is earned £000 £000 £000

Sterling 10,841 6,500 4,341Other - - -

10,841 6,500 4,341

Financial assets on which no interest is earned comprise trade and other receivables and cash at bank and in hand.

Floating rate financial assets comprise cash placed on money market deposit mainly at call and three month rates. The average rate of interest received on sterling deposits during the year was 5.2% (2006: 4.5%).

Currency exposuresAs explained above, the Group's objectives in managing the currency exposures arising from its net investment overseas (in other words, its structural currency exposures) are to maintain a low cost of debt while partially hedging against currency depreciation. All gains and losses arising from these structural currency exposures are dealt with in the statement of total recognised income and expenditure.

Transactional (or non-structural) exposures give rise to net currency gains and losses that are recognised in the income statement. Such exposures include the monetary assets and monetary liabilities in the Group balance sheet that are not denominated in the operating (or 'functional') currency of the operating unit involved. At 31st December the currency exposures in respect of the euro was a net monetary asset of £173,000 (2006: £300,000) and in respect of the US dollar a net monetary asset of £1,392,000 (2006: £846,000).

At 31st December the percentage of debt to net assets, excluding debt was 3% (2006: 13%) for the euro and 31% (2006: 33%) for the US dollar.




33 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued)

Maturity of financial liabilitiesThe Group's financial liabilities at 31st December reprice (or mature if earlier) in the following periods:

2006 THE GROUP Trade and Short term Finance Long term other payables Overdrafts borrowings leases borrowings Total £000 £000 £000 £000 £000 £000

In six months or less, or on demand 30,579 3,706 - 66 18,356 52,706In more than six months but no more than twelve - 281 5,934 17 - 6,232In more than one year but no more than two - - - 37 - 37In more than two years but no more than three - - - 39 - 39In more than three years but no more than four - - - 41 10 51In more than four years but no more than five - - - 44 - 44In more than five years - - - 109 - 109

30,579 3,986 5,934 353 18,366 59,218

2007 THE GROUP

Trade and Short term Finance Long term other payables Overdrafts borrowings leases borrowings Total £000 £000 £000 £000 £000 £000

In six months or less, or on demand 35,809 987 - 22 13,425 50,243In more than six months but no more than twelve - - 1,717 51 - 1,768In more than one year but no more than two - - - 69 206 275In more than two years but no more than three - - - 51 - 51In more than three years but no more than four - - - 49 4 53In more than four years but no more than five - - - 51 3,372 3,423In more than five years - - - 68 2,941 3,009

35,809 987 1,717 361 19,948 58,822

2006 THE PARENT Trade and Short term Finance Long term other payables Overdrafts borrowings leases borrowings Total £000 £000 £000 £000 £000 £000

In six months or less, or on demand 432 19 - - - 451

432 19 - - - 451

2007 THE PARENT

Trade and Short term Finance Long term other payables Overdrafts borrowings leases borrowings Total £000 £000 £000 £000 £000 £000

In six months or less, or on demand 432 - - - - 432

432 - - - - 432

Cash flow hedgeAt 31st December the Group had contracts outstanding to purchase £1,500,000 with South Korean Won, £270,000 with Japanese yen, €600,000 with US dollars, £1,200,000 with US Dollars and £500,000 with Euro.

Borrowing FacilitiesThe Group has various borrowing facilities available to it. The undrawn committed facilities available at 31st December in respect of which all conditions precedent had been met at that date were as follows: THE GROUP 2007 2006 £000 £000

Expiring in one year or less 35,129 34,404


THE PARENT 2007 2006 £000 £000

Expiring in one year or less 25,000 24,981

Fair values of financial assets and financial liabilitiesFair values of financial assets and liabilities at 31st December are not materially different from book values due to their size or the fact that they were at short term rates of interest. Fair values have been assessed as follows:

DerivativesForward exchange contracts are marked to market using year end exchange rates.

Interest-bearing loans and borrowingsFair value is calculated based on discounted expected future principal and interest cash flows.

Finance lease liabilitiesThe fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements. The estimated fair values reflect change in interest rates.

Trade and other receivables / payablesFor receivables / payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value.

Sensitivity analysisIn managing interest rate and currency risks the Group aims to reduce the impact of short term fluctuations on the Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings.

At 31st December, it is estimated that a general increase of one percentage point in interest rates in respect of financial assets would increase the Group’s profit before tax by approximately £283,000 (2006: £200,000).

At the year end borrowings totalled only £23,013,000 consequently, in respect of financial liabilities, the Group is not significantly at risk from increases in interest rates.

For the year ended 31st December 2007, it is estimated that an increase of one percentage point in the value of sterling weighted in relation to the Group's profit and trading flows has decreased the Group's profit before tax by approximately £1,500,000 (2006: £650,000). The effect can be very different between years due to the weighting of different currency movements. Forward exchange contracts have been included in this calculation.

