TIDMROR
RNS Number : 9981U
Rotork PLC
04 August 2020
Rotork plc
2020 Half Year Results
Margin expansion in uncertain times
OCC (3)
H1 2020 H1 2019 % change % change
---------- ---------- --------- ----------
Order intake(1) GBP300.5m GBP362.5m -17.1% -15.6%
Revenue GBP283.2m GBP318.6m -11.1% -9.6%
Adjusted (2) operating
profit GBP61.2m GBP67.2m -8.9% -8.0%
Adjusted (2) operating
margin 21.6% 21.1% +50bps +40bps
Profit before tax GBP50.0m GBP52.2m -4.3% -4.0%
Basic earnings per share 4.4p 4.6p -4.3% -3.9%
Adjusted (2) basic earnings
per share 5.4p 5.8p -7.3% -7.1%
Summary
-- Order intake was lower year-on-year, reflecting a sharp
reduction in global economic activity, the strong comparative
period and extreme volatility in hydrocarbon prices
-- Revenues declined in the period, largely due to COVID-19
disruption to production facilities and Rotork Site Services, but
increased sequentially through May and June
-- Water & Power provides essential products and services
and reported an encouraging performance with sales growing 7% OCC
driven by increased refurbishment activity
-- Flow through(5) of lower revenue to adjusted operating profit
from H1 2019 was limited to just 17%, and from H2 2019 was 33%,
demonstrating improved cyclical resilience
-- Profit margins benefited from continued execution of our
Growth Acceleration Programme, cost mitigation actions, reduced
discretionary spend and mix
-- Strong balance sheet maintained, bolstered by 116% cash
conversion, with period end net cash of GBP144m. ROCE 30.7%, +100
bps compared with H1 2019
(1) Order intake represents the value of orders received during
the period.
(2) Adjusted (4) figures exclude the amortisation of acquired
intangible assets and restructuring costs (see note 2).
(3) OCC (4) is organic constant currency results excluding
discontinued businesses and restated at 2019 exchange rates.
(4) Adjusted and OCC figures are alternative performance
measures and are used consistently throughout these half year
results. They are defined in full and reconciled to the statutory
measures in note 2.
(5) Flow through is calculated as the change in adjusted
operating profit as reported, divided into the change in
revenue
Kevin Hostetler, Chief Executive, commenting on the results,
said:
"I am pleased to report that, thanks largely to the
extraordinary efforts of all our people, Rotork delivered a
resilient first half performance in the face of a challenging
economic environment. Adjusted operating profit margin was higher
year-on-year despite lower revenue, and cash conversion remained
strong. We continue to make good progress on our strategic
initiatives, bringing forward some actions that we had planned for
the latter years of the Growth Acceleration Programme and investing
in our facilities.
Due to the unprecedented level of uncertainty, on 31 March we
withdrew our forward guidance for the current year. We retain this
position as considerable uncertainty remains, and therefore we are
not announcing a dividend in respect of this period today. We are
however pleased to announce that we will be paying the previously
deferred 2019 final dividend of 3.9p per share. We will consider
the dividend payable in respect of the whole of 2020 at the end of
the year, and pay this in May 2021.
Whilst the outlook for our end markets remains uncertain, we
entered the second half with our production facilities operating at
close to normal output levels, a solid order book and the
considerable flexibility provided by our strong balance sheet. We
are confident that we will successfully navigate the current
challenges and will be a stronger business going forward."
Rotork plc Tel: +44 (0)1225 733 200
Kevin Hostetler, Chief Executive
Jonathan Davis, Finance Director
Andrew Carter, Investor Relations
Director
FTI Consulting Tel: + 44 (0)20 3727 1340
Nick Hasell / Susanne Yule
There will be a virtual meeting for analysts and institutional
investors at 9.00 am BST today.
The webcast can be accessed at:
https://www.investis-live.com/rotork/5eecac467b676e1e009b9f91/yhfd
Participants can alternatively dial-in on the following
numbers:
UK dial-in number: 020 3936 2999
All other locations: +44 20 3936 2999
Access code: 853157
Please join the meeting a few minutes before 9.00am to complete
registration.
Business review
We completed the implementation of our new market aligned
structure in early 2020 and following this Rotork is structured as
three divisions: Oil & Gas, Water & Power and Chemical,
Process & Industrial ("CPI").
Group order intake in the first half decreased 17.1%
year-on-year, or 15.6% on an OCC basis, to GBP300.5m. The
reduction, which was largely in the second quarter and impacted all
of our divisions, reflected a sharp increase in economic
uncertainty, the strong comparative period and extreme volatility
in hydrocarbon prices.
Despite the uncertainty our customers continue to spend on
automation and environmental projects as well as maintenance and
upgrades. Larger capital projects we are tracking are seeing
delays, and in a very few cases cancellations. However the majority
of Rotork's activity is driven by customers' operational rather
than capital expenditure. We estimate that maintenance, repair and
small to mid-sized automation/upgrade projects (individual orders
less than GBP100k) generate 75% of Group orders by value in a
typical year, and that orders above GBP1m represent only 5% of
Group order intake.
Group revenue was 11.1% lower (9.6% OCC). Water & Power
sales grew year-on-year, with growth in both its principal end
markets. The division provides essential products and services and
reported an encouraging performance with sales driven by increased
refurbishment and upgrade activity, including power sector work won
in the first half of 2019. We currently expect this power sector
refurbishment work to continue through into 2021. Oil & Gas and
CPI sales declined, largely due to COVID-19 related disruption on
production facilities, logistics and Rotork Site Services.
By geography, Europe, Middle East & Africa ("EMEA") revenues
by destination were only modestly lower year-on-year. Asia Pacific
sales were down slightly less than for the Group, with increased
sales at Water & Power offset by declines elsewhere. Revenues
fell double-digits in the Americas reflecting the disposal of a
distribution business at year end and a significant reduction in
activity within the Oil & Gas division.
Rotork Site Services, our global service network, is a key
differentiator in our industry and made important strategic
progress in the period despite COVID-19 making access to customer
sites more challenging. One priority for Rotork Site Services is
increasing the number of actuators under annual service agreements.
The launches of our new Lifetime Management and Reliability
Services programmes were important steps in this regard. During
lockdown in April and May we put the output of our earlier global
survey of training requirements to good use, with 3,600 unique
development sessions being completed by Site Services employees.
Rotork Site Services is managed as a separate unit within Rotork's
divisions and continues to contribute a significant proportion of
Group sales.
Adjusted operating profit was 8.9% down year-on-year (8.0% OCC)
reflecting reduced volumes and higher logistics costs which were
partly offset by Growth Acceleration Programme savings, cost
mitigation actions and reduced discretionary spend (including
travel). Margin however increased, benefiting from the ongoing
Growth Acceleration Programme initiatives to improve Rotork's
cyclical resilience, cost savings and mix. With lower intangible
amortisation, adjustments to profit and net finance charges, profit
before tax has declined by 4.3%.
Strategic progress
As previously communicated, we are committed to delivering
sustainable mid to high single digit revenue growth and mid 20s
adjusted operating margins over time.
To deliver this commitment we developed our Growth Acceleration
Programme compromising of four pillars: Commercial Excellence;
Operational Excellence; Talent & Culture; and IT/core business
processes. The programme is not a fundamental reinvention of
Rotork, but rather refining how we do things, building on our
strong foundations, through people, processes and systems. This
5-year programme, which we began to implement in the second half of
2018, continues on track with progress across all pillars.
