TIDMROR
RNS Number : 9088F
Rotork PLC
02 August 2016
2 August 2016
Rotork plc
2016 Half Year Results
OCC (2)
HY 2016 HY 2015 % change % change
---------- ---------- --------- ----------
Revenue GBP263.9m GBP274.2m -3.7% -15.3%
Adjusted(1) operating
profit GBP50.7m GBP65.0m -22.0% -32.5%
Adjusted(1) operating
margin 19.2% 23.7% -450bps -480bps
Profit before tax GBP38.3m GBP56.3m -31.9% -35.6%
Adjusted(1) profit
before tax GBP50.1m GBP64.1m -21.8% -32.4%
Basic earnings per
share 3.25p 4.77p -32.0% -35.7%
Adjusted(1) basic
earnings per share 4.25p 5.44p -21.9% -32.5%
Interim dividend 1.95p 1.95p
(1) Adjusted figures are before the amortisation of acquired
intangible assets
(2) OCC is organic constant currency which has all the
acquisitions removed and are restated at 2015 exchange rates.
Summary
-- Order intake increased 2.0% (OCC: -10.2%) against a strong comparative period.
-- Order book increased 22.2% (OCC: 9.0%) from December 2015,
and 15.4% (OCC: -3.1%) compared with June 2015.
-- Revenue was 3.7% lower (OCC: -15.3%) than prior year,
reflecting the slowdown in oil & gas markets and challenging
conditions in key end markets.
-- Adjusted operating margin impacted by lower volumes,
particularly in Fluid Systems, and the dilutive effect of
acquisitions in Gears and Instruments.
-- Cost management programme on track to deliver targeted
savings from both 2015 and 2016 initiatives.
-- Acquisition of Mastergear, expanding product portfolio in Gears.
-- Strong on-going cash generation, 131.5% cash conversion.
-- Strong balance sheet, interim dividend maintained at 1.95p.
Peter France, Chief Executive, commenting on the results, said:
"The trading environment in the first half of the year remained
challenging, with the low oil price continuing to delay project
activity and geopolitical tensions affecting certain key markets.
The cost management programme previously announced is progressing
as planned. We expect to benefit further from these cost
initiatives in the second half of the year and into 2017, and
continue to examine opportunities to drive improvements throughout
the business. In line with our strategy, we continue to invest in
new and existing markets by opening new sales channels and
developing new products.
We now expect our second half weighting to be more pronounced
than previously indicated, in part due to recent currency
movements, with the second half margins ahead of those in the first
half. However, we anticipate that margins for the full year will be
lower than in 2015 due to a combination of increased overheads,
product mix and pricing pressure.
We anticipate that activity in the oil and gas markets will
remain subdued, and the timing of order placement will be difficult
to forecast. However, based on our current order book, project
visibility and market-focused opportunities, the Board believes
that the Group remains well placed for the current year and
beyond."
Rotork plc Tel: +44 (0)1225 733
535
Peter France, Chief
Executive
Jonathan Davis, Finance
Director
Cynthia Alers, Head of Investor Relations
and Strategy
FTI Consulting Tel: + 44 (0)20 3727
1340
Nick Hasell / Susanne
Yule
There will be a meeting for analysts and institutional investors
at 8.30 am BST on 2 August 2016 at the offices of FTI Consulting,
200 Aldersgate, Aldersgate Street, London EC1A 4HD. The
presentation will also be webcast (audio only). Please register at
www.rotork.com.
Business Review
In the six months to 30 June 2016, order intake rose 2.0%
(Organic Constant Currency, "OCC": -10.2%), driven by contributions
from the acquisitions we made last year. Reported revenue declined
3.7% (OCC: -15.3%), reflecting the weak order intake we experienced
in Q3 and Q4 of last year, which would normally drive revenue
growth in this period. The order book grew 15.4% (OCC: -3.1%)
compared with June 2015, and 22.2% (OCC: 9.0%) since December 2015,
with sequential improvement in the order book from Q1 to Q2 since
January 2016.
As we flagged in our first quarter trading update, the lower
revenue levels were reflected in the adjusted operating margin for
the half year, which declined to 19.2% (H1 2015: 23.7%). As part of
our cost management programme announced in 2015 and at the full
year results in March this year, we have been implementing a number
of measures to manage our cost base to reflect current market
conditions, including implementing global procurement strategies,
value engineering our products and reviewing the overhead cost
base. These initiatives delivered the anticipated savings of
GBP4.2m in the first half of the year, with the incremental benefit
from sourcing initiatives contributing GBP2.9m and overhead savings
the remaining GBP1.3m.
Rotork has continued to face challenging market conditions
resulting from the sharp fall in oil prices in the second half of
2014 and throughout 2015. The oil price has stabilised to some
degree in recent months, but the continuing uncertainty of market
conditions has affected our customers' medium to long-term
investment decisions, with a number of projects becoming uneconomic
to develop, particularly in the shale industry. Our customers are
therefore more cautious in committing to long term investment
decisions. Our financial results for this period reflect those
market uncertainties but also demonstrate the resilience of our
businesses. Our business continues to be underpinned by steady
order intake, increasing order book and after sales support which
maintain our global market position and set us up well for market
recovery.
Globally, the Oil & Gas market, which accounts for 51% of
our revenue, remained weak and declined 5% overall, although there
were some areas of growth. Bifold increased our exposure to the
upstream market which grew 7%, with good activity in Europe and
Middle East/Africa. Midstream benefited from LNG activity in the
Americas, and also grew in Europe and Middle East/Africa but
declined in other geographies. Downstream grew in Europe and the
Middle East where storage solutions were in demand.
Our strategy of diversifying our business in terms of geography,
end markets and products is proving successful, as our strength in
Water, Power and Industrial Processes has helped to counter the
weakness in Oil & Gas. Water, which accounts for 13% of
revenue, grew by 6% and benefited from investment in infrastructure
in both developed and emerging markets. Our Centork and K-Tork
product ranges have been very successful in the water industry
where we experienced good growth in the American municipal market,
in Asia where governments are investing in infrastructure for
growing populations and in the UK following the beginning of the
AMP6 investment cycle.
Power, accounting for 16% of revenue, grew in the Americas with
investment in ageing and inefficient power facilities, although it
declined in other markets. Industrial Processes, including HVAC,
grew strongly in Europe, the UK and Middle East/Africa.
Rotork Site Services ("RSS") continued to perform well, as
customers look to manage their assets more efficiently and avoid
unplanned plant shutdowns. We continue to develop our Client
Support Programme, offering tailored maintenance contracts to suit
customers' specific needs, and have a global team of highly trained
field service staff on site with many of our customers providing
regular maintenance and retrofit support, and often on site full
time.
Geographically, the Middle East/Africa showed good growth in
upstream and downstream Oil & Gas and Industrial Processes.
Eastern Europe, the UK and the US performed broadly in line with
last year. Western Europe recorded good growth in Oil & Gas and
Industrial Processes. Latin America contracted severely, reflecting
the political uncertainty in a number of our end markets in this
region. China showed early signs of recovery in project activity
but India was very weak across all our end markets. Asia overall
showed some recovery later in the period, especially in Water, but
remained weak across most other markets.