The Credit risk profile of trade receivablesThe aging of trade receivables at the reporting date was:

Gross Impairment Gross Impairment 2007 2007 2006 2006

Not past due date 67,332 (5) 63,733 -0-30 days past due date 20,823 (115) 17,426 (91)30 days-1 year past due date 11,561 (1,529) 10,341 (1,386)More than one year 637 (637) 557 (557)

100,353 (2,286) 92,057 (2,034)

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

2007 2006

Balance at 1 January 2007 2,034 1,828Movement in Impairment 252 206

Balance at 31 December 2007 2,286 2,034

Financial summary 1998 - 2007

1998 1999 2000 2001 2002 2003 2004 2004 2005 2006 2007 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Revenue 249,030 258,942 278,148 291,942 296,363 314,087 325,833 315,991 349,100 384,249 417,317

Operating profit † 42,433 42,721 43,370 40,803 42,674 45,750 51,100 47,956 55,170 61,941 68,336

Operating profit (adjusted) † - - - - - - - 47,956 55,345 62,291 68,720

Operating profit margin (adjusted) 17.0% 16.5% 15.6% 14.0% 14.4% 14.6% 15.7% 15.2% 15.9% 16.2% 16.5%

Profit before taxation † 42,270 41,751 41,157 38,025 40,693 44,564 50,836 48,704 56,959 65,344 72,163

Profit before taxation (adjusted) - - - - - - - 48,704 57,134 65,694 72,796

Profit before taxation †† 30,641 41,751 40,167 38,641 40,693 44,564 50,836 48,704 56,959 65,344 72,163

Profit after taxation 20,140 29,068 27,300 26,625 26,807 29,426 33,682 32,442 38,187 44,066 49,190

Dividends in respect of the year 13,116 13,102 13,301 13,752 14,350 15,028 16,102 16,196 18,318 20,038 22,754

Net assets 136,196 128,737 138,264 145,115 149,293 163,816 182,013 166,286 198,246 199,722 242,965

Earnings per share (basic) † 34.5p 36.1p 37.4p 34.4p 35.3p 38.5p 43.4p 43.1p 50.0p 57.7p 64.7p

Earnings per share (adjusted) † - - - - - - - 43.1p 50.2p 58.1p 65.5p

Earnings per share (basic) †† 24.1p 36.1p 35.4p 35.3p 35.3p 38.5p 43.4p 43.1p 50.0p 57.7p 64.7p

Dividends in respect of the year (per share) 16.5p 17.3p 18.0p 18.6p 19.3p 20.1p 21.4p 21.4p 23.8p 26.5p 29.9p

Return on capital employed 30.3% 28.0% 26.2% 23.6% 25.6% 28.3% 31.0% 27.2% 30.4% 32.2% 33.6%

# The results for 2004 to 2007 have been prepared under International Financial Reporting Standards, prior year figures are shown as originally reported including 2004 for reference. Adjusted operating profit, profit before tax and earnings per share exclude the amortisation of aquired intangibles.† before exceptional and non-operating items †† after exceptional and non-operating itemsReturn on capital employed prior to 2005 is based on operating profit before the exceptional and non-operating items and goodwill amortisation, and average net assets excluding net goodwill and net debt. For 2007 and 2006 see note 26.

Operating profit (adjusted) £m(before exceptional and non-operating items)


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Financial summary 1998 - 2007

1998 1999 2000 2001 2002 2003 2004 2004 2005 2006 2007 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Revenue 249,030 258,942 278,148 291,942 296,363 314,087 325,833 315,991 349,100 384,249 417,317

Operating profit † 42,433 42,721 43,370 40,803 42,674 45,750 51,100 47,956 55,170 61,941 68,336

Operating profit (adjusted) † - - - - - - - 47,956 55,345 62,291 68,720

Operating profit margin (adjusted) 17.0% 16.5% 15.6% 14.0% 14.4% 14.6% 15.7% 15.2% 15.9% 16.2% 16.5%

Profit before taxation † 42,270 41,751 41,157 38,025 40,693 44,564 50,836 48,704 56,959 65,344 72,163

Profit before taxation (adjusted) - - - - - - - 48,704 57,134 65,694 72,796

Profit before taxation †† 30,641 41,751 40,167 38,641 40,693 44,564 50,836 48,704 56,959 65,344 72,163

Profit after taxation 20,140 29,068 27,300 26,625 26,807 29,426 33,682 32,442 38,187 44,066 49,190

Dividends in respect of the year 13,116 13,102 13,301 13,752 14,350 15,028 16,102 16,196 18,318 20,038 22,754

Net assets 136,196 128,737 138,264 145,115 149,293 163,816 182,013 166,286 198,246 199,722 242,965

Earnings per share (basic) † 34.5p 36.1p 37.4p 34.4p 35.3p 38.5p 43.4p 43.1p 50.0p 57.7p 64.7p

Earnings per share (adjusted) † - - - - - - - 43.1p 50.2p 58.1p 65.5p

Earnings per share (basic) †† 24.1p 36.1p 35.4p 35.3p 35.3p 38.5p 43.4p 43.1p 50.0p 57.7p 64.7p

Dividends in respect of the year (per share) 16.5p 17.3p 18.0p 18.6p 19.3p 20.1p 21.4p 21.4p 23.8p 26.5p 29.9p

Return on capital employed 30.3% 28.0% 26.2% 23.6% 25.6% 28.3% 31.0% 27.2% 30.4% 32.2% 33.6%

# The results for 2004 to 2007 have been prepared under International Financial Reporting Standards, prior year figures are shown as originally reported including 2004 for reference. Adjusted operating profit, profit before tax and earnings per share exclude the amortisation of aquired intangibles.† before exceptional and non-operating items †† after exceptional and non-operating itemsReturn on capital employed prior to 2005 is based on operating profit before the exceptional and non-operating items and goodwill amortisation, and average net assets excluding net goodwill and net debt. For 2007 and 2006 see note 26.

# Prepared under IFRS

Dividends per share pEarnings per share (adjusted) p(before exceptional and non-operating items)


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SECRETARY AND REGISTERED OFFICE

Mr. P. A. Smith

Spirax-Sarco Engineering plc

Charlton House

Cirencester Road

Cheltenham

Gloucestershire

GL53 8ER

Telephone: 01242 521361

Facsimile: 01242 581470

Web Site: www.SpiraxSarcoEngineering.com

AUDITOR

KPMG Audit Plc

FINANCIAL ADVISERS

Citigroup

BANKERS

Barclays Bank PLC

CORPORATE BROKERS

Merrill Lynch International

REGISTRARS

Equiniti

Aspect House

Spencer Road, Lancing

West Sussex BN99 6DA

Telephone: 0870 600 3953

Web Site: www.shareview.co.uk

SOLICITORS

Allen & Overy

IMPORTANT DATES

Ordinary shares quoted ex-dividend 16th April 2008

Record date for final dividend 18th April 2008

Annual general meeting 13th May 2008

Final dividend payable 19th May 2008

Officers and advisers

Photograph on page 7, © BP AMOCO p.l.c. 2000

Designed by Spirax Sarco in collaboration with db Designs

Printed by Alpine Press Limited


Spirax-Sarco Engineering plcCharlton House, Cirencester Road

Cheltenham, Gloucestershire GL53 8ER UK

UNITED KINGDOM AND Spirax-Sarco Ltd.

Spirax-Sarco Investments Ltd.

Spirax-Sarco Overseas Ltd.

Watson-Marlow Ltd.

Eirdata Environmental Services Ltd.

NORTH AMERICACanada

Spirax Sarco Canada Ltd.

Mexico Spirax-Sarco Mexicana S.A. (49%)

USA

Spirax Sarco, Inc.

Sarco International, Corp.

Watson-Marlow, Inc.

Spirax UltraPure, LLC

ASIAChinaSpirax Sarco Engineering (China) Ltd.

IndiaSpirax-Marshall Ltd. (49.3%)

JapanSpirax-Sarco Ltd. (Branch)

MalaysiaSpirax-Sarco Sdn. Bhd.

SingaporeSpirax-Sarco (Private) Ltd.

South KoreaSpirax-Sarco (Korea) Ltd. (97.5%)

TaiwanSpirax Sarco Co. Ltd.

ThailandSpirax Sarco (Thailand) Ltd.

REST OF THE WORLDArgentina

Spirax Sarco S.A.

AustraliaSpirax-Sarco Pty. Ltd.

Brazil Spirax Sarco Ind. e Com. Ltda.

Watson-Marlow Bredel Ind. e Com. de Bombas

New ZealandSpirax Sarco Ltd.

South AfricaSpirax-Sarco South Africa (Pty.) Ltd.

Watson Marlow Bredel S.A. (Pty.) Ltd.

CONTINENTAL EUROPEAustriaSpirax Sarco Ges. mbH

Belgium

Spirax-Sarco N.V.

Watson-Marlow N.V.

Czech Republic Spirax Sarco spol. s r.o.

Denmark

Spirax-Sarco Ltd. (Branch)

A/S Watson-Marlow Alitea

Finland Spirax Oy

France Spirax-Sarco S.A.S.

Watson-Marlow S.A.

Germany Spirax-Sarco GmbH

Hygromatik Lt. A. GmbH

Watson-Marlow GmbH

Italy Spirax-Sarco S.r.l.

Watson-Marlow S.r.l.

M&M International S.r.l.

Ampe S.r.l.

NetherlandsSpirax-Sarco Engineering B.V.

Spirax-Sarco Investments B.V.

Bredel Hose Pumps B.V.

Watson-Marlow Bredel Holdings B.V.

Watson-Marlow B.V.

NorwaySpirax-Sarco AS

PolandSpirax Sarco Sp. z o.o.

PortugalSpirax Sarco Equip. Ind. Lda.

RussiaSpirax-Sarco Engineering LLC

SpainSpirax Sarco S.A. (95.1%)

Spirax-Sarco Engineering S.L.

M&M Iberica S.L. (67%)

SwedenSpirax-Sarco A.B.

WM Alitea A.B.

SwitzerlandSpirax-Sarco A.G.

Spirax Sarco worldwide

UNITED KINGDOM AND REPUBLIC OF IRELAND

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RT 2007

development of steam specialty - spirax-sarco … · development of steam specialty and ......

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