Commercial Excellence
We are focused on providing our customers with the products and
services they require whilst at the same time making it simple for
them to buy from Rotork wherever they are in the world. To improve
our commercial performance we are working on new routes to market,
innovation and new product development and are investing in Rotork
Site Services.
One of the most significant Commercial Excellence initiatives is
market re-alignment; focusing our sales teams more closely on
end-market segments and customer needs. We completed this
transition earlier this year, on time and to budget. Our new
divisional structure will more closely address customer needs and
facilitate closer customer relations through key account
management. We are already seeing the benefits of the re-alignment
and have included examples in the operating review section. We
continued the rollout of our value selling training programme,
which commenced last year, following its conversion to a digital
format. The programme now forms part of the sales team's regular
training and is completed by all new joiners.
We are making good progress on our route to market strategy. We
have now completed our review of our channel partners. We made
several important new re-seller appointments in Asia Pacific during
the period, and are planning to shortly make further appointments
in the Americas and in EMEA.
We now have robust processes supporting our innovation and new
product development initiatives and our resources are concentrated
on the most promising and profitable products and on accelerating
their commercialisation. Our earlier new product launches are
making good progress and contributed GBP6.5m to revenues in the
period. We are targeting 15 new product launches in the full year.
Our new products are in most cases targeting specific challenges
such as energy conservation (including reducing power requirements
to enable equipment to run from locally generated renewable energy)
and emissions reduction and offering the latest control systems
(including wireless).
Operational Excellence
Our Operational Excellence initiatives aim to improve
significantly our operational efficiency whilst maintaining our
reputation for high quality products and services. Initiatives
underway include supply chain consolidation, inventory reduction,
continuous improvement and footprint rationalisation.
Our global supply chain programme continues on track. We put in
place supply chain resilience processes early on in the programme
and these have provided improved visibility and greater agility,
enabling us better to manage COVID-19 related disruption in the
period. As expected, procurement savings will be lower year-on-year
in 2020 reflecting reduced purchase volumes. We are however pleased
with the momentum in the programme which will benefit our sourcing
in 2021 and beyond. We continue to look to balance our purchasing
efforts so as to manage down our goods-in inventory. Our
initiatives in this area contributed towards the net GBP6.6m
inventory reduction compared with a year ago. This reduction came
despite a managed increase in certain areas as part of our tactical
COVID-19 response.
The Rotork mixed-model lean continuous improvement programme
continues and we made good progress in the first half
notwithstanding the COVID-19 related disruption. During the period
we completed 124 rapid improvement events across 25 locations. The
space freed-up by our lean work is an important enabler of
footprint optimisation and we are on track to close two production
facilities this year. Another enabler is investment in our larger
factories which will continue through the year.
As already announced we have brought forward some restructuring
actions that we had planned for the latter years of the Growth
Acceleration Programme. One example is the simplification of our
regional back offices. This action will remove complexity whilst
improving our customer-centricity. Another example is our factory
footprint optimisation programme. During the period we announced
that we would combine a North American mid-sized assembly facility
with a larger one. We continue to review additional footprint
opportunities.
Talent & Culture
In challenging times such as those we have experienced this
year, the extraordinary strength of Rotork's people is more
apparent than ever. Whether staff are working in our factories, at
our customers' sites, in our offices or at home (where a large
proportion are), they have embraced the changing circumstances
quickly and with professionalism. Our people are truly living our
purpose, 'keeping the world flowing for future generations', and
embracing our values 'stronger together', 'always innovating' and
'trusted partner'.
Our priority is always the health & safety of our staff but
this has been particularly the case in recent months. Early in the
COVID-19 crisis we undertook a series of comprehensive COVID-19
risk assessments and formed a steering committee which met on a
daily basis. The committee worked with local operational
management, monitored day-to-day developments and ensured best
practice was shared across the Group.
Communication and wellbeing have been especially important
topics given the changes in working practices and the impacts
COVID-19 has meant for our team and their families. We have
introduced a 'virtual' recognition programme and increased our
all-staff communication significantly, including more frequent
emails from our CEO. We have also stepped-up our wellbeing
initiatives. We have offered a variety of opportunities including
learning (how to successfully work from home), exercise classes and
team events. Our response to COVID-19 has been well received, as
evidenced by high scores in our recent staff survey.
Our people have also been working hard actively supporting their
communities. Examples include production of personal protective
equipment for hospitals and care homes and food collections for the
less fortunate. Recognising the difficulties facing some, we
launched Rotork Benevolent Support, a charity intended to provide
additional short-term financial support to employees and
ex-employees facing financial difficulties. The charity's first
year focus is on serious hardship brought about by COVID-19.
As previously announced, Rotork has appointed a Board-level
Environmental, Social and Governance committee with oversight of
the Group's sustainability and societal impact. The committee will
provide oversight, direction and coordination helping Rotork to
operate responsibly, be environmentally sustainable and contribute
positively to society. It will ensure that ESG is an integral part
of the company's strategy and culture from the top down.
IT/core business processes
The development of our new IT system continues. In addition to
core ERP, this system incorporates CRM, project tracking and a
global HR platform. This is a multi-year programme and we look
forward to all our sites operating on a common platform. During the
first half we rolled-out enhancements to our global HR platform and
implemented our new CRM systems across all sites. Recognising the
practical difficulties presented by COVID-19 to our ERP roll-out we
have deferred deployment to our first factory until 2021. This
decision defers some of this year's planned capital expenditure to
next year. Like many other organisations our recent Microsoft Teams
global deployment has significantly helped with communication and
remote working during this difficult period.
Financial Key Performance Indicators (KPIs)
H1 2020 H1 2019 FY 2019
-------- -------- --------
Revenue growth -11.1% -3.7% -3.8%
Adjusted operating margin 21.6% 21.1% 22.6%
Cash conversion 116.1% 117.4% 131.4%
Return on capital employed 30.7% 29.7% 31.8%
Adjusted EPS growth -7.3% +2.7% +3.2%
-------- -------- --------
The KPIs are defined below:
-- Revenue growth is defined as the increase in revenue divided by prior period revenue.
-- Adjusted operating margin is defined as adjusted operating
profit as a percentage of revenue (note 2a).
-- Cash conversion is defined as cash flow from operating
activities before tax outflows, payments of restructuring charges
and the pension charge to cash adjustment as a percentage of
adjusted operating profit (note 2a).
-- Return on capital employed is defined as adjusted operating
profit as a percentage of average capital employed. Capital
employed is defined as shareholders' funds less net cash held, with
the pension fund deficit net of related deferred tax asset added
back (note 2d).
-- Adjusted EPS growth is defined as the increase in adjusted
basic EPS (based on adjusted profit after tax) divided by the prior
year adjusted basic EPS (note 2c).
New divisional structure
Towards the end of the first quarter we completed the transition
to a new global sales force orientation when the Americas became
the final region to switch to end market facing sales teams. This
change from product focussed divisions to end market facing
divisions was one of the key initiatives of the Commercial pillar
of the Growth Acceleration Programme. Changing the divisional
structure also necessitates a change in our reporting and we
signalled earlier this year that in 2020 we would be reporting
under the three new divisions of Oil & Gas, Water & Power
and Chemical, Process & Industrial.