In light of the prolonged downturn in many of our key end
markets, we continue to manage our cost base and find production
efficiencies. Our global footprint enables us to shift production
to meet customer demand from various locations. The 2015 cost
management programme identified GBP10.3m of annualised savings,
GBP5.4m of which were delivered in 2015, with a further GBP4.9m of
savings anticipated in 2016. This GBP4.9m consisted of GBP2.8m of
component cost savings, of which GBP2.1m was delivered in the first
half, and GBP2.1m of overhead savings, of which GBP1.3m benefited
the first half of 2016. The remaining impact of these initiatives,
GBP0.7m of component cost savings and GBP0.8m of overhead savings,
is expected to be realised in the second half of the year. The
consolidation of our plant in Italy is now complete, and the
consolidation of our three factories in Tulsa, USA, is expected to
complete in Q3 this year.
In March this year, we announced further cost-saving initiatives
which were forecast to deliver approximately GBP7m of annualised
savings in material costs and overheads. Procurement initiatives
are on track to deliver the GBP5m target, of which GBP3.3m will
benefit 2016 and GBP0.8m has been delivered in the first half of
2016. The overhead savings in 2016 are largely related to the
consolidation of manufacturing sites and, whilst these activities
are underway, the savings will not accrue until the last quarter of
the current year.
Earlier this year, we acquired Mastergear which expanded our
Gears portfolio with new products in motorised and manual gears. We
can now offer our customers one of the most complete Gears
portfolios in the industry which will consolidate our market
leadership in this segment. We will continue to seek out
acquisitions that support our business diversification, but our
focus this year will be integrating the acquisitions made last year
and leveraging their product portfolios to drive growth.
Financial Key Performance Indicators (KPIs)
H1 2016 H1 2015 FY 2015
-------- -------- --------
Sales growth -3.7% -1.6% -8.1%
Return on sales 19.0% 23.4% 22.5%
Cash generation 131.5% 110.2% 115.4%
Return on capital
employed 19.6% 34.9% 28.6%
Earnings per share
growth -21.9% -5.1% -21.0%
-------- -------- --------
The half year KPIs are calculated in a consistent way with those
presented at the year end, with the exception of return on capital
employed (ROCE), where the first half year profit has been doubled
to calculate the result. The large number of acquisitions completed
over the past year, particularly Bifold, our largest acquisition to
date, accounts for the majority of the reduction in ROCE in 2016.
Our business tends to have a second half profit weighting and, as a
consequence, the first half ROCE will generally be lower than the
full year result. As stated, we expect to have a more pronounced
second half profit weighting, which has accentuated this
pattern.
Cash flow
Whilst the sharp weakening of Sterling at the end of June
impacted the closing balance sheet for the period, our cash flows
for the period are somewhat insulated from this as they are based
on average exchange rates for the full six months. In contrast to
the movement in the balance sheet, net working capital has
generated a GBP10.4m inflow, with an GBP11.8m reduction in trade
receivables from the usual year end high point as the largest
contributor. This compares with a GBP3.5m net working capital
inflow in the comparative period last year and is the main reason
cash generation increased to 132%. Acquisitions of GBP16.9m and the
final dividend of GBP26.9m are the two largest cash outflows, with
borrowings increasing by GBP23.4m in the period. Cash and cash
equivalents rose by GBP7.7m since December.
Financial position
Sterling moved sharply in June relative to both the US dollar
and the Euro, following the outcome of the UK referendum on EU
membership. Overall, currency added GBP10.0m to revenue, or 3.7%,
compared with the rates in the first half of 2015. Currency had a
larger impact on the closing balance sheet than the income
statement for the period, given the timing of the currency
movement. The average USD rate for the comparable period last year
was $1.43 and the Euro was EUR1.29, whilst the rates at 30 June
2016 were $1.34 and EUR1.20, respectively.
The balance sheet remains strong, and, at the period end,
included net debt of GBP86.9m (Dec 2015: GBP71.1m). Gross cash
balances of GBP56.6m were offset by borrowings of GBP143.6m,
GBP142.1m of which is provided under three committed facilities,
all Sterling denominated. Net working capital at the period end was
GBP177.1m, an increase of GBP7.8m since the year end. This increase
is heavily influenced by the weakening of Sterling at the balance
sheet date, as well as the acquisition of Mastergear. On an OCC
basis, net working capital would have reduced GBP13.4m.
The Group operates two defined benefit pension schemes, the
larger of which is in the UK. Following the result of the EU
referendum, we have seen a reduction in the yield on the long-dated
gilts which are used to value the liabilities of this pension
scheme. As a consequence of this, and despite a strong performance
from the scheme assets in the period, the total deficit on the
balance sheet under IAS19 has increased from GBP23.3m in December
2015 to GBP41.2m at 30 June 2016.
Dividend
In view of the performance of the business and the current
market conditions, the Board has decided to maintain the interim
dividend at its current level to maintain financial flexibility.
The interim dividend of 1.95p per ordinary share will be paid on 23
September 2016 to shareholders on the register at the close of
business on 26 August 2016.
Operating Review
Rotork Controls
OCC(2)
GBPm H1 2016 H1 2015 Change Change
Order intake 138.8 143.3 -3.2% -7.7%
Order book 96.3 85.9 12.1% -1.3%
Revenue 132.5 146.0 -9.2% -13.3%
Gross margin 52.0% 53.0% -100bps -10bps
Adjusted(1)
operating profit 36.2 45.2 -19.7% -23.3%
Adjusted operating
margin 27.4% 30.9% -350bps -350bps
Market conditions in the Oil & Gas markets remain
challenging, and consequently impacted both order intake and
revenue. Order intake declined 3.2% (OCC: -7.7%) compared to a very
strong first half performance in 2015, with some mitigation from
favourable currency movements. However, Controls has now recorded a
consistent performance over the past four quarters, showing some
stabilisation in project activity, albeit at lower levels than seen
previously. The order book is strong at GBP96.3m, an increase of
19.0% (OCC: 7.8%) since December 2015, and a 12.1% increase (OCC:
-1.3%) compared with June 2015. Revenue declined by 9.2% (OCC:
-13.3%), reflecting the weak order intake reported in the second
half of 2015. Oil & Gas now accounts for 44.7% of the
Division's revenues, reflecting in part our successful strategic
diversification into Water, Power and Industrial Processes.
The gross margin held up well, with the material cost savings
sufficient to offset any pricing pressure and the impact of lower
revenues on the relatively fixed cost of the division's factories.
The gross margin was only 10bps lower than the first half of 2015
at 52.9% on an OCC basis, although currency resulted in the
headline figure reducing 100bps to 52.0%. The lower revenue had a
more significant impact on the adjusted operating margin, which
reduced 350bps on both a reported and OCC basis to 27.4%. Overheads
in the division were broadly flat against the comparative period
with the incremental benefit of cost saving initiatives offsetting
inflationary pressures and any areas of targeted investment.
Europe and the Middle East recorded good activity levels, ahead
of the comparable period last year. In China, project activity was
stronger following last year's poor market conditions, especially
in Power, where we have a good market position. The US experienced
reasonable project activity in midstream Oil & Gas, although
the up and downstream activity continued to be subdued.
Sequentially, Q2 this year was slightly stronger than Q1 in all
markets. However, forecasting project delivery continues to be
challenging, especially in Oil & Gas.
