Final Results

RNS Number : 8792H
Rotork PLC
02 March 2010
 



 

2 March 2010

Rotork p.l.c. 

 

2009 Full Year Results

 

 

 
2009
2008
% change
% change (constant currency) 
Revenue
£353.5m
£320.2m
+10.4%
+0.5
Operating profit
£91.5m
£74.9m
+22.2%
+7.2
Profit before tax
£90.9m
£75.8m
+20.0%
+5.1
Adjusted* profit before tax
£91.5m
£76.9m
+19.0%
+4.3
Basic earnings per share
74.2p
62.0p
+19.7%
+4.5
Adjusted* basic earnings per share
74.9p
63.3p
+18.2%
+3.4
Final dividend

Special dividend
17.25p
16.75p

       0.0p
 
 

 

* Adjusted figures are before the amortisation of acquired intangible assets and property disposal 

 

·      Strong growth in operating profits

 

·      Improved operating margins, reflecting management discipline and good competitive position

 

·      Excellent cash generation, with year end cash balances of £78.7m

 

·      Improved return on capital employed

 

·      EPS growth of 19.7%

 

·      High quality order book of £129.1m, down 16% at constant currency, but off an historic high

 

·      Growth opportunities in all markets served

 

·      Special dividend to return £10.0m to shareholders

 

 

 

Outlook

Rotork benefits from a focused long term strategy. Our breadth of product offering, strong balance sheet and international presence provide us with a solid platform for growth.

 

Although market conditions remain unsettled we continue to benefit from investment in product development, new facilities, expanded service capabilities and improved market penetration.   

 

Quotation activity and the number of projects on our internal tracking system remain at high levels and whilst uncertainty remains on the timing of projects, we anticipate continued improvement in infrastructure and energy related markets.

 

The board looks forward with confidence to 2010.

 

 

 

 

For further information, please contact:

 

Rotork p.l.c.

Tel:  01225 733200

Peter France, Chief Executive


Bob Slater, Finance Director




Financial Dynamics       

Tel:  020 7831 3113

Jon Simmons/Sophie Kernon


 

Chairman's Statement

 

2009 saw Rotork achieve further significant revenue and profit growth - despite a subdued trading environment in a number of our markets. General market conditions are showing signs of improvement with increasing project activity and encouraging levels of quotations. We serve long term growth industries, and are targeting the Group wide opportunities that these present. We have continued to invest in our production facilities and product development programmes and are therefore well positioned to capitalise internationally on the improving market conditions through the delivery of high quality competitively presented products and services.

 

Financial Highlights

For the year, revenue at £353.5m was up 10.4% on the prior year and profit before tax increased by 20.0% to £90.9m. We improved Group operating margin from 23.4% to 25.9%, and closed the year with strong cash balances and a good order book.

 

Currency has certainly been a positive influence in the year, both in terms of our competitive position internationally and in the translation of results of our international businesses although the volatility that we saw in the first half settled later in the year. At constant currency the increase in profit before tax was 5.1% on revenue that was up less than 1%.

 

Divisional Highlights

Rotork Controls, our largest division accounting for 64.3% of Group revenue, is the market leader in electric valve actuation. Sales revenue grew in the year by 11.2% to £227.3m and operating profit increased by 26.4% to £72.6m. While there have been project delays in a number of sectors and markets, the level of project activity and quotations made, show that the medium term demand for our products remains strong across all sectors and geographies that we support. We continue to reinforce our position as market leader.

 

Rotork Fluid Systems ('RFS') has been the division most impacted by delays in activity with around 95% of its business exposed to the oil & gas sector. Nevertheless revenue grew by 12.6% and operating profit by 17.8%, and improved operating margin to 14.3% (2008 13.6%). We are now starting to see operational gains from the restructuring of some of our production facilities and this should benefit the current year. We believe that we have grown our market share substantially over the last few years and have brought innovation and technology to a relatively conservative market and product line. The acquisition of Flow-Quip in November is a positive step for us, giving access to improved product application offerings in some new geographic markets, and we expect to see the benefit of this in 2010.

 

Rotork Gears performed well in a difficult market although revenue at £36.8m showed no increase over the prior year and operating profit slipped back. Higher costs of material were experienced during the year and this is taking some time to be resolved. However, opportunities for growth continue to be good and our strong position with international valvemakers, supported by our wide product range and technical excellence, give us confidence for the coming year. Our new facility in India will begin production in the second quarter and this is an important development for us in what is an important market that is increasingly difficult to access through imports.