The process of converting our reporting to the new divisions
started in 2019. In the same way that customers are allocated to a
sales team, in order to strengthen that relationship, each customer
is allocated to a division. Sales to that customer, along with all
directly associated costs of that sale, be that the cost of
materials or cost of labour in a service job, are reported under
the division to which that customer is allocated. Where some of our
customers sell into multiple end markets, a lead end market is
identified and that sales team supports the customer. Sales to
these customers will generally be allocated to the lead end market
unless the sale is of significance and an alternative end market
has been identified, in which case it will be reported under the
alternative end market. There are some small differences to our
previous end market analysis as a result of this customer based
analysis and as we have reclassified certain petrochemical
customers who previously were reported under Oil & Gas.
For all costs not directly attributed to a sale, these are
allocated across the three divisions within each of our businesses.
There are some costs which are directly attributable to a division,
for example the sales team themselves, market managers and the
divisional leadership team, but most support costs and facility
costs are not directly attributable to a division and are generally
allocated based on split of revenue. Group central costs are not
allocated to the divisions and remain the same as they were under
the previous product division structure. Equally as many of our
facilities and inventory are not specific to one of the divisions,
we are unable to report divisional balance sheets.
The reports to the Board and all internal reporting switched to
the new end market divisions in the second quarter of 2020. This is
already bringing an improved clarity to our internal performance
management and much clearer alignment with the market drivers
affecting performance.
Adjusted items
Adjusted profit measures are presented alongside statutory
results as the directors believe they provide a useful comparison
of business trends and performance from one period to the next.
The statutory profit measures are adjusted to exclude
amortisation of acquired intangibles and other adjustments, which
in both periods comprise restructuring costs, including redundancy
costs, asset write downs relating to the merger of businesses and
other restructuring costs. The costs in the first half year were
GBP4.0m as the bringing forward of certain Growth Acceleration
Programme initiatives and other restructuring costs picked up
towards the end of the period. Restructuring costs are currently
expected to be lower in the second half.
Amortisation Restructuring
Statutory of acquired costs (note Adjusted
GBPm results intangibles 4) results
---------- ------------- -------------- -----------
Operating profit 50.2 7.1 4.0 61.2
Profit before tax 50.0 7.1 4.0 61.0
Tax (11.7) (1.6) (1.0) (14.3)
---------- ------------- -------------- -----------
Profit after tax 38.2 5.5 3.0 46.7
---------- ------------- -------------- -----------
Financial position
The balance sheet remains strong and we ended the period with
net cash of GBP143.6m (Dec 2019: GBP106.1m). Net cash comprises
cash balances of GBP153.8m less loans and borrowings and leases of
GBP10.2m.
Net working capital at the period end was GBP156.0m, a decrease
of GBP6.1m since the year end. Our focus on working capital
management resulted in continued strong cash generation and our KPI
showed a conversion of 116.1% of adjusted operating profit into
operating cash. Inventory increased GBP7.3m since year end, which
is the normal pattern during the first half of the year, but is
GBP6.6m lower than June 2019. A GBP17.1m reduction in trade
receivables since the year end more than offsets the increase in
inventory and the days sales outstanding remains at the same level
it was in December, 56 days. In total, net working capital as a
percentage of sales is 27.5% compared with 24.2% in December but
28.6% in June 2019.
The estimated average annual tax rate used for the year ending
31 December 2020 is 23.5% (2019: 23.6%) and the estimated adjusted
effective tax rate for the year ending 31 December 2020, based on
adjusted profit before tax, is 23.4% (2019: 23.5%). This small
reduction is driven by the geographic mix of profits plus tax rate
reductions in some specific markets.
Retirement benefits
The Group operates two defined benefit pension schemes, the
larger of which is in the UK. Both the UK and US schemes are closed
to future accrual.
The pension scheme deficit increased from GBP29.6m at 31
December 2019 to GBP44.4m at 30 June 2020, principally due to a
reduction in the discount rate.
Currency
Overall, currency headwinds decreased revenue by GBP0.7m (0.2%)
compared with the first half of 2019. The average US dollar rate
was $1.26 (H1 2019: $1.29) and the average Euro rate was EUR1.14
(H1 2019: EUR1.15), whilst the rates at 30 June 2020 were $1.24 and
EUR1.10 respectively (30 June 2019: $1.27 and EUR1.12).
Dividend
On 31 March this year the Board decided to withdraw the
recommendation to pay the 2019 final dividend of 3.9p per share.
This was to reflect the exceptional set of circumstances and one of
a number of mitigating actions taken to ensure we continued to act
from a position of strength. Reflecting on events since that
earlier decision and the performance of the business in the first
half, the Board has now decided to pay the 3.9p per share in full
in September. The dividend will be declared as an interim dividend
and paid on 25 September 2020 to shareholders on the register at
the close of business on 21 August 2020. We will consider the
dividend payable in respect of the whole of 2020 at the end of the
year, and pay this in May 2021.
Operating review
Oil & Gas
GBPm H1 2020 H1 2019 Change OCC change
Revenue 137.2 158.1 -13.2% -12.8%
Adjusted operating
profit 29.0 34.8 -16.8% -16.6%
Adjusted operating
margin 21.1% 22.0% -90bps -100bps
The Oil & Gas division experienced very challenging trading
conditions in the first half. COVID-19 related disruption impacted
Asia Pacific activity in February before spreading to other regions
of the world in subsequent months. The break-up of the OPEC+
consortium in March resulted in volatility in hydrocarbon prices
and in response many customers announced they would revisit their
capital investment plans. The impact is expected to be most
significantly felt in the North American upstream segment, where
Rotork has relatively limited exposure. The downstream segment,
representing over half of divisional sales, is expected to be
comparatively resilient.
Revenues fell 13.2% year-on-year (12.8% OCC) with the greatest
decline seen in the Americas. EMEA sales were broadly unchanged
year-on-year with the downstream growing. Asia Pacific sales
declined close to the divisional average, with the downstream
holding up better than the upstream and midstream. There are signs
that several significant downstream projects in the region are to
be accelerated, however this is yet to be confirmed. Activity in
the Americas was already lower pre COVID-19 reflecting the weaker
economic activity seen towards the end of the previous year.
Americas downstream activity held up better than the upstream and
midstream segments.
The division's adjusted operating profits were GBP29.0m, 16.8%
lower year-on-year. Adjusted margins were relatively resilient
considering the lower revenues, down only 90 basis points at 21.1%,
and benefited from mix, lower headcount and reduced discretionary
expenses.
Oil & Gas is targeting to outgrow its markets through a
number of strategic initiatives including leveraging the installed
base (through Rotork Site Services), tackling environment
challenges (for example, expanding our offering of products
enabling customers to lower their energy consumption and satisfy
new emissions regulations) and increased onboard sensing and
computational capabilities. We consider the energy transition to be
an opportunity for us. The substantial majority of our revenues are
linked to brownfield spend which Wood Mackenzie forecast to remain
stable under a range of scenarios. New segments, such as carbon
capture and storage, will likely be actuator intensive and
represent exciting medium-term opportunities for us.
The division's customers have set themselves challenging
environmental targets which they will strive to achieve regardless
of the current challenging economic circumstances. For example,
they are very large users of water, and specify Rotork's products
extensively to control and manage their usage whilst minimising
their environmental impact, including the recovery, recycling and
treatment.