The US water industry, where we have a leading market position,
grew strongly, although there were some project delays in other
geographic markets. There is growing interest in our Centork
product range which was introduced last year, and is completing the
usual approvals, variant model development and customer
specification modifications. Industrial Process solutions,
including our CVA and CMA ranges, performed well, as did our
products designed for the HVAC market. Last year we launched the
IQT3 actuator, the quarter-turn variant of the IQ3. We continue to
develop the IQ range with the introduction of the IQT3000 and the
IQ19 late last year. These two new products complement the larger
IQ range and are successfully targeting market niches where we can
now offer a more competitive solution to meet customer
requirements.
Rotork Fluid Systems
OCC(2)
GBPm H1 2016 H1 2015 Change Change
Order intake 70.1 80.5 -13.0% -17.3%
Order book 84.2 76.3 +10.3% -4.8%
Revenue 61.8 76.9 -19.6% -23.2%
Gross margin 27.5% 31.7% -420bps -400bps
Adjusted(1)
operating profit 0.8 7.8 -89.5% -94.3%
Adjusted(1)
operating margin 1.3% 10.1% -880bps -940bps
Fluid Systems continued to be affected by weak project activity
in the global oil & gas market, as 65% of the Division's
revenues derives from this end market. Order intake declined 13.0%
(OCC: -17.3%) relative to the strong comparable period last year.
The order book, however, is GBP84.2m, a strong increase of 24.6%
(OCC: 12.2%) since December 2015, and a 10.3% increase (OCC: -4.8%)
compared with June 2015, which helps support management
expectations of an improved second half.
Revenue declined 19.6% relative to the comparable period in
2015, reflecting both on-going project delays and the very weak
order intake in Q3 and Q4 2015 which affected revenue in this half
of the year. On an OCC basis, revenue declined 23.2%, with
favourable currency movements contributing GBP2.8m to reported
revenue. There was some sequential uplift in revenue in Q2 versus
Q1 this year, driven by deliveries on some of the LNG projects.
Lower revenues in the last four consecutive quarters were also
reflected in the gross margin which declined to 27.5% (H1 2015:
31.7%). The cost of components has remained at a consistent
percentage of sales but the manufacturing labour and facility costs
have not been reduced in line with revenue and account for the
420bps reduction in the gross margin. Similarly, whilst overheads
have been reduced on an OCC basis by GBP0.7m, this is not
sufficient for the reduction in revenue, resulting in adjusted
operating profit falling to GBP0.8m in the period. The benefits
from our new facility in Italy will begin contributing later this
year, and we are managing overheads prudently in light of market
conditions. These actions and an order book supporting higher
volumes in the second half will drive a better performance in the
second half of the year.
The US recorded good activity in the LNG market, although the
upstream and downstream markets remained subdued. Latin America
suffered from economic and political instability, which impacted
project orders, with Mexico in particular affected by delays at a
major customer. Activity in Middle East/Africa was stronger in
upstream and downstream. Oil & Gas continued to be weak in the
Far East and Europe. Activity levels in Water and Power were
broadly consistent with the comparative period across all
geographies.
The new generation SI3 actuator introduced last year has been
well-received, with a strong order book for the second half of the
year. The K-Tork product for the water and industrial processes
industries is well-established in the US and is now developing new
markets in Europe and the rest of the world. The range of actuators
we developed for the water industry is increasingly being
cross-sold into industrial process applications and the vehicle
market, in line with our strategy of product innovation and
diversifying our end markets. We anticipate that this opportunity
will continue to develop in the medium term.
Rotork Gears
OCC(2)
GBPm H1 2016 H1 2015 Change Change
Order intake 33.0 28.4 +16.0% -0.9%
Order book 13.7 8.7 +57.8% +3.2%
Revenue 32.6 29.8 +9.5% -4.7%
Gross margin 35.1% 35.5% -40bps -180bps
Adjusted(1)
operating profit 6.5 6.1 +6.8% -17.6%
Adjusted(1)
operating margin 20.0% 20.5% -50bps -280bps
Gears performed well over the period, with order intake
increasing 16.0%, including contributions from the recent
acquisitions, Roto Hammer and Mastergear. On an OCC basis, order
intake declined modestly relative to a strong comparable period
last year. The order book stood at GBP13.7m, an increase of 36.4%
(OCC: -4.3%) since the beginning of the year and a 57.8% (OCC:
3.2%) increase compared to H1 2015.
Revenue grew 9.5% with a contribution from Roto Hammer which was
acquired in the second half of 2015. The acquisition of Mastergear
contributed one month's revenue following completion in June 2016.
On an OCC basis, revenue fell 4.7%, primarily due to the continued
slowdown in Oil & Gas.
Both acquisitions and currency were accretive to gross margin,
so, whilst gross margin reduced 40bps on a reported basis, on an
OCC basis, the reduction was 180bps. Material costs accounted for
20bps of this reduction, with the remainder due to an increase in
manufacturing labour and facility costs set against the decline in
revenue. Adjusted operating profit increased 6.8% to GBP6.5m, but
fell 17.6% after removing the positive impact of acquisitions and
currency. OCC overheads have increased by less than GBP0.1m, but
the lower OCC gross margin and reduction in revenue combined to
reduce OCC adjusted operating margin by 280bps. On a reported
basis, the benefit of acquisitions resulted in adjusted operating
margin falling by only 50bps relative to the comparative
period.
Oil & Gas accounted for 51% of Gears' divisional revenue,
with contribution from recent acquisitions. Upstream was weak, but
midstream and downstream both grew. Water grew 18% over the prior
period, despite weakness in Latin America and Middle East/Africa.
Power, a newer market for Gears, was stable with some growth in
Eastern Europe. The Americas and Europe both experienced good
growth across most markets.
The acquisitions of Mastergear and Roto Hammer have added a
number of new product ranges to our customer offering, especially
in the chain and manual gear market. Our gears product range is now
one of the most complete in our industry, which will allow us to
leverage our strong customer relationships. We expect that this
increased product portfolio and synergies between our existing
products and Mastergear will continue to drive future growth.
Rotork Instruments
OCC(2)
GBPm H1 2016 H1 2015 Change Change
Order intake 45.5 29.2 +55.8% -8.3%
Order book 8.8 5.0 77.3% -21.4%
Revenue 45.0 28.8 +56.3% -9.1%
Gross margin 44.2% 50.1% -590bps -130bps
Adjusted(1)
operating profit 10.3 9.0 +13.6% -23.8%
Adjusted(1)
operating margin 22.8% 31.4% -860bps -510bps
Instruments benefited both from the acquisitions completed over
the past year and favourable exchange rates, with order intake
increasing 55.8%. On an OCC basis, order intake declined due to a
large rail order in the previous period that was not repeated this
year, which also affected the order book on an OCC basis. Revenue
increased by 56.3% with contributions from acquisitions and
currency movement. On an OCC basis, revenue and order intake both
declined as a result of on-going tight conditions in the tyre
market and the conditions in the oil & gas market. Instruments
supplies a number of components to our Fluid Systems Division, and
the weak revenue growth in that Division also affected Instruments
as a result. The order book was GBP8.8m, an increase of 15.9% (OCC:
11.0%) since the beginning of the year, and a 77.3% increase (OCC:
-21.4%) compared with H1 2015.
The 2015 acquisitions have, as anticipated, been dilutive to the
Division's margins. Whilst the reported gross margin has reduced by
590bps, the OCC gross margin also declined by 130bps. This
reduction resulted from a tighter tyre market and an increase in
lower margin rail sales, and whilst manufacturing labour and
factory costs have remained at the same level as the comparative
period, revenue declined.