 

Cash

Cash generation in the year has again been strong with year end net cash balances increasing to £78.7m which represented cash conversion of 117.1% of profit in terms of our key performance indicators. Working capital management has been helped by our inventory reduction programme and good receivables management. The cash balance was of course after the purchase of Flow-Quip in November which was settled for £4.9m.

 

Dividend

The Board is recommending a final dividend of 17.25p, which together with the interim dividend paid in May represents an increase of 9.2% over the 2008 equivalent. This will be payable on 7 May to shareholders on the register on 9 April 2010. In addition the Directors are intending paying a special dividend of 11.5p per share on 23 July to shareholders on the register on 25 June 2010. This represents a further cash distribution of £10.0m.

 

Corporate governance

Our stakeholders rightly expect us to act in a fair and responsible manner both inside and outside our companies, and our commitment to high standards of conduct and performance across our businesses is as strong as ever. We keep Corporate and Social Responsibility ('CSR') issues high on the agenda at management meetings and have an ongoing process of refreshing all of our policies and procedures in these areas. This is dealt with comprehensively in the business review under Corporate Governance.

 

Board Changes

Bob Slater joined Rotork in 1989 and has served as Group Finance Director for the last 12 years. Having aided the recent successful CEO transition Bob has expressed his wish to retire and consequently will be leaving at the end of March. On behalf of the Board I would like to thank Bob for his contribution over many years to the Group's success and wish him well for the future.

 

Bob will be succeeded by Jonathan Davis who we welcome to the Board. Jonathan has gained considerable experience of the business initially as Group Financial Controller and currently as Finance Director of Rotork Controls. 

 

Alex Walker has been a non-executive director since 2001 and for the last few years has chaired the Remuneration Committee. Having now completed nine years on the Board Alex will retire at the forthcoming AGM. He leaves with our best wishes and appreciation of his valued advice and support.

 

Outlook

Rotork benefits from a focused long term strategy. Our breadth of product offering, strong balance sheet and international presence provide us with a solid platform for growth.

 

Although market conditions remain unsettled we continue to benefit from investment in product development, new facilities, expanded service capabilities and improved market penetration.   

 

Quotation activity and the number of projects on our internal tracking system remain at high levels and whilst uncertainty remains on the timing of projects, we anticipate continued improvement in infrastructure and energy related markets.

 

The board looks forward with confidence to 2010.

 

 

 

 

Roger Lockwood

Chairman

1 March 2010

 

 

Business review

 

Introduction

Rotork is an international business with operations which span the globe. We supply actuators, systems and associated products wherever there is a need to control the flow of liquids or gases through pipes or channels, as well as into other specialist applications. The end-user industries that we support are diverse and while we broadly categorise them into the general headings of Oil & Gas, Water and Power, this does not totally define the very wide range of engineering applications for our products. Rotork actuators are used in chemical, energy & power, food, transport and many other industries across the world and can be broadly classed as being related to infrastructure development and management.

 

We have a direct presence in 29 countries, with 15 manufacturing plants, 96 direct service and marketing outlets, and around 1800 staff. In addition to these facilities we have over 300 sales outlets in a further 59 countries where we operate through agents and distributors. This network enables Rotork to give direct local support to customers across the world and is an important facet of our approach to our markets.

 

As our operations have grown, both organically and by acquisition, so has the range of products within the Group's portfolio. With the addition of new locations this has enabled Rotork to supply into increasingly diverse applications, industries and geographies.

 

Year under review

During the past year we have seen disruption in many of our markets as companies and governments have adopted strategies to deal with the financial issues left by the financial crisis. As the year unfolded we saw initiatives in many geographical areas being taken to address this in the form of stimulus packages. For Rotork, the first quarter was buoyant with order intake ahead of the prior year, but by the half year we saw some slowing, influenced by project delays and funding issues in a number of areas. Order intake continued to be slow through the second half, failing to reflect the buoyant project activity and good level of sales quotations that we had seen in the various businesses. By the year end we started to see improved optimism in many areas and indications of projects being released into live status.