Water & Power
GBPm H1 2020 H1 2019 Change OCC change
Revenue 73.2 69.1 5.9% 7.0%
Adjusted operating
profit 20.7 18.0 14.8% 14.9%
Adjusted operating
margin 28.2% 26.0% 220bps 190bps
Water & Power reported an encouraging performance in the
first half. Whilst the division is not totally immune from COVID-19
related disruption, its products and services and that of its
customers are generally considered essential, meaning activity
largely continued without any significant delays. The division is
already seeing the early benefits of its transition to an
end-market alignment. An example is an Australian water utility,
which historically has not dealt with Rotork, having been impressed
with Rotork Site Service's offering declaring Rotork their primary
actuator supplier and service provider for the next five years.
Another is a Malaysian water treatment plant, previously only a
Rotork electric actuator customer, broadening its relationship with
us through placing a material order for fluid power actuators and
instrumentation products.
Revenues grew 5.9% year-on-year (7.0% OCC) with higher sales in
both Asia Pacific and the Americas. Both the water and power
segments grew in Asia Pacific, with water markets particularly
strong in China, driven in part by the government's 'China Water
Ten Actions' initiative. In the Americas, power sales grew strongly
driven by refurbishment work which was won in the first half of
2019, whilst water sales were largely unchanged. EMEA sales were
lower year-on-year in both segments. In UK water, we commenced a
promising wireless communications trial with a major utility
customer. Overall however the UK water sector was quiet due to the
start of a new five-year asset management plan period (AMP7). For
the division as a whole both water and power sales were ahead
year-on-year.
The division's adjusted operating profits were GBP20.7m, 14.8%
higher year-on-year. Adjusted margins were 28.2%, up 220bps
reflecting lower headcount and reduced discretionary spend which
more than compensates for a negative price/mix impact.
Water & Power targets outgrowing its markets through an
optimised go-to-market strategy and focusing on high growth regions
and digital solutions (including network management opportunities).
The division is focused on solving its customers' challenges. For
example water customers rely on Rotork's technologies to reduce
water leakage, increase the lifecycle of assets above- and under-
ground, lower operational costs and meet ever higher water quality
standards. In the traditional power generation segment Rotork teams
are targeting waste-to-energy projects whilst seeking refurbishment
opportunities within the installed base.
Chemical, Process & Industrial
GBPm H1 2020 H1 2019 Change OCC change
Revenue 72.9 91.4 -20.3% -16.8%
Adjusted operating
profit 16.8 19.8 -15.2% -12.7%
Adjusted operating
margin 23.0% 21.6% 140bps 100bps
CPI experienced mixed trading conditions in the first half.
COVID-19 related disruption impacted Asia Pacific activity in
February before spreading to other regions of the world. In the
Americas, industrial production was already slowing prior to the
arrival of the pandemic. Whilst the outlook remains uncertain we
are seeing some encouraging signs, most notably in Asia Pacific
where our shipyard partners have won significant LNG vessel
construction orders and where key process industry customers are
proceeding with expansion plans. CPI is already seeing the early
benefits of its transition to an end-market alignment. Examples
include increased customer wallet share and early success in new
applications (e.g. initial healthcare equipment orders).
Revenues fell 20.3% year-on-year with the greatest decline seen
in the Americas. In EMEA the non-repeat of a large HVAC project
completed last year meant that sales were lower year-on-year but
less than for the division overall. Asia Pacific sales saw a
similar decline to EMEA, with the reduction in part due to COVID-19
related logistics challenges. Revenues fell double-digits in the
Americas, with a significant proportion of this reflecting the
disposal of our Pittsburgh industrial distribution business at the
end of 2019.
Sales into the process segment, representing a substantial
proportion of the division overall, were down less than the
division year-on-year. Process revenues in EMEA were modestly
lower, partly the result of COVID-19 related disruption. Asia
Pacific was slightly ahead, benefiting from increased activity in
China. Continuing Americas process sales were down
double-digits.
The division's adjusted operating profit was GBP16.8m, 15.2%
down year-on-year. Adjusted margins increased 140bps to 23.0%
despite the lower revenues, benefiting from positive price/mix,
procurement savings and lower headcount.
CPI aims to outgrow its markets through focusing on high growth
regions and sectors, optimised channel coverage and developing the
aftermarket. The division is targeting a number of key sectors
including HVAC, chemicals and basic materials. Across all of these,
the drive to lower CO2 emissions is gaining momentum. This trend
presents a key opportunity for CPI - the electrification of
actuation, ie the substitution of electric actuators for high
maintenance and inefficient compressed air valve systems. Carbon
capture, usage and storage and hydrogen are exciting medium-term
opportunities with project pipelines building.
Principal risk and uncertainties
The Group has an established risk management process as part of
the corporate governance framework set out in the 2019 Annual
Report and 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 32 to 33 of the 2019 Annual Report and
Accounts.
Impacts of Covid-19 on Rotork's risk profile
The COVID-19 pandemic has impacted almost every part of our
business and immediate actions were put in place to mitigate those
short term effects. The Group's principal risks and uncertainties
have been reviewed by the Board in light of the impact of COVID-19
and concluded that they remain applicable for the second half of
the financial year.
The most impacted principal risks have been:
-- Risks to our supply chain - we continue to monitor impacts to
our supply chain across the globe arising from localised lockdowns
or disruption to logistics and have been working with our suppliers
to reduce any impact to our customers.
-- Risks to our people such as health and safety - there is an
ongoing risk to continue to comply with all laws and regulations
and continue to put in place the safeguards to protect our people,
in the short to medium term this will be focus on the return to the
workplace in a safe manner.
-- Risks to our IT systems and cyber security - cyber risk has
increased globally with all companies facing an increase in
cyber-attacks. Threat intelligence has played a key role in the
mitigation of this risk.
We have also considered the impact of COVID-19 across the risks
that sit outside our principal risks. Beyond the immediate impact
of COVID-19, global economies are likely to be impacted to varying
degrees of severity.
Towards the end of March, as the UK entered lockdown, we carried
out a scenario-planning exercise to examine the potential impact of
a range of outcomes from COVID-19. These scenarios modelled impacts
to our people and facilities, our supply chain and logistics
channels and the knock-on impact to the end markets we serve. We
also considered a range of possible working capital and funding
assumptions. We continue to monitor these scenarios as
circumstances change.
The Group will continue to monitor the impact of the pandemic
and the potential impacts on our risk profile.
Emerging risks
We continue to monitor and review emerging risks that may impact
our business including environmental, climate and sustainability
risks.
The UK government has stated that the transitional period to
withdraw from the EU ends on 31 December 2020. There is a risk of
no agreement being reached which could adversely affect our
operations. Our Brexit Committee continues to monitor the situation
and is ready to initiate its contingency plans to mitigate any
short-term risks around supply chain and logistics disruption in
particular.
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 2019. A list of current
directors is maintained in the "About Us" section of the Rotork
website: www.rotork.com.
By order of the Board
Kevin G. Hostetler
Chief Executive
3 August 2020
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 2020 which comprises the consolidated
income statement, the consolidated statement of changes in
comprehensive income, 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.
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 Guidance 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 Financial Reporting Council 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 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 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
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 Financial
Reporting Council. 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.