Adjusted operating profit grew 13.6% (OCC: -23.8%) but on an OCC
basis was affected by subdued activity in the tyre and oil &
gas markets. Adjusted operating margin was also affected by the
recent acquisitions several of which have lower margins than that
of Instruments' historical margins. As these acquisitions are
integrated into the Rotork global sales portfolio, we expect the
overall adjusted operating margin to improve. On an organic
constant currency basis, adjusted operating margin declined by
510bps as a result of additional investment in engineering resource
and the larger division now taking a greater share of allocated
central Group costs. Net of the cost saving initiatives, this added
GBP0.5m to overheads. When combined with the lower OCC gross
profit, this resulted in a lower adjusted operating margin.
Instruments benefited from the acquisition of Bifold which
delivered good growth in the upstream oil & gas market across
all geographies, as well as downstream growth in all markets except
Asia. Water, although small, benefited from investment in
infrastructure in several regions. Power and Industrial Processes
recorded double digit growth in their markets overall. There was
some softness in the Chinese market for positioners, and continuing
delays in large rail projects. Midland continued to experience
project delays in a number of its businesses, due to on-going
market conditions.
Our focus this year is on gaining product approvals, training
our global sales team on the new products and introducing Rotork
management systems into these new businesses. We now have a very
broad range of solutions to offer customers, often as an integrated
solution combined with Fluid Systems products, which is proving
very attractive to customers at a competitive price. There is also
increasing cross-division innovation developing between the various
businesses, such as collaboration between Bifold and Midland on
solenoid valves, as well as between YTC/Fairchild/Bifold and
M&M/Fluid Systems in component supply. We expect these
opportunities to drive future growth as they develop, and remain
confident that the synergies between our product portfolios will
drive cross-divisional growth and will leverage our strengths
across a range of end markets.
Principal risks and uncertainties
The Group has an established risk management process as part of
the corporate governance framework set out in the 2015 Annual
Report & Accounts. The principal risks and uncertainties facing
our businesses are being monitored on an ongoing basis in line with
the Corporate Governance Code. The risk management process is
described in detail on pages 44 to 47 of the 2015 Annual Report
& Accounts. We identify risks in the form of strategic,
operational and financial risks and set out mitigations and
improvements to our processes and procedures as necessary to manage
these risks. The Group has reviewed these risks and concluded that
they remain applicable to the second half of the financial
year.
The principal risks and uncertainties are:
-- Competition on price as a result of a competitor moving to
manufacture in a lower cost area of the world;
-- Rotork not having the appropriate products, either in terms of features or costs;
-- Lower investment in Rotork's traditional market sectors;
-- Volatility in exchange rates that impact Rotork's reported results and competitive position;
-- Political instability in a key end market;
-- Growth of the defined benefit pension scheme deficit;
-- Major in field product failure arising from a component
defect or warranty issue which might require a product recall;
-- Failure of a key supplier or a tooling failure at a supplier
causing disruption to planned manufacturing;
-- Failure of an acquisition to deliver the growth or synergies
anticipated, due to incorrect assumptions or changing market
conditions, or failure to integrate an acquisition to ensure
compliance with Rotork's policies and procedures;
-- Failure of IT security systems to prevent penetration by
unauthorised people and access to commercially sensitive data.
We note that the United Kingdom's referendum on 23 June 2016 to
leave the European Union has added an increased level of
uncertainty to global economic growth. We are confident that our
global sales and service network, flexible manufacturing footprint
and asset-light model provide us with some resilience against these
possible market headwinds. We continue to monitor our markets and
manage our business prudently to manage these potential new risks.
Should there be a prolonged period of Sterling weakness, the
Group's reported results would benefit from a translational impact
on its overseas earnings.
Statement of Directors' Responsibilities
The Directors confirm that this condensed consolidated interim
financial information has been prepared in accordance with IAS 34
as adopted by the European Union and that the interim management
report includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- Material related-party transactions in the first six months, and any material changes in the related-party transactions described in the last annual report.
The Directors of Rotork plc are listed in the Rotork plc Annual
Report & Accounts for 31 December 2015. A list of current
directors is maintained in the "About Us" section of the Rotork
website: www.rotork.com.
Outlook
The trading environment in the first half of the year remained
challenging, with the low oil price continuing to delay project
activity and geopolitical tensions affecting certain key markets.
The cost management programme previously announced is progressing
as planned. We expect to benefit further from these cost
initiatives in the second half and into 2017, and continue to
examine opportunities to drive improvements throughout the
business. In line with our strategy, we continue to invest in new
and existing markets by opening new sales channels and developing
new products.
We now expect our second half weighting to be more pronounced
than previously indicated, in part due to recent currency
movements, with the second half margins ahead of those in the first
half. However, we anticipate that margins for the full year will be
lower than in 2015 due to a combination of increased overheads,
product mix and increased pricing pressure.
We anticipate that activity in the oil and gas markets will
remain subdued, and the timing of order placement will be difficult
to forecast. However, based on our current order book, project
visibility and market-focused opportunities, the Board believes
that the Group remains well placed for the current year and
beyond.