 

Overall, order intake was £326.3m, down approximately 5% on the 2008 figure. A number of our businesses reported order intake higher than the prior year, including Iberia (up 20%), Russia (up 35%) and Malaysia (up 25%). Asia generally was the least affected with all but one company showing order intake growth in the year.

 

Shipments were strong and at £353.5m, Group revenue was up 10.4% on the prior year and with operating margin increasing in the year by 2.5 points. Profit before tax was up 20.0% to £90.9m, a new record level. The closing order book was lower than at the start of the year (which itself had been heavily flattered by currency) but at £129.1m it represents a strong position going into 2010. These figures include the acquisition of Flow-Quip made in November, although its contribution to the year was modest.

 

We continue to see medium and long term growth opportunities in all of the markets that we serve and our margin resilience reflects our competitive position in many of these markets. Our strengths continue to be in product design, approach to market and above all close contact with and support of our customers everywhere. Our growing site service operations are particularly important to us, not only in growing our direct income streams, but also in maintaining close customer contact enabling us to also influence future investment decisions. Our site service businesses continue to be deeply imbedded within our divisional businesses and we therefore report on them within the context of each division's performance.

 

Rotork Controls

This is our largest division accounting for 64.3% of sales revenue. It reported sales of £227.3m in the year, up 11.2% on the prior year. Order intake was 1.7% down on the prior year figure, and at the end of the year Controls made up nearly 66% of our order book. Both project activity and the level of sales quotations was good in 2009 and many of the projects that we are working on with our customers already have engineering clearance and operational support, and where there have been holdups, this has in most cases been due to issues relating to the release of funding.

 

During the year we have invested in our UK, India and Russia businesses in terms of facilities, systems and people. We are continuing to invest and ensure that we create further capacity to support our markets in the future. The site services business in Controls has continued to prosper and we see this as an important part of our business going forward enabling deeper partnerships with customers to give them greater on site technical support and visibility of the performance of their processes.

 

This is a business that is well established in most of its industrial markets. The operating margin of the business continues to improve due to operational gearing as our throughput increases, product mix and attention to cost control.

 

Rotork Fluid Systems

Supplying pneumatic and hydraulic actuators and systems, Rotork Fluid Systems ('RFS') has been our fastest growing division in recent years. In the year under review we grew sales revenue by 12.6% to £99.7m. Over the last three years RFS' revenue has grown from £40.5m to £99.7m, an increase of 146%. This has been achieved in a growing market, but we have undoubtedly made great progress in building the business through market share gains due to our customer-oriented approach and increased variety of product offering through organic product development, and latterly by acquisition.

 

The business is largely aimed at supporting the Oil & Gas market, which has been the most impacted by project delays in 2009. Our order intake into this division was down 11.9% over the prior year and while there are a number of large projects available to us, the delays here were worse than in the other parts of the Group. We have been able to maintain margins during this period and have improved our engineering and production processes at the major plants in Italy and Germany, and are able to demonstrate to customers that we have market leading technology, and the capability and capacity to handle even the largest projects in the industry.

 

The site services business within RFS is now gaining critical mass and we are successfully weaving this into our core product offerings to our customers internationally. Despite the recent slowing of order intake, we have a high degree of confidence in this business and the opportunities for us in the medium term.

 

Rotork Gears

Rotork Gears is a supplier of gearboxes, adaptors and ancillaries for the valve industry worldwide and is now the world leader in terms of product portfolio and geographic reach across many industrial sectors. The division is often a sole original equipment supplier to major industrial groups. It has created close partnering arrangements with customers and provides a high quality OEM service, giving the customer base real product improvements and cost savings in a long term relationship. We saw softening in valvemaker activity across the world during the year, and additionally the division was negatively impacted by the strengthening of the Chinese currency which affected material costs. As a result operating margin fell by 1.6 points to 21.8% on sales revenue of £36.8m. Going forward, we are very positive about our new production facility in India where we see good growth prospects and production costs which will support our margin in 2010.

 

Rotork Site Services

Rotork Site Services operates through each of the three divisions with dedicated teams providing on site and workshop support to our customers for the complete range of products including essential repair, maintenance, factory fit and outsource maintenance programmes tailored to the customer's requirements. This business is an important feature in our strategy going forward and we can demonstrate that we are able to genuinely support customers across the range of products and the applications that they cover. We are continually making improvements and structural changes in this business to better enable it to respond to our customers' increasing demands for an outsourcing business model in the fields of site service and plant repair and maintenance.