Deloitte LLP
Statutory Auditor
London, United Kingdom
[3 August 2020]
Consolidated Income Statement
First half First half Full year
2020 2019 2019
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Revenue 3 283,234 318,634 669,344
Cost of sales (150,504) (173,060) (357,718)
---------- ---------- ---------
Gross profit 132,730 145,574 311,626
Other income 393 176 2,875
Distribution costs (2,525) (3,111) (6,408)
Administrative expenses (80,351) (88,877) (180,434)
Other expenses (29) (70) (649)
Adjusted operating profit
Adjustments 2 61,237 67,239 151,005
* Amortisation of acquired intangible assets (7,058) (8,983) (18,841)
* Other adjustments 4 (3,961) (4,564) (5,154)
-------------------------------------------------- ----- ---------- ---------- ---------
Operating profit 3 50,218 53,692 127,010
Finance income 5 1,635 1,071 2,087
Finance expense 6 (1,888) (2,529) (5,040)
Profit before tax 49,965 52,234 124,057
Income tax expense 7 (11,728) (12,331) (29,957)
Profit for the period 38,237 39,903 94,100
========== ========== =========
Pence Pence Pence
Basic earnings per share 9 4.4 4.6 10.8
Adjusted basic earnings per share 2 5.4 5.8 13.0
Diluted earnings per share 9 4.4 4.6 10.8
Adjusted diluted earnings per share 2 5.4 5.8 13.0
Consolidated Statement of Comprehensive Income and Expense
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit for the period 38,237 39,903 94,100
Other comprehensive income and expense
Items that may be subsequently reclassified
to the income statement:
Foreign currency translation differences 15,699 (1,855) (12,643)
Effective portion of changes in fair value
of cash flow
hedges net of tax (1,738) 124 2,081
---------- ---------- ---------
13,961 (1,731) (10,562)
Items that are not subsequently reclassified
to the income statement:
Actuarial loss in pension scheme net of tax (16,521) (9,258) (6,705)
---------- ---------- ---------
Income and expenses recognised directly in
equity (2,560) (10,989) (17,267)
Total comprehensive income for the period 35,677 28,914 76,833
========== ========== =========
Consolidated Balance Sheet
30 June 30 June 31 Dec
2020 2019 2019
Notes GBP000 GBP000 GBP000
------- ------- -------
Goodwill 229,636 228,404 222,052
Intangible assets 37,809 52,196 40,848
Property, plant and equipment 96,571 91,175 89,062
Deferred tax assets 14,057 14,622 14,582
Other receivables 335 211 -
Total non-current assets 378,408 386,608 366,544
Inventories 10 81,166 87,724 73,905
Trade receivables 112,275 137,028 129,390
Current tax 4,237 1,650 4,830
Derivative financial instruments 16 44 1,265 2,196
Other receivables 30,799 26,971 27,558
Cash and cash equivalents 153,811 75,951 117,612
------- ------- -------
Total current assets 382,332 330,589 355,491
Total assets 760,740 717,197 722,035
======= ======= =======
Ordinary shares 12 4,364 4,360 4,363
Share premium 14,858 13,698 14,521
Reserves 38,820 33,690 24,859
Retained earnings 515,918 457,864 495,657
------- ------- -------
Total equity 573,960 509,612 539,400
------- ------- -------
Interest-bearing loans and borrowings 13 6,020 8,104 6,791
Employee benefits 44,111 33,660 33,576
Deferred tax liabilities 2,674 8,537 10,745
Derivative financial instruments 16 495 93 124
Provisions 1,854 2,119 1,964
------- ------- -------
Total non-current liabilities 55,154 52,513 53,200
Interest-bearing loans and borrowings 13 4,156 24,782 4,752
Trade payables 37,448 42,212 41,195
Employee benefits 18,904 19,763 24,734
Current tax 16,486 14,398 13,270
Derivative financial instruments 16 2,088 3,156 52
Other payables 44,852 43,733 40,581
Provisions 7,692 7,028 4,851
------- ------- -------
Total current liabilities 131,626 155,072 129,435
Total liabilities 186,780 207,585 182,635
Total equity and liabilities 760,740 717,197 722,035
======= ======= =======
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
2019 4,363 14,521 22,287 1,644 928 495,657 539,400
Profit for the period - - - - - 38,237 38,237
Other comprehensive
income
--------- --------- ------------- ------------ ---------- ----------- ---------
Foreign currency translation
differences - - 15,699 - - - 15,699
Effective portion of
changes in fair value
of cash flow hedges - - - - (2,106) - (2,106)
Actuarial loss on defined
benefit
pension plans - - - - - (20,781) (20,781)
Tax in other comprehensive
income - - - - 368 4,260 4,628
--------- --------- ------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - 15,699 - (1,738) (16,521) (2,560)
--------- --------- ------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - 15,699 - (1,738) 21,716 35,677
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - (2,495) (2,495)
Tax on equity settled
share based payment
transactions - - - - - 473 473
Share options exercised
by employees 1 337 - - - - 338
Own ordinary shares
acquired - - - - - (3,625) (3,625)
Own ordinary shares
awarded under share
schemes - - - - - 4,192 4,192
Dividends - - - - - - -
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 30 June
2020 4,364 14,858 37,986 1,644 (810) 515,918 573,960
========= ========= ============= ============ ========== =========== =========
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
2018 4,358 13,024 34,930 1,644 (1,153) 460,825 513,628
Profit for the period - - - - - 39,903 39,903
Other comprehensive
income
--------- --------- ------------ ------------ ---------- ----------- ---------
Foreign currency translation
differences - - ( 1,855) - - - ( 1,855)
Effective portion of
changes in fair value
of cash flow hedges - - - - 153 - 153
Actuarial gain on defined
benefit pension plans - - - - - (10,478) (10,478)
Tax in other comprehensive
income - - - - (29) 1,220 1,191
--------- --------- ------------ ------------ ---------- ----------- ---------
Total other comprehensive
income - - (1,855) - 124 (9,258) (10,989)
--------- --------- ------------ ------------ ---------- ----------- ---------
Total comprehensive
income - - (1,855) - 124 30,645 28,914
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - (4,445) (4,445)
Tax on equity settled
share based payment
transactions - - - - - 844 844
Share options exercised
by employees 2 674 - - - - 676
Own ordinary shares
acquired - - - - - (3,787) (3,787)
Own ordinary shares
awarded under share
schemes - - - - - 6,030 6,030
Dividends - - - - - (32,248) (32,248)
--------- --------- ------------ ------------ ---------- ----------- ---------
Balance at 30 June
2019 4,360 13,698 33,075 1,644 (1,029) 457,864 509,612
========= ========= ============ ============ ========== =========== =========
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
2018 4,358 13,024 34,930 1,644 (1,153) 460,825 513,628
Profit for the year - - - - - 94,100 94,100
Other comprehensive
income
--------- --------- ------------ ------------ ---------- ----------- ---------
Foreign currency translation
differences - - (12,643) - - - (12,643)
Effective portion of
changes in fair value
of cash flow hedges - - - - 2,548 - 2,548
Actuarial gain on defined
benefit pension plans - - - - - (8,058) (8,058)
Tax in other comprehensive
income - - - - (467) 1,353 886
--------- --------- ------------ ------------ ---------- ----------- ---------
Total other comprehensive
income - - (12,643) - 2,081 (6,705) (17,267)
--------- --------- ------------ ------------ ---------- ----------- ---------
Total comprehensive
income - - (12,643) - 2,081 87,395 76,833
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - (1,011) (1,011)
Tax on equity settled
share based payment
transactions - - - - - (8) (8)
Share options exercised
by employees 5 1,497 - - - - 1,502
Own ordinary shares
acquired - - - - - (5,287) (5,287)
Own ordinary shares
awarded under share
schemes - - - - - 6,030 6,030
Dividends - - - - - (52,287) (52,287)
--------- --------- ------------ ------------ ---------- ----------- ---------
Balance at 31 December
2019 4,363 14,521 22,287 1,644 928 495,657 539,400
========= ========= ============ ============ ========== =========== =========
Consolidated Statement of Cash Flows
First half First half Full year
2020 2019 2019
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Profit for the period 38,237 39,903 94,100
Amortisation of acquired intangible
assets 7,058 8,983 18,841
Other adjustments 4 3,961 4,564 5,154
Amortisation of development costs 1,098 1,132 2,874
Depreciation 7,600 8,141 16,359
Equity settled share based payment expense 2,172 2,081 4,702
Net profit on sale of property, plant
and equipment - (34) 5