By order of the Board
Peter France
Chief Executive
1 August 2016
Independent Review Report to Rotork plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2016 which comprises the Consolidated
Income Statement, the Consolidated Statement of Comprehensive
Income and Expense, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and related notes 1 to 16. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2016 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London
1 August 2016
Consolidated Income Statement
First First
half half Full year
2016 2015 2015
Notes GBP000 GBP000 GBP000
--------- --------- ---------
Revenue 2 263,911 274,158 546,459
Cost of sales (146,618) (147,490) (296,944)
--------- --------- ---------
Gross profit 117,293 126,668 249,515
Other income 416 120 427
Distribution costs (2,357) (2,317) (4,613)
Administrative expenses (76,339) (67,265) (140,877)
Other expenses (84) (15) (66)
Operating profit before the
amortisation of
acquired intangible assets 50,716 65,016 125,272
Amortisation of acquired intangible
assets (11,787) (7,825) (20,886)
------------------------------------ ----- --------- --------- ---------
Operating profit 2 38,929 57,191 104,386
Finance income 3 1,264 788 1,740
Finance expense 4 (1,866) (1,693) (4,257)
Profit before tax 38,327 56,286 101,869
Income tax expense 5 (10,134) (14,874) (27,012)
Profit for the period 28,193 41,412 74,857
========= ========= =========
pence pence pence
Basic earnings per share 8 3.25 4.77 8.60
Adjusted basic earnings per
share 8 4.25 5.44 10.40
Diluted earnings per share 8 3.24 4.76 8.60
Adjusted diluted earnings
per share 8 4.24 5.42 10.40
Consolidated Statement of Comprehensive Income and
Expense
First First
half half Full year
2016 2015 2015
GBP000 GBP000 GBP000
-------- -------- ---------
Profit for the period 28,193 41,412 74,857
Other comprehensive income and
expense
Items that may be subsequently
reclassified to the income statement:
Foreign currency translation differences 31,114 (14,014) (6,511)
Effective portion of changes in
fair value of cash flow
hedges net of tax (4,741) 1,665 (1,448)
-------- -------- ---------
26,373 (12,349) (7,959)
Items that are not subsequently
reclassified to the income statement:
Actuarial (loss) / gain in pension
scheme net of tax (17,465) 4,994 8,049
-------- -------- ---------
Income and expenses recognised
directly in equity 8,908 (7,355) 90
Total comprehensive income for
the period 37,101 34,057 74,947
======== ======== =========
Consolidated Balance Sheet
30 June 30 June 31 Dec
2016 2015 2015
Notes GBP000 GBP000 GBP000
------- ------- -------
Goodwill 244,672 143,503 222,086
Intangible assets 120,640 63,789 118,555
Property, plant and equipment 81,782 61,975 72,008
Deferred tax assets 18,672 12,740 13,698
Derivative financial instruments - 851 -
Other receivables - 2,102 2,234
Total non-current assets 465,766 284,960 428,581
Inventories 9 100,347 84,508 87,210
Trade receivables 118,858 104,774 118,801
Current tax 5,177 2,045 4,458
Derivative financial instruments - 3,518 25
Other receivables 19,975 15,134 13,225
Cash and cash equivalents 56,641 58,541 48,968
------- ------- -------
Total current assets 300,998 268,520 272,687
Total assets 766,764 553,480 701,268
======= ======= =======
Ordinary shares 11 4,349 4,347 4,349
Share premium 10,124 9,563 10,018
Reserves 22,384 (8,379) (3,989)
Retained earnings 381,683 377,692 397,424
------- ------- -------
Total equity 418,540 383,223 407,802
------- ------- -------
Interest-bearing loans and
borrowings 12 93,372 1,075 69,756
Employee benefits 41,894 26,985 26,320
Deferred tax liabilities 23,756 18,212 28,973
Derivative financial instruments 3,784 - 431
Provisions 13 11,934 1,743 11,990
------- ------- -------
Total non-current liabilities 174,740 48,015 137,470
Interest-bearing loans and
borrowings 12 50,196 20,233 50,352
Trade payables 42,112 37,021 36,724
Employee benefits 13,605 10,601 11,118
Current tax 12,392 16,213 14,276
Derivative financial instruments 11,570 247 3,601
Other payables 38,005 33,053 34,612
Provisions 13 5,604 4,874 5,313
------- ------- -------
Total current liabilities 173,484 122,242 155,996
Total liabilities 348,224 170,257 293,466
Total equity and liabilities 766,764 553,480 701,268
======= ======= =======
Consolidated Statement of Changes in Equity
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- ---------- -------------- ------------ ---------- ----------- ---------
Balance at 31 December
2014 4,346 9,422 1,799 1,644 527 359,057 376,795
Profit for the
period - - - - - 41,412 41,412
Other comprehensive
income
--------- ---------- -------------- ------------ ---------- ----------- ---------
Foreign currency
translation differences - - (14,014) - - - (14,014)
Effective portion
of changes in fair
value of cash flow
hedges - - - - 2,073 - 2,073
Actuarial gain
on defined benefit
pension plans - - - - - 6,382 6,382
Tax in other comprehensive
income - - - - (408) (1,388) (1,796)
--------- ---------- -------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - (14,014) - 1,665 4,994 (7,355)
--------- ---------- -------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - (14,014) - 1,665 46,406 34,057
Transactions with
owners, recorded
directly in equity
Equity settled
share based payment
transactions - - - - - (2,999) (2,999)
Tax on equity settled
share based payment
transactions - - - - - 629 629
Share options exercised
by employees 1 141 - - - - 142
Own ordinary shares
acquired - - - - - (2,785) (2,785)
Own ordinary shares
awarded under share
schemes - - - - - 4,219 4,219
Dividends - - - - - (26,835) (26,835)
--------- ---------- -------------- ------------ ---------- ----------- ---------
Balance at 30 June
2015 4,347 9,563 (12,215) 1,644 2,192 377,692 383,223
========= ========== ============== ============ ========== =========== =========
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- ---------- -------------- ------------ ---------- ----------- ---------
Balance at 31 December
2014 4,346 9,422 1,799 1,644 527 359,057 376,795
Profit for the
year - - - - - 74,857 74,857
Other comprehensive
income
--------- ---------- -------------- ------------ ---------- ----------- ---------
Foreign currency
translation differences - - (6,511) - - - (6,511)
Effective portion
of changes in fair
value of cash flow
hedges - - - - (1,790) - (1,790)
Actuarial gain
on defined benefit
pension plans - - - - - 9,704 9,704
Tax in other comprehensive
income - - - - 342 (1,655) (1,313)
--------- ---------- -------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - (6,511) - (1,448) 8,049 90
--------- ---------- -------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - (6,511) - (1,448) 82,906 74,947
Transactions with
owners, recorded
directly in equity
Equity settled
share based payment
transactions - - - - - (1,447) (1,447)
Tax on equity settled
share based payment
transactions - - - - - (799) (799)
Share options exercised
by employees 3 596 - - - - 599
Own ordinary shares
acquired - - - - - (2,785) (2,785)
Own ordinary shares
awarded under share
schemes - - - - - 4,257 4,257
Dividends - - - - - (43,765) (43,765)
--------- ---------- -------------- ------------ ---------- ----------- ---------
Balance at 31 December
2015 4,349 10,018 (4,712) 1,644 (921) 397,424 407,802
========= ========== ============== ============ ========== =========== =========
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- ---------- -------------- ------------ ---------- ----------- ---------
Balance at 31 December
2015 4,349 10,018 (4,712) 1,644 (921) 397,424 407,802
Profit for the
period - - - - - 28,193 28,193
Other comprehensive
income
--------- ---------- -------------- ------------ ---------- ----------- ---------
Foreign currency
translation differences - - 31,114 - - - 31,114
Effective portion
of changes in fair
value of cash flow
hedges - - - - (5,955) - (5,955)
Actuarial loss
on defined benefit
pension plans - - - - - (22,112) (22,112)
Tax in other comprehensive
income - - - - 1,214 4,647 5,861
--------- ---------- -------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - 31,114 - (4,741) (17,465) 8,908
--------- ---------- -------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - 31,114 - (4,741) 10,728 37,101
Transactions with
owners, recorded
directly in equity
Equity settled
share based payment
transactions - - - - - (914) (914)
Tax on equity settled
share based payment
transactions - - - - - 183 183
Share options exercised
by employees - 106 - - - - 106
Own ordinary shares
acquired - - - - - (1,007) (1,007)
Own ordinary shares
awarded under share
schemes - - - - - 2,202 2,202
Dividends - - - - - (26,933) (26,933)
--------- ---------- -------------- ------------ ---------- ----------- ---------
Balance at 30 June
2016 4,349 10,124 26,402 1,644 (5,662) 381,683 418,540
========= ========== ============== ============ ========== =========== =========
Consolidated Statement of Cash Flows
First First
half half Full year
2016 2015 2015
GBP000 GBP000 GBP000
-------- -------- ---------
Profit for the period 28,193 41,412 74,857
Amortisation of acquired intangible
assets 11,787 7,825 20,886
Amortisation of development costs 1,052 868 1,814
Depreciation 5,660 4,513 9,759
Equity settled share based payment
expense 1,471 1,849 2,810
Net gain on sale of property, plant
and equipment (209) (61) (280)
Finance income (1,264) (788) (1,740)
Finance expense 1,866 1,693 4,257
Income tax expense 10,134 14,874 27,012
58,690 72,185 139,375
(Increase) / decrease in inventories (2,654) (7,151) 731
Decrease in trade and other receivables 11,784 12,276 15,664
Increase / (decrease) in trade
and other payables 1,292 (1,597) (6,931)
Difference between pension charge
and cash contribution (4,542) (4,249) (5,051)
Decrease in provisions (200) (151) (56)
Decrease in employee benefits (2,216) (3,938) (4,226)
-------- -------- ---------
62,154 67,375 139,506
Income taxes paid (15,173) (15,600) (35,716)
-------- -------- ---------
Cash flows from operating activities 46,981 51,775 103,790
Purchase of property, plant and
equipment (8,443) (4,873) (11,762)
Development costs capitalised (1,294) (1,655) (3,063)
Proceeds from sale of property,
plant and equipment 341 204 1,508
Acquisition of businesses, net
of cash acquired (16,851) (2,843) (133,857)
Contingent consideration paid (245) (4,000) (4,536)
Settlement of hedging derivatives (10,007) 4,054 (1,703)
Interest received 415 296 1,103
-------- -------- ---------
Cash flows from investing activities (36,084) (8,817) (152,310)
Issue of ordinary share capital 106 142 599
Purchase of ordinary share capital (1,007) (2,785) (2,785)
Interest paid (1,176) (249) (1,759)
Increase / (decrease) in borrowings 23,444 (120) 98,326
Repayment of finance lease liabilities (126) (9) (100)
Dividends paid on ordinary shares (26,933) (26,835) (43,765)
Cash flows from financing activities (5,692) (29,856) 50,516
Net increase in cash and cash equivalents 5,205 13,102 1,996
Cash and cash equivalents at 1
January 48,968 46,816 46,816
Effect of exchange rate fluctuations
on cash held 2,468 (1,377) 156
-------- -------- ---------
Cash and cash equivalents at end
of period 56,641 58,541 48,968
======== ======== =========
Notes to the Half Year Report
1. Status of condensed consolidated interim statements,
accounting policies and basis of significant estimates
General information
Rotork plc is a company domiciled in England and Wales. The
Company has its premium listing on the London Stock Exchange.