 

R&D

Investment in our product portfolio is an important part of Rotork's success, and a major differentiating factor in our competitive landscape. Each of the three divisions has an active programme of research and development aimed at refining the product offering, widening its market appeal across sectors, and bringing technical developments into the product range where they would provide value for our customers.

 

The year saw the initial launch of the Control Valve Actuator ('CVA') which has achieved accolades in many quarters including receiving a flow control innovation award from an influential US magazine. The range is not yet fully developed and remains an active part of our development programme into 2010. During 2009 we also widened our network offering to include the HART protocol which has become the de-facto standard in the process control industry and have continued our development of a wireless interface to complement our proprietary Pakscan system. A second wireless trial site, located in the US, has also been installed and a product launch is anticipated during the coming year.

 

We have continued to increase our development resources within the Bath facility where we are focussing on developing technology for future generation electric products whilst working with our international supply chain to advance our current products from both a cost and features perspective.

 

This has been an important year within the Fluid Systems division where a Technical Director has been appointed to provide focus for the successful and growing range of current and planned product developments. A product and technology roadmap is being put in place to ensure a longer term focus on both existing products within the portfolio and new products. RFS has also supplied the largest sub-sea rack and pinion actuator ever built at the Lucca factory.  Measuring over two metres high and five metres in length, the single-acting spring-return actuator is designed to operate a 24 inch, ANSI class 900 sub-sea safety isolation ball valve ('SSIV') for the Tuna Gas Gathering Project, off the coast of Egypt. This project is a continuation of the work with the Gears division and the hydraulically operated package incorporates a special gearbox and de-clutch system which enables the actuator's output drive to the valve to be automatically disconnected and reconnected when maintenance is required.

 

Following the acquisition in 2008 of the Smart Valve Monitor ('SVM') product consolidation has been completed and we now look towards building the brand and additional sales.  Further significant developments for the SVM range are now planned.

 

The product offering of the Gears division has also been extended with the development of gearboxes for the American water industry.  This project was completed during 2009 and the product range is now in production. A complete range of quarter-turn gearboxes has also been designed for building fire-protection systems and these are now at the product testing and approval stage.  Other gearbox ranges have also benefited from continuous improvement and design optimisation programmes.

 

Quality

Commitment to product excellence and customer satisfaction is fundamental to Rotork and we ensure that it is embedded into our business processes across design, vendor assurance and production. Rotork manufacturing sites are required to be registered to the international Quality Management System Standard ISO9001 and also adopt Rotork systems and working practices that are proven and used across the Group.  This process is planned and managed from the main production site and Group headquarters in Bath.

 

Our research and development function has a robust design review process for all new products which ensures that our quality ethos is built in at our own and our suppliers' facilities. Our business model requires exact control of our component procurement processes and through our global supply chains we have created a mutually supportive network of Rotork supplier quality assurance ('SQA') and procurement teams to ensure that our requirements are achieved. 

 

 

 

Peter France

Chief Executive

1 March 2010

 

 
Consolidated Income Statement

for the year ended 31 December 2009

 

Notes

2009



£'000




Revenue

2

353,521

Cost of sales


(187,600)

 


______

Gross profit


165,921

Other income

4

688

Distribution costs


(3,428)

Administrative expenses


(71,585)

Other expenses


(59)

 



Operating profit before the amortisation of acquired intangible assets and the disposal of property


92,103

Amortisation of acquired intangible assets


(1,153)

Disposal of property


587

Operating profit

2

91,537




Financial income

5

5,784

Financial expenses

5

(6,405)

 


______

Profit before tax


90,916

Income tax expense

6

(26,884)

 


______

Profit for the year


64,032

=====

 



 



 


Pence

Basic earnings per share

13
74.2
62.0

Diluted earnings per share

13

73.9

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2009

 

 


2009

 


£'000

Profit for the year


64,032

 



Other comprehensive income



Foreign exchange translation differences


(11,928)

Actuarial (loss) / gain in pension scheme


(15,547)

Movement on deferred tax relating to actuarial loss / (gain)


4,257

Effective portion of changes in fair value of cash flow hedges, net of tax


5,046

 


______

Income and expenses recognised directly in equity


(18,172)