Finance income (1,626) (1,071) (2,087)
Finance expense 1,879 2,528 5,040
Income tax expense 11,728 12,331 29,957
72,107 78,558 174,945
(Increase)/decrease in inventories (4,618) 7,081 18,176
Decrease in trade and other receivables 14,156 5,297 7,198
Increase/(decrease) in trade and other
payables 302 (858) (391)
Restructuring costs paid (739) (2,165) (5,151)
Difference between pension charge and
cash contribution (6,496) (4,035) (6,070)
Decrease in provisions (529) (111) (347)
Decrease in employee benefits (10,339) (11,031) (1,160)
---------- ---------- ---------
63,844 72,736 187,200
Income taxes paid (10,907) (13,020) (32,769)
---------- ---------- ---------
Net cash flows from operating activities 52,937 59,716 154,431
Purchase of property, plant and equipment (11,595) (8,149) (17,306)
Development costs capitalised (597) (1,190) (1,937)
Proceeds from sale of property, plant
and equipment (21) 150 663
Disposal of business 3,807 - -
Settlement of hedging derivatives (2,455) (2,098) (3,070)
Interest received 912 802 1,628
---------- ---------- ---------
Net cash flows from investing activities (9,949) (10,485) (20,022)
Issue of ordinary share capital 338 676 1,501
Own ordinary shares acquired (3,625) (3,787) (5,287)
Interest paid (497) (1,610) (2,828)
Proceeds from issue of borrowings - 20,000 -
Repayment of borrowings (34) (59,916) (59,967)
Repayment of lease liabilities (2,626) (2,656) (4,717)
Dividends paid on ordinary shares - (32,248) (52,287)
Net cash flows from financing activities (6,444) (79,541) (123,585)
Net increase/(decrease) in cash and
cash equivalents 36,544 (30,310) 10,824
Cash and cash equivalents at 1 January 117,612 104,489 104,489
Effect of exchange rate fluctuations
on cash held (345) 1,772 2,299
---------- ---------- ---------
Cash and cash equivalents at end of
period 153,811 75,951 117,612
========== ========== =========
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
six months ended 30 June 2020 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 2019 does
not constitute statutory accounts within the meaning of Section 435
of the Companies Act 2006, statutory accounts for the year ended 31
December 2019 were approved by the Board on 2 March 2020 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 2019 are available from the Company's registered office
or website.
Basis of preparation
The condensed consolidated interim financial statements of the
Company for the six months ended 30 June 2020 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 2019, which have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
Going concern
The directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable
future, a period of not less than 12 months from the date of
this report. Accordingly, we continue to adopt the going concern
basis in preparing the condensed consolidated interim financial
information.
In forming this view, the potential impact of COVID-19 on the
Group has been considered. The directors have reviewed: the current
financial position of the Group, which has net cash of GBP144m and
unused committed debt facilities of GBP60m as at the period end;
the significant order book, which contains customers spread across
different geographic areas and industries; and the trading and cash
flow forecasts for the Group, which have been updated for the
expected impact of COVID-19. Multiple scenarios were then run
against the most recent forecasts, which modelled a severe but
plausible reduction in trading performance over the period to
December 2022. The most severe of these exceeded any historic
downturn in trading the Group has experienced over the last 20
years. The directors have reverse stress tested the forecasts and
are satisfied that the downside scenarios are considered remote and
that the Group would continue to have headroom on existing
facilities. The Group also has a number of mitigating actions that
it can take at short notice to preserve cash, for example reduction
in capital programmes, dividend deferral and other reductions in
discretionary spend.
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 2019.
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
2019, except for the adoption of new standards effective as of 1
January 2020. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
New accounting standards and interpretations
Other amendments
A number of amended standards became applicable for the current
reporting period. The application of these amendments has not had
any material impact on the disclosures, net assets or results of
the Group.
New standards and interpretations not yet adopted
Other amendments
Further narrow scope amendments have been issued which are
mandatory for periods commencing on or after 1 January 2021. The
application of these amendments will not have any material impact
on the disclosures, net assets or results of the Group.
2. Alternative performance measures
The Group uses adjusted figures as key performance measures in
addition to those reported under adopted IFRS, as management
believe these measures facilitate greater comparison of the Group's
underlying results with prior periods and assessment of trends in
financial performance.
The key alternative performance measures used by the Group
include adjusted profit measures and organic constant currency
(OCC). Explanations of how they are calculated and how they are
reconciled to IFRS statutory results are set out below.
a. Adjusted operating profit
Adjusted operating profit is the Group's operating profit
excluding the amortisation of acquired intangible assets and other
adjustments that are considered to be significant and where
treatment as an adjusted item provides stakeholders with additional
useful information to assess the trading performance of the Group
on a consistent basis. Further details on these adjustments are
given in note 4.
b. Adjusted profit before tax
The adjustments in calculating adjusted profit before tax are
consistent with those in calculating adjusted operating profit
above.
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit before tax 49,965 52,234 124,057
Adjustments:
Amortisation of acquired intangible assets 7,058 8,983 18,841
Loss on disposal of businesses - - (2,539)
Redundancy and executive change costs 3,961 1,807 2,791
Other restructuring costs - 2,757 4,902
Adjusted profit before tax 60,984 65,781 148,052
---------- ---------- ---------
c. Adjusted basic and diluted earnings per share
Adjusted basic earnings per share is calculated using the
adjusted net profit attributable to the ordinary shareholders and
dividing it by the weighted average ordinary shares in issue.
Adjusted net profit attributable to ordinary shareholders is
calculated as follows:
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
---------- ---------- ---------
Net profit attributable to ordinary shareholders 38,237 39,903 94,100
Adjustments:
Amortisation of acquired intangible assets 7,058 8,983 18,841
Loss on disposal of businesses - - (2,539)
Redundancy and executive change costs 3,961 1,807 2,791
Other restructuring costs - 2,757 4,902
Tax effect on adjusted items (2,557) (3,126) (4,908)
Adjusted net profit attributable to ordinary
shareholders 46,699 50,324 113,187
---------- ---------- ---------
Diluted earnings per share is calculated by using the adjusted
net profit attributable to ordinary shareholders and dividing it by
the weighted average ordinary shares in issue adjusted to assume
conversion of all potentially dilutive ordinary shares (see note
9).
d. Return on capital employed
The return on capital employed ratio is used by management to
help ensure that capital is used efficiently.
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
---------- ---------- ---------
Adjusted operating profit
As reported - - 151,005
Rolling 12 months 145,003 147,825 -
Capital employed
Shareholders' funds 573,960 509,612 539,400
Cash and cash equivalents (153,811) (75,951) (117,612)
Interest bearing loans and borrowings 10,176 32,886 11,543
Pension deficit net of deferred tax 35,153 27,406 23,942
465,478 493,953 457,273
---------- ---------- ---------
472,235 497,083 474,647
Average capital employed (1) (1) (2)
---------- ---------- ---------
Return on capital employed 30.7% 29.7% 31.8%
---------- ---------- ---------
(1) defined as the average of the capital employed at June 2019,
December 2019 and June 2020 (2019: June 2018, December 2018, and
June 2019).