The condensed consolidated interim financial statements for the
6 months ended 30 June 2016 are unaudited and the auditor has
reported in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the
Entity'.
The information shown for the year ended 31 December 2015 does
not constitute statutory accounts within the meaning of Section 435
of the Companies Act 2006, statutory accounts for the year ended 31
December 2015 were approved by the Board on 29 February 2016 and
delivered to the Registrar of Companies. The auditor's report on
those financial statements was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under Section 498 (2) or (3) of the Companies Act 2006. The
consolidated financial statements of the Group for the year ended
31 December 2015 are available from the Company's registered office
or website, see note 18.
Basis of preparation
The condensed consolidated interim financial statements of the
Company for the six months ended 30 June 2016 comprise the Company
and its subsidiaries (together referred to as 'the Group'). These
condensed consolidated interim financial statements have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Services Authority and with International
Accounting Standard 34, 'Interim Financial Reporting' as adopted by
the European Union. They do not include all of the information
required for full annual financial statements and should be read in
conjunction with the consolidated financial statements of the Group
for the year ended 31 December 2015, which have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
Going concern
After 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
condensed consolidated interim financial information. In forming
this view, the directors have considered trading and cash flow
forecasts, financial commitments, the significant order book with
customers spread across different geographic areas and industries
and the significant net cash position.
Critical accounting estimates and judgements
The Group makes estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on
historical experience, and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
In the future, actual experience may deviate from these
estimates and assumptions. The estimates and assumptions that have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the current financial year
are discussed in the financial statements for the year ended 31
December 2015.
Accounting policies
The accounting policies applied and significant estimates used
by the Group in these condensed consolidated interim financial
statements are the same as those applied by the Group in its
consolidated financial statements for the year ended 31 December
2015.
New accounting standards and interpretations
The narrow scope amendments which were issued in 2014 as part of
the IFRS Annual improvement cycle were effective from 1 January
2016. The application of these amendments has not had any material
impact on the disclosures, net assets or results of the Group.
Recent accounting developments
IFRS15 Revenue from contracts with customers has been issued but
is not yet effective and has not been adopted as application was
not mandatory for the year. The new standard requires the
separation of performance obligations within contracts with
customers and the contractual value to be allocated to the
performance obligations. Once a performance obligation is satisfied
revenue should be recognised on that element of the contract. The
introduction of the standard is likely to have some impact on
Rotork but this is unlikely to be material due to the relatively
straightforward contractual terms and conditions with customers. An
assessment will be carried to understand the impact of this
standard prior to it becoming effective in January 2018.
IFRS16 Leases was issued on 13 January 2016 and has a mandatory
effective date of 1 January 2019. The new standard will eliminate
the classification of leases as either operating or finance leases
and result in operating leases being treated as finance leases.
This will result in previously recognised operating leases being
treated as property, plant and equipment and a finance lease
creditor. The introduction of the standard will increase the value
of property, plant and equipment and the finance lease liability on
the balance sheet but it is unlikely to have a material impact on
the profit in any year. An assessment will be carried out to
understand the full impact of the standard prior to it becoming
effective in January 2019.
IFRS 9 Financial Instruments has been issued but is not yet
effective and has not been adopted as application was not mandatory
for the year. The directors anticipate that the adoption of this
standard will not have a material impact on the disclosures, net
assets or results of the Group.
Further narrow scope amendments have been issued which are
mandatory for periods commencing on or after 1 January 2017. The
application of these amendments will not have any material impact
on the disclosures, net assets or results of the Group.
2. Analysis by operating segment
The Group has chosen to organise the management and financial
structure by the grouping of related products. The four
identifiable operating segments where the financial and operating
performance is reviewed monthly by the chief operating decision
maker are as follows:
Controls - the design, manufacture and sale of electric
actuators
Fluid Systems - the design, manufacture and sale of pneumatic
and hydraulic actuators
Gears - the design, manufacture and sale of gearboxes, adaption
and ancillaries for the valve industry
Instruments - the manufacture of high precision pneumatic
controls and power transmission products for a wide range of
industries
Unallocated expenses comprise corporate expenses.