 



Total comprehensive income for the year


45,860

=====

 

 

 

Consolidated Balance Sheet

at 31 December 2009

 

Notes

2009

 


£'000

Assets



Property, plant and equipment


23,521

Intangible assets

7

40,780

Deferred tax assets


11,631

Other receivables


1,119

 


______

Total non-current assets


77,051




Inventories

8

46,712

Trade receivables

9

53,791

Current tax


1,818

Derivative financial instruments


942

Other receivables


6,197

Cash and cash equivalents

10

78,676

 


______

Total current assets


188,136

______

Total assets


265,187

=====

Equity



Issued equity capital

12

4,330

Share premium


7,033

Reserves


14,406

Retained earnings


140,402

 


           _____

Total equity


166,171

=====

Liabilities



Interest bearing loans and borrowings


162

Employee benefits


22,549

Deferred tax liabilities


1,970

Derivative financial instruments


127

Provisions

11

1,664

 


______

Total non-current liabilities


26,472

 



Interest bearing loans and borrowings


104

Trade payables

14

26,350

Employee benefits


7,252

Current tax


9,768

Derivative financial instruments


1,130

Other payables


24,690

Provisions

11

3,250

 


______

Total current liabilities


72,544

 



Total liabilities


99,016

______

Total equity and liabilities


265,187

=====

These financial statements were approved by the Board of Directors on 1 March 2010 and were signed on its behalf by:

 

PI Franceand RE Slater, Directors.

 

 

Consolidated Statement of Changes in Equity

 

 

Balance at 31 December 2007


Profit for the year

Other comprehensive income

Foreign exchange translation differences

Effective portion of changes in fair value of cash flow hedges

 

Actuarial gains and losses on defined benefit pension plans net of tax

Total other comprehensive income

Total comprehensive income

Transactions with owners, recorded directly in equity

Equity settled share based payment transactions net of tax

Share options exercised by employees

Own ordinary shares acquired

Own ordinary shares awarded under share schemes

Preference shares redeemed

Dividends

Balance at 31 December 2008









Profit for the year

-

-

-

-

-

64,032

64,032

Other comprehensive income








Foreign exchange translation differences

-

-

(11,928)

-

-

-

(11,928)

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

5,046

-

5,046

Actuarial gains and losses on defined benefit pension plans net of tax

-

-

-

-

-

(11,290)

(11,290)

Total other comprehensive income

 

-

 

-

 

(11,928)

 

-

 

5,046

 

(11,290)

 

(18,172)

Total comprehensive income

-

-

(11,928)

-

5,046

52,742

45,860

Transactions with owners, recorded directly in equity








Equity settled share based payment transactions net of tax

-

-

-

-

-

48

48

Share options exercised by employees

5

367

-

-

-

-

372

Own ordinary shares acquired

-

-

-

-

-

(3,700)

(3,700)

Own ordinary shares awarded under share schemes

-

-

-

-

-

3,297

3,297

Dividends

-

-

-

-

-

(24,102)

(24,102)

Balance at 31 December 2009

4,330

7,033

12,981

1,642

(217)

140,402

166,171

 

Detailed explanations for equity capital, translation reserve, capital redemption reserve and hedging reserve can be seen in note 12.

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2009

           


Notes

2009

2009

 


£'000

£'000

Cash flows from operating activities




Profit for the year


64,032


Adjustments for:




Amortisation of intangibles


1,153


Amortisation of development costs


402


Depreciation


3,549


Equity settled share-based payment expense


872


(Profit) \ Loss on sale of property, plant and equipment

(598)



Financial income


(5,784)


Financial expenses


6,405


Income tax expense


26,884


 


______


 


96,915


Decrease \ (Increase) in inventories


9,680


Decrease \ (Increase) in trade and other receivables


5,967


(Decrease) \ Increase in trade and other payables


(4,032)


Difference between pension charge and cash contribution

 

(1,350)

 

(823)

 

(Decrease) \ Increase in provisions


(257)


Increase \ (Decrease) in other employee benefits

272




______




107,195


Income taxes paid


(27,548)


 


______


______

Cash flows from operating activities



79,647

 




Investing activities




Purchase of property, plant and equipment


(4,238)


Purchase of intangible assets


-


Development costs capitalised


(768)