(2) defined as the average of the capital employed at December
2018 and December 2019.
e. Working capital as a percentage of revenue
Working capital as a percentage of revenue is monitored as
control of working capital is key to achieving our cash generation
targets. It is calculated as inventory plus trade receivables, less
trade payables, divided by revenue.
f. Organic constant currency (OCC)
OCC results remove the results of businesses acquired or
disposed of during the period that are not consistently presented
in both periods' results. The 2020 half year results are restated
at 2019 exchange rates.
For businesses acquired, the full results are removed from the
year of acquisition. In the following year, the results for the
number of months equivalent to the pre-acquisition period in the
prior year are removed. For disposals and closure of businesses,
the results are removed from the current and prior periods.
Key headings in the income statement are reconciled to OCC as
follows:
OCC
30 June Currency Impact of 30 June
2020 adjustment disposals 2020
---------- ------------- ----------- ----------
Revenue 283,234 734 - 283,968
Cost of sales (150,504) (564) - (151,068)
---------- ------------- ----------- ----------
Gross margin 132,730 170 - 132,900
Net overheads (71,493) (58) - (71,551)
---------- ------------- ----------- ----------
Adjusted operating profit 61,237 112 - 61,349
---------- ------------- ----------- ----------
Adjusted operating margin 21.6% 21.6%
Adjusted profit before tax 60,984 112 - 61,096
Adjusted basic earnings per
share 5.4p - - 5.4p
---------- ------------- ----------- ----------
OCC
30 June Currency Impact of 30 June
2019 adjustment disposals 2019
---------- ------------- ----------- ----------
Revenue 318,634 - (4,560) 314,074
Cost of sales (173,060) - 3,399 (169,661)
---------- ------------- ----------- ----------
Gross margin 145,574 - (1,161) 144,413
Net overheads (78,335) - 575 (77,760)
---------- ------------- ----------- ----------
Adjusted operating profit 67,239 - (586) 66,653
---------- ------------- ----------- ----------
Adjusted operating margin 21.1% 21.2%
Adjusted profit before tax 65,781 - (589) 65,192
Adjusted basic earnings per
share 5.8p - - 5.8p
---------- ------------- ----------- ----------
g. Flow through
Flow through is calculated as the change in adjusted operating
profit as reported, divided into the change in revenue.
Change vs Change vs
First half First half first half Second half second half
2020 2019 2019 2019 2019
GBP000 GBP000 GBP000 GBP000 GBP000
---------- ---------- ----------- ----------- ------------
Revenue 283,234 318,634 (35,400) 350,710 (67,476)
Adjusted operating profit 61,237 67,239 (6,002) 83,766 (22,529)
Flow through 17.0% 33.4%
---------- ---------- ----------- ----------- ------------
3. Analysis by operating segment
The Group has chosen to organise the management and financial
structure by the grouping of end markets, as detailed in the 'new
divisional structure' section of the announcement. The three
identifiable operating segments where the financial and operating
performance is reviewed monthly by the chief operating decision
maker are as follows:
-- Oil & Gas
-- Water & Power
-- Chemical, Process & Industrial
Unallocated expenses comprise corporate expenses.
Segmental information has been restated for the six months ended
30 June 2019 and year ended 31 December 2019 to reflect the change
in Group structure.
Half year to 30 June 2020
Water
Oil & & Power Chemical, Group
Gas Process Unallocated
& Industrial
GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- -------------- -------------- ---------
Revenue 137,189 73,194 72,851 - 283,234
Adjusted operating
profit 28,969 20,654 16,769 (5,155) 61,237
Amortisation of acquired intangibles
assets (3,691) (473) (2,894) - (7,058)
--------- --------- -------------- -------------- ---------
Segment result before other
adjustments 25,278 20,181 13,875 (5,155) 54,179
Other adjustments (3,961)
--------- --------- -------------- -------------- ---------
Operating profit 50,218
Net financing expense (253)
Income tax expense (11,728)
---------
Profit for the period 38,237
---------
Half year to 30 June 2019
Water
Oil & & Power Chemical, Group
Gas Process Unallocated
& Industrial
GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- -------------- -------------- ---------
Revenue 158,116 69,126 91,392 - 318,634
Adjusted operating
profit 34,830 17,996 19,764 (5,351) 67,239
Amortisation of acquired intangibles
assets (5,120) (1,258) (2,605) - (8,983)
--------- --------- -------------- -------------- ---------
Segment result before other
adjustments 29,710 16,738 17,159 (5,351) 58,256
Other adjustments (4,564)
--------- --------- -------------- -------------- ---------
Operating profit 53,692
Net financing
expense (1,458)
Income tax expense (12,331)
---------
Profit for the
period 39,903
---------
Full year to 31 December 2019
Water
Oil & & Power Chemical, Group
Gas Process Unallocated
& Industrial
GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- -------------- -------------- ---------
Revenue 330,049 154,880 184,415 - 669,344
--------- --------- -------------- -------------- ---------
Adjusted operating
profit 75,544 45,095 41,976 (11,610) 151,005
Amortisation of acquired intangibles
assets (9,290) (4,360) (5,191) - (18,841)
--------- --------- -------------- -------------- ---------
Segment result before other
adjustments 66,254 40,735 36,785 (11,610) 132,164
Other adjustments (5,154)
--------- --------- -------------- -------------- ---------
Operating profit 127,010
Net financing
expense (2,953)
Income tax expense (29,957)
---------
Profit for the
year 94,100
---------
Revenue by location of subsidiary
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
----------- ----------- ----------
UK 29,641 35,101 70,779
Italy 31,230 35,585 68,448
Rest of Europe 53,498 57,060 121,118
USA 58,514 70,574 140,965
Other Americas 13,597 15,905 40,732
Rest of World 96,754 104,409 227,302
----------- ----------- ----------
283,234 318,634 669,344
----------- ----------- ----------
4. Other adjustments
The other adjustments are adjustments that management consider
to be significant and where separate disclosure enables
stakeholders to assess the underlying trading performance of the
Group on a consistent basis.
The other adjustments to profit included in statutory profit are
as follows:
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
----------- ----------- ----------
Gain on disposal of businesses - - 2,539
Redundancy and executive change costs (3,961) (1,807) (2,791)
Other restructuring costs - (2,757) (4,902)
(3,961) (4,564) (5,154)
----------- ----------- ----------
The GBP3,961,000 (2019: GBP1,807,000) redundancy and executive
change costs have been incurred as a result of the progress made
with the Growth Acceleration Programme. An update on the Growth
Acceleration Programme is included in the 'strategic progress'
section of the announcement.
All adjustments are included in administrative expenses. The
adjustments are taxable or tax deductible in the country in which
the expense is incurred.
5. Finance income
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
----------- ----------- ----------
Interest income 916 874 1,803
Foreign exchange gains 719 197 284
1,635 1,071 2,087
----------- ----------- ----------
6. Finance expense
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
Interest expense 796 1,811 3,117
Interest charge on pension scheme liabilities 352 375 750
Foreign exchange losses 740 343 1,173
1,888 2,529 5,040
----------- ----------- ----------
7. 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 2020 is 23.5%. This is lower
than the effective tax rate for the year ended 31 December 2019 of
23.6%, reflecting the mix of taxable profits in group companies
worldwide.
The adjusted effective tax rate for the year ending 31 December
2020, based on the adjusted profit before tax, is 23.4%. This is
lower than the effective tax rate for the year ended 31 December
2019 of 23.5% due to small reductions in the statutory corporate
tax rates in certain countries in which Rotork operates.
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 19% due to higher tax rates in the majority of overseas
subsidiaries.
8. Dividends
First half First half Full year
2020 2019 2019
GBP000 GBP000 GBP000
---------- ---------- ---------
The following dividends were paid in the
period per
qualifying ordinary share:
The 2019 final dividend was postponed (2019:
3.70p) - 32,248 32,248
2.20p interim dividend - - 20,039
- 32,248 52,287
---------- ---------- ---------
The following dividends per qualifying ordinary
share were
declared/proposed at the balance sheet date:
3.90p final dividend proposed - - 34,029
3.90p interim dividend declared (2019: 2.30p) 34,036 20,057 -
34,036 20,057 34,029
---------- ---------- ---------
The recommendation to pay a 3.90 pence per share final dividend
in respect of 2019 was withdrawn on 31 March 2020 in response to
the uncertainty arising from the COVID-19 pandemic. The Board has
now decided to pay this dividend and has declared an interim
dividend of 3.90 pence which will be payable to shareholders on 25
September 2020 to those on the register on 21 August 2020. The
Board will consider the dividend payable in respect of the whole of
2020 at the end of the year, and pay this in May 2021.
9. Earnings per share
Earnings per share is calculated using the profit attributable
to the ordinary shareholders for the period and 871.3m shares (six
months to 30 June 2019: 870.8m; year to 31 December 2019: 871.0m)
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 872.8m shares (six
months to 30 June 2019: 873.5m; year to 31 December 2019: 873.6m).
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.
10. Inventories
30 June 30 June 31 Dec
2020 2019 2019
GBP000 GBP000 GBP000
-------- -------- --------
Raw materials and consumables 59,293 65,948 58,153
Work in progress 6,263 6,061 3,751
Finished goods 15,610 15,715 12,001
-------- -------- --------
81,166 87,724 73,905
-------- -------- --------
11. Pension schemes - Defined benefit deficit
The defined benefit obligation at 30 June 2019 of GBP44,440,000
(30 June 2019: GBP33,918,000; 31 December 2019: GBP29,576,000) is
estimated based on the latest full actuarial valuations at 31 March
2019 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 2020 by independent actuaries to
reflect updated assumptions regarding discount rates, inflation
rates and asset values.
30 June 30 June
31 Dec
2020 2019 2019
% % %
-------- -------- -------
Discount rate 1.5 2.3 2.1
Rate of inflation 2.8 3.2 2.9
-------- -------- -------
In addition, the defined benefit plan assets and liabilities
have been updated to reflect the regular payments, the GBP4.7
million payment made in respect of past service and the benefits
earned during the period to 30 June 2019.
12. Share capital and reserves
The number of ordinary 0.5p shares in issue at 30 June 2020 was
872,730,000 (30 June 2019: 872,063,000; 31 December 2019:
872,538,000). All issued shares are fully paid.
The Group acquired 1,424,000 of its own shares through purchases
on the London Stock Exchange during the period (30 June 2019:
1,297,000; 31 December 2019: 1,769,000). The total amount paid to
acquire the shares was GBP3,625,000 (30 June 2019: GBP3,687,000; 31
December 2019: GBP5,287,000), and this has been deducted from
shareholders' equity. At 30 June 2020 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 990,000 (30 June 2018: 664,000; 31 December 2019:
1,136,000). In the period 1,051,000 shares were transferred from
the trust to employees in respect of the share investment plan and
the overseas profit linked share plan.
In respect of the SAYE scheme, options exercised during the
period to 30 June 2020 resulted in 192,000 ordinary 0.5p shares
being issued (30 June 2019: 438,000 shares), with exercise proceeds
of GBP338,000 (30 June 2019: GBP676,000). The weighted average
market share price at the time of exercise was GBP2.89 (30 June
2019: GBP2.83) per share.
The share based payment charge for the period was GBP2,172,000
(30 June 2018: GBP2,081,000; 31 December 2018: GBP4,702,000).
13. Loans and borrowings
The following loans and borrowings were issued and repaid during
the six months ended 30 June 2020:
Preference
Lease liabilities Bank loans shares Total
GBP000 GBP000 GBP000 GBP000
------------------ ----------- ----------- --------
Balance at 31 December 2019 10,675 828 40 11,543
Additions/drawdowns 930 - - 930
Repayment (2,626) (34) - (2,660)
Exchange differences 313 50 - 363
Balance at 30 June 2020 9,292 844 40 10,176
------------------ ----------- ----------- --------
Lease Preference
liabilities Bank loans shares Total
GBP000 GBP000 GBP000 GBP000
------------- ----------- ----------- --------
Current 4,085 70 - 4,156
Non-current 5,207 774 40 6,020
Balance at 30 June 2020 9,292 844 40 10,176
------------- ----------- ----------- --------
The Group has committed loan facilities of GBP60,000,000 (First
half 2019: GBP60,000,000; Full year 2019: GBP60,000,000), of which
nil (30 June 2019: GBP20,000,000; 31 December 2019: GBPnil) was
drawn down at the balance sheet date. The outstanding amount
attracts a blended interest rate of LIBOR plus 0.65%.
The maturity profile of the non-current loans and borrowings is
as follows:
30 June 30 June 31 Dec
2020 2019 2019
GBP000 GBP000 GBP000
-------- -------- --------
One to two years 2,547 3,077 2,843
Two to five years 3,217 4,554 3,633
More than five years 256 473 315
-------- -------- --------
6,020 8,104 6,791
-------- -------- --------
14. Share-based payments
A grant of share options was made on 7 April 2020 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 Equity Settled
TSR condition EPS condition ROIC condition
--------------- --------------- ----------------
Grant date 7 April 2020 7 April 2020 7 April 2020
Share price at grant date GBP2.39 GBP2.39 GBP2.39
Shares awarded under scheme 575,441 575,441 575,452
Vesting period 3 years 3 years 3 years
Expected volatility 31.3% 31.3% 31.3%
Risk free rate 0.2% 0.2% 0.2%
Expected dividends expressed
as a dividend yield nil nil nil
Probability of ceasing employment
before vesting 5% p.a. 5% p.a. 5% p.a.
Fair value GBP1.62 GBP2.80 GBP2.80
--------------- --------------- ----------------
The basis of measuring fair value is consistent with that
disclosed in the 2019 Annual Report & Accounts.
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 2019 Annual Report and 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.
There were no significant changes in the nature and size of
related party transactions for the period to those reported in the
2019 Annual Report and Accounts.
16. Financial instruments fair value disclosure
The Group held forward currency contracts designated as hedge
instruments in a cash flow hedging relationship. At 30 June 2020
the fair value of these contracts was a net liability of
GBP2,539,000 (30 June 2019: a net liability of GBP1,984,000; 31
December 2019: a net asset of GBP2,020,000). 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.
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 2280
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 2280
Group information
Secretary and registered office:
Sandra Forbes
Rotork plc
Rotork House
Brassmill Lane
Bath
BA1 3JQ
Company website:
www.rotork.com
Investors section:
http://www.rotork.com/en/investors/
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KKNBKFBKDKFK
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