Half year to 30 June 2016
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------- --------- -------------- -------------- -------------- ---------
Revenue from
external
customers 132,469 61,816 27,464 42,162 - - 263,911
Inter segment
revenue - - 5,180 2,822 (8,002) - -
----------- --------- --------- -------------- -------------- -------------- ---------
Total revenue 132,469 61,816 32,644 44,984 (8,002) - 263,911
----------- --------- --------- -------------- -------------- -------------- ---------
Operating
profit before
amortisation
of acquired
intangible
assets 36,244 814 6,522 10,260 - (3,124) 50,716
Amortisation
of acquired
intangibles
assets (1,848) (758) (498) (8,683) - - (11,787)
Operating
profit 34,396 56 6,024 1,577 - (3,124) 38,929
----------- --------- --------- -------------- -------------- -------------- ---------
Net financing
expense (602)
Income tax
expense (10,134)
---------
Profit for
the period 28,193
---------
Half year to 30 June 2015
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------- --------- -------------- -------------- -------------- ----------
Revenue from
external
customers 145,956 76,888 23,571 27,743 - - 274,158
Inter segment
revenue - - 6,234 1,034 (7,268) - -
----------- --------- --------- -------------- -------------- -------------- ----------
Total revenue 145,956 76,888 29,805 28,777 (7,268) - 274,158
----------- --------- --------- -------------- -------------- -------------- ----------
Operating
profit before
amortisation
of acquired
intangible
assets 45,154 7,764 6,104 9,034 - (3,040) 65,016
Amortisation
of acquired
intangibles
assets (1,651) (995) (232) (4,947) - - (7,825)
Operating
profit 43,503 6,769 5,872 4,087 - (3,040) 57,191
----------- --------- --------- -------------- -------------- -------------- ----------
Net financing
expense (905)
Income tax
expense (14,874)
----------
Profit for
the period 41,412
----------
Full year to 31 December 2015
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------- --------- -------------- -------------- -------------- ---------
Revenue from
external
customers 286,708 149,228 46,072 64,451 - - 546,459
Inter segment
revenue - - 12,562 2,875 (15,437) - -
----------- --------- --------- -------------- -------------- -------------- ---------
Total revenue 286,708 149,228 58,634 67,326 (15,437) - 546,459
----------- --------- --------- -------------- -------------- -------------- ---------
Operating
profit before
amortisation
of acquired
intangible
assets 85,479 15,215 11,991 18,306 - (5,719) 125,272
Amortisation
of acquired
intangibles
assets (3,326) (2,300) (990) (14,270) - - (20,886)
Operating
profit 82,153 12,915 11,001 4,036 - (5,719) 104,386
----------- --------- --------- -------------- -------------- -------------- ---------
Net financing
expense (2,517)
Income tax
expense (27,012)
---------
Profit for
the year 74,857
---------
Revenue by location of subsidiary
First First Full
half half year
2016 2015 2015
GBP000 GBP000 GBP000
-------- -------- --------
UK 37,430 29,312 64,415
Italy 28,761 26,503 57,254
Rest of Europe 50,925 45,252 92,908
USA 64,631 70,032 137,898
Other Americas 11,120 16,382 30,698
Rest of World 71,044 86,677 163,286
-------- -------- --------
263,911 274,158 546,459
-------- -------- --------
3. Finance income
First First Full
half half year
2016 2015 2015
GBP000 GBP000 GBP000
------- ------- -------
Interest income 464 598 1,119
Foreign exchange gain 800 190 621
------- ------- -------
1,264 788 1,740
------- ------- -------
4. Finance expense
First First Full
half half year
2016 2015 2015
GBP000 GBP000 GBP000
Interest expense 1,325 527 1,811
Interest charge on pension
scheme liabilities 385 582 1,181
Foreign exchange loss 156 584 1,265
------- ------- -------
1,866 1,693 4,257
------- ------- -------
5. Income taxes
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year. The estimated average annual tax rate
used for the year ending 31 December 2016 is 26.4% (the effective
tax rate for the year ended 31 December 2015 was 26.5%).
The Group continues to operate in many jurisdictions where local
profits are taxed at their national statutory rates. As a result,
the Group income tax charge will be subject to fluctuation
depending on the actual profit mix. The Group continues to expect
its effective corporation tax rate to be higher than the standard
UK rate of 20% due to higher tax rates in the majority of overseas
subsidiaries.
6. Acquisitions
On 2 June 2016 the Group completed the acquisition of the
Mastergear business based in the US and Italy for GBP17,040,000,
which was fully paid in cash. Mastergear is a leading manufacturer
of manual and motorised gearboxes for valves focused on the oil and
gas markets, water and distribution, chemical processing and wider
industrial markets. The Mastergear business will be reported in the
Gears Division. In the one month to 30 June 2016 the Mastergear
businesses contributed GBP899,000 to Group revenue and a loss of
GBP60,000 to the Group operating profit.
The provisional fair value of the net assets acquired was
GBP11,159,000 of which GBP6,797,000 were separable intangible
assets. The amortisation charge of these intangible assets was
GBP120,000 in the period from acquisition to 30 June 2016. The
provisional value of goodwill of GBP5,881,000 represents the value
attributed to staff expertise and the assembled workforce, which
did not meet the recognition criteria for a separate intangible
asset.
Due to the proximity of the acquisition to the date of approval
of the interim financial statements the initial accounting for this
business combination is incomplete and therefore the disclosures
regarding the amount of goodwill expected to be deductible for tax
purposes, the fair value of contingent liabilities and assets and
the amount and treatment of acquisition costs has not yet been
made.
7. Dividends
First First
half half Full year
2016 2015 2015
GBP000 GBP000 GBP000
------ ------ ---------
The following dividends were paid in the period
per
qualifying ordinary share:
3.10p final dividend (2015: 3.09p) 26,933 26,835 26,835
1.95p interim dividend - - 16,930
26,933 26,835 43,765
------ ------ ---------
The following dividends per qualifying ordinary
share were declared / proposed at the balance
sheet date:
3.10p final dividend - - 26,962
1.95p interim dividend declared (2015: 1.95p) 16,961 16,954 -
16,961 16,954 26,962
------ ------ ---------
The interim dividend of 1.95p pence will be payable to
shareholders on 23 September 2016 to those on the register on 26
August 2016.
8. Earnings per share
Earnings per share is calculated using the profit attributable
to the ordinary shareholders for the period and 868.5m shares (six
months to 30 June 2015: 867.6m; year to 31 December 2015: 867.8m)
being the weighted average ordinary shares in issue.
Diluted earnings per share is based on the profit for the year
attributable to the ordinary shareholders and 871.4m shares (six
months to 30 June 2015: 870.7m; year to 31 December 2015: 869.3m).
The number of shares is equal to the weighted average number of
ordinary shares in issue (net of own ordinary shares held) adjusted
to assume conversion of all potentially dilutive ordinary
shares.
Adjusted basic and diluted earnings per share is calculated
using the profit attributable to the ordinary shareholders for the
period after adding back the amortisation charge net of tax.
First First
half half Full year
2016 2015 2015
GBP000 GBP000 GBP000
------- ------- ---------
Net profit attributable to ordinary shareholders 28,193 41,412 74,857
Amortisation 11,787 7,825 20,886
Tax effect on amortisation at effective rate (3,117) (2,068) (5,538)
------- ------- ---------
Adjusted net profit attributable to ordinary
shareholders 36,863 47,169 90,205
------- ------- ---------
9. Inventories
30 June 30 June 31 Dec
2016 2015 2015
GBP000 GBP000 GBP000
-------- -------- --------
Raw materials and consumables 69,576 59,531 60,604
Work in progress 9,987 8,967 8,890
Finished goods 20,784 16,010 17,716
-------- -------- --------
100,347 84,508 87,210
-------- -------- --------
10. Pension schemes - Defined benefit deficit
The defined benefit obligation at 30 June 2016 of GBP41,230,000
(30 June 2015: GBP26,083,000; 31 December 2015: GBP23,275,000) is
estimated based on the latest full actuarial valuations at 31 March
2014 for UK and US plans. The valuation of the most significant
plan, namely the Rotork Pension and Life Assurance Scheme in the
UK, has been updated at 30 June 2016 by independent actuaries to
reflect updated assumptions regarding discount rates, inflation
rates and asset values.
30 June 30 June 31 Dec
2016 2015 2015
% % %
-------- -------- -------
Discount rate 2.9 3.9 3.8
Rate of inflation 2.9 3.3 3.2
-------- -------- -------
In addition, the defined benefit plan assets and liabilities
have been updated to reflect the regular payments, the GBP3.7
million payment made in March 2016 in respect of past service and
the benefits earned during the period to the 30 June 2016.