Sale of property, plant and equipment


908


Acquisition of subsidiary, net of cash acquired


(4,892)


Interest received


270




______


Cash flows from investing activities



(8,720)

 




Financing activities




Issue of ordinary share capital


372


Purchase of ordinary share capital


(3,700)


Purchase of preference shares treated as debt


-


Interest paid


(176)


Repayment of amounts borrowed


(27)


Repayment of finance lease liabilities


(94)


Dividends paid on ordinary shares


(24,102)


 


______


Cash flows from financing activities



(27,727)

 



______

Net Increase \ (decrease) in cash and cash equivalents


43,200

Cash and cash equivalents at 1 January



41,390

Effect of exchange rate fluctuations on cash held


(5,914)

Cash and cash equivalents at 31 December

10


78,676

=====

 

 

Notes to the Financial Statements

for the year ended 31 December 2009

 

Except where indicated, values in these notes are in £'000.

 

 

Rotork p.l.c. is a Company domiciled in England. The consolidated financial statements of the Company for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the 'Group').

 

1.         Accounting policies

 

Basis of preparation

The consolidated financial statements of Rotork p.l.c. have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention subject to the items referred to in the derivative financial instruments accounting policy below.

New, revised or changes to existing standards in 2009 which have been adopted by the Group

 

IAS1 (revised), 'Presentation of financial statements' became effective on 1 January 2009. The revision has resulted in minor changes to the presentation of the primary statements.

 

IFRS 8 'Operating segments',became effective on 1 January 2009. The new standard has not required any additional disclosure or changes to segmental reporting from that reported in 2008.

 

IAS23 'Borrowing costs' amendment became effective on 1 January 2009 and requires borrowing costs which meet certain criteria to be capitalised. The Group does not currently have any material borrowings or interest costs.

 

Amendments to IAS32, 'Presentation', IAS39, 'Financial instruments', IFRS2, 'Share-based payment', IFRS7 'Financial instruments: Disclosures' and IAS27 'Consolidated and separate financial statements' became effective in 2009 and did not have a material impact on the Group.

Interpretations which became effective in 2009

No interpretations which became effective in 2009 were relevant to the Group.

Standards, amendments and interpretations to existing standards that are effective and have not been early adopted by the Group

IFRS3, 'Business combinations (revised)', will be adopted from 1 January 2010 and will result in future acquisition costs being expensed. The policy up until 31 December 2009 was to include the acquisition costs in the cost of the investment. The change is not expected to have a material impact on the financial statements.

Recent accounting developments

Standards, amendments or interpretations which have been issued by the International Accounting Standards Board or by the IFRIC which have not yet been adopted are not expected to have a material impact on the Group. Subject to endorsement by the European Union, these standards, amendments or interpretations will be adopted in future periods.

 

Going concern

The company has considerable financial resources together with a significant order book, with customers across different geographic areas and industries. As a consequence, the directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook.

 

The directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements.

 

Consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year to 31 December 2009. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. Intragroup balances and any unrealised gains or losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

 

Status of this preliminary announcement

The financial information contained in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2009 or 2008. Statutory accounts for 2008, which were prepared under International Financial Reporting Standards as adopted by the EU, have been delivered to the registrar of companies, and those for 2009 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009. Full financial statements for the year ended 31 December 2009, will shortly be posted to shareholders, and after adoption at the Annual General Meeting on 23 April 2010 will be delivered to the registrar.

 

 

 Notes to the Financial Statements

 

2.         Operating segments

 

The management structure and reporting of financial information to the chief operating decision maker is the basis used to define operating segments.

 

The Group comprises the following operating segments: 

Controls - the design, manufacture and sale of electric valve actuators

Fluid Systems - the design, manufacture and sale of heavy duty pneumatic and hydraulic valve actuators

Gears - the design, manufacture and sale of gearboxes, adaption and ancillaries for the valve industry

 

Unallocated expenses comprise corporate expenses.

 

Geographic analysis

Rotork has a worldwide presence in all three operating segments through its subsidiary selling offices and through an agency network. A full list of locations can be found at www.rotork.com or on pages 84 and 85 of the 2008 Rotork Annual Report and Accounts.

 

Analysis by Operating Segment:
Controls
Fluid Systems
Gears
Eliminations
Consolidated


2009

2009

2009

2009

2009







Revenue from external customers

227,344

99,726

26,451

-

353,521

Inter segment revenue

-

-

10,373

(10,373)

-


______

______

______

______

______

Total revenue

227,344

=====

99,726

=====

36,824

=====

(10,373)

=====

353,521

=====







Segment result

72,620

=====

14,220

=====

8,026

=====

-

=====

94,866

Unallocated expenses

(3,329)

______

Operating profit





91,537

Net financing expense





(621)

Income tax expense





(26,884)

______

Profit for the year





64,032

=====

 
Controls
Fluid Systems
Gears
Eliminations
Consolidated



Revenue from external customers

Inter segment revenue


Total revenue


Segment result

Unallocated expenses

Operating profit

Net financing income

Income tax expense

Profit for the year

 
Controls
Fluid Systems
Gears
Unallocated
Consolidated


2009

2009

2009

2009

2009







Depreciation

2,262

1,040

247

-

3,549

Amortisation:

Other intangibles

Development costs

 

-

402

 

1,093

-

 

60

-

 

-

-

 

1,153

402

Non-cash items : equity settled share-based payments

508

72

51

117

748

Net financing expense

-

-

-

621

621

Intangible assets acquired as part of a business combination

 

-

 

3,595

 

-

 

-

 

3,595

Capital expenditure

3,083

1,094

135

-

4,312

 
Controls
Fluid Systems
Gears
Unallocated
Consolidated



Depreciation

Amortisation:

Other intangibles

Development costs

Non-cash items : equity settled share-based payments

Net financing income

Intangible assets acquired as part of a business combination

Capital expenditure

 

Balance sheets are reviewed by operating subsidiary and operating segment balance sheets are not prepared, as such no further analysis of operating segments assets and liabilities are presented.   

Geographical analysis:

UK

Rest of Europe

USA

Other Americas

Rest of the World
Consolidated


2009

2009

2009

2009

2009

2009








Revenue from external customers by location of customer

29,314

117,098

65,370

33,081

108,658

353,521








Non- current assets







- Intangible assets

6,869

19,217

10,207

213

4,274

40,780

- Property, plant and equipment

5,200

11,060

3,360

220

3,681

23,521

 
Consolidated



Revenue from external customers by location of customer


Non- current assets

- Intangible assets

- Property, plant and equipment

 

 

 

3.         Acquisition of subsidiaries

 

On 6 November 2009 the Group acquired the trade and assets of Flow-Quip a designer and manufacturer of valve actuators based in Tulsa, USA. The acquisition was accounted for using the purchase method.

 

In the 2 months to 31 December 2009 the business contributed £1,378,000 to Group revenue and £163,000 to consolidated operating profit before the £235,000 amortisation charge from the acquired intangible assets. If the acquisition had occurred on 1 January 2009 the business would have contributed £9,274,000 to Group revenue and £1,145,000 to Group operating profit. It is not practicable to disclose profit before tax or profit attributable to equity shareholders as the Group manages its Treasury function on a Group basis.

 

Goodwill has arisen on this acquisition as a result of the value attributed to staff expertise and the assembled workforce, which did not meet the recognition criteria for an intangible asset.

 

The acquisition had the following effect on the Group's assets and liabilities.

 

Pre acquisition carrying amounts

Fair value adjustments

Carrying amounts


Property, plant and equipment

Intangible assets

Inventories

Trade and other receivables

Trade and other payables



Goodwill on acquisition

Consideration paid, satisfied in cash


Purchase consideration settled in cash

Cash and cash equivalents in subsidiary acquired

Cash outflow on acquisition

 

The intangible assets identified comprise customer relationships, brand and acquired order book.

 

 

Acquisitions during 2008

 

On 30 January 2008 the Group acquired 100% of the share capital of Remote Controls Sweden AB a designer and manufacturer of valve actuators based in Falun, Sweden. The acquisition was accounted for using the purchase method of consolidation.

 

In the 12 months to 31 December 2008 the subsidiary contributed £18,261,000 to Group revenue and £2,208,000 to consolidated operating profit before the £985,000 amortisation charge from the acquired intangible assets. It is not practicable to disclose profit before tax as the Group manages its Treasury function on a group basis. Similarly it is not practicable to disclose profit attributable to equity shareholders, as acquired businesses have been merged with existing group companies in the