11. Share capital and reserves
The number of ordinary 0.5p shares in issue at 30 June 2016 was
869,808,000 (30 June 2015: 869,425,000; 31 December 2015:
869,738,000). All issued shares are fully paid.
The Group acquired 557,000 of its own shares through purchases
on the London Stock Exchange during the period (30 June 2015:
1,113,000; 31 December 2015: 1,113,000). The total amount paid to
acquire the shares was GBP1,007,000 (30 June 2015: GBP2,785,000; 31
December 2015: GBP2,785,000), and this has been deducted from
shareholders equity. At 30 June 2016 the number of shares held in
trust for the benefit of Directors and employees for future
payments under the Share Incentive Plan and Long-term incentive
plan was 963,000 (30 June 2015: 1,421,000; 31 December 2015:
1,406,000).
Awards under the Group's long-term incentive plan and share
investment plan vested during the period. Under the share
investment plan 1,000,000 shares were transferred to employees. No
shares were awarded under the Group's long-term incentive plan as
the minimum performance criteria was not achieved.
Employee share option schemes: options exercised during the
period to 30 June 2016 resulted in 70,000 ordinary 0.5p shares
being issued (30 June 2015: 146,050 shares), with exercise proceeds
of GBP106,000 (30 June 2015: GBP142,000). The weighted average
market share price at the time of exercise was GBP1.88 (30 June
2015: GBP2.46) per share.
The share based payment charge for the period was GBP1,471,000
(30 June 2015: GBP1,849,000; 31 December 2015: GBP2,810,000).
12. Loans and borrowings
The following loans and borrowings were issued and repaid during
the six months ended 30 June 2016:
Carrying
Year of Interest value
maturity rates GBP000
----------- -------------- ---------
Balance at 1 January 2016 120,108
Movement in the period:
Repayment of Euro denominated
loans 2016-32 1.4-4.5% (116)
Repayment of finance leases 2015-20 1.9% - 10.6% (126)
Movement on GBP denominated
loans 2016-20 variable 23,560
Exchange differences 142
Balance at 30 June 2016 143,568
---------
Current 50,196
Non-current 93,372
---------
143,568
---------
The Group has committed loan facilities of GBP170,000,000 (First
half 2015: GBP75,000,000; Full year 2015: GBP170,000,000), of which
GBP142,500,000 (30 June 2015: GBP20,000,000; 31 December 2015:
GBP119,000,000) has been drawn down, the outstanding amount
attracts a blended interest rate of LIBOR plus 0.75%. The maturity
profile of the non-current debt is as follows:
30 June 30 June 31 Dec
2016 2015 2015
GBP000 GBP000 GBP000
-------- -------- --------
1-2 years 30,004 211 30,084
2-5 years 62,555 165 38,975
> 5 years 813 699 697
-------- -------- --------
93,372 1,075 69,756
-------- -------- --------
13. Provisions
Contingent Warranty Carrying
consideration provision value
GBP000 GBP000 GBP000
--------------- ----------- ---------
Balance at 1 January 2016 11,775 5,528 17,303
Exchange differences 146 448 594
Increase as a result of
business combinations - 86 86
Utilisation of provision (245) (403) (648)
Additional provision in
the period - 203 203
Balance at 30 June 2016 11,676 5,862 17,538
--------------- ----------- ---------
Maturity at 30 June 2016
Non-current 10,000 1,934 11,934
Current 1,676 3,928 5,604
--------------- ----------- ---------
11,676 5,862 17,538
--------------- ----------- ---------
Maturity at 31 December
2015
Non-current 10,147 1,843 11,990
Current 1,628 3,685 5,313
--------------- ----------- ---------
11,775 5,528 17,303
--------------- ----------- ---------
The non-current contingent consideration is related to the
Bifold acquisition and will become payable if an EBITDA target is
achieved at the end of the 2017 financial year.
14. Financial instruments fair value disclosure
The Group held forward currency contracts designated as hedge
instruments in a cash flow hedging relationship. At 30 June 2016
the fair value of these contracts was a net liability of
GBP15,354,000 (30 June 2015: a net asset of GBP4,122,000; 31
December 2015: a net liability of GBP4,007,000). The fair value was
estimated using period end spot rates adjusted for the forward
points to the appropriate value dates, and gains and losses are
taken to equity estimated using market foreign exchange rates at
the balance sheet date. All derivative financial instruments are
categorised at Level 2 of the fair value hierarchy. There was no
ineffectiveness to be recorded from the use of foreign exchange
contracts.
The other financial instruments, comprising trade and other
receivables/payables and contingent consideration, are classified
as Level 3 in the fair value hierarchy and their carrying amount is
deemed to reflect the fair value. The Group had no derivative
financial instruments in the current or previous year with fair
values that would be classified as Level 3 in the fair value
hierarchy.
15. Related parties
The Group has a related party relationship with its subsidiaries
and with its directors and key management. A list of subsidiaries
is shown in the 2015 Annual Report & Accounts. Transactions
between key subsidiaries for the sale and purchase of products or
between the subsidiary and parent for management charges are priced
on an arm's length basis.
Sales to subsidiaries and associates of Severn Trent PLC, a
related party by virtue of Martin Lamb's directorship of that
company, totalled GBP490,000 during the period to 30 June 2016
(Full year 2015: GBP1,229,000) and GBP121,000 was outstanding at 30
June 2016 (31 December 2015: GBP106,580).
16. Share-based payments
A grant of shares was made on 12 April 2016 to selected members
of senior management at the discretion of the Remuneration
Committee. The key information and assumptions from this grant
were:
Equity Settled Equity Settled
TSR condition EPS condition
--------------- ---------------
12 April 12 April
Grant date 2016 2016
Share price at grant date GBP1.63 GBP1.63
Shares awarded under scheme 1,052,622 1,052,622
Vesting period 3 years 3 years
Expected volatility 28.4% 28.4%
Risk free rate 0.4% 0.4%
Expected dividends expressed
as a dividend yield 3.1% 3.1%
Probability of ceasing employment
before vesting 5% p.a. 5% p.a.
Fair value GBP0.85 GBP1.50
The basis of measuring fair value is consistent with that
disclosed in the 2015 Annual Report & Accounts.
17. Shareholder information
The interim report and half year results presentation is
available on the Rotork website at www.rotork.com.
General shareholder contact numbers:
Shareholder General Enquiry
Number (UK): 0371 384 2030
International Shareholders
- General Enquiries: (00) 44 121 415 7047
For enquires regarding the Dividend Reinvestment Plan (DRIP)
contact:
The Share Dividend Team
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0371 384 2268
18. Group information
Secretary and registered office:
Stephen Rhys Jones
Rotork plc
Rotork House
Brassmill Lane
Bath
BA1 3JQ
Company website:
www.rotork.com
Investor Section:
http://www.rotork.com/en/investors/index/
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BRGDIRSGBGLB
(END) Dow Jones Newswires
August 02, 2016 02:00 ET (06:00 GMT)
Rotork (LSE:ROR)
Historical Stock Chart
From Mar 2024 to Apr 2024
Rotork (LSE:ROR)
Historical Stock Chart
From Apr 2023 to Apr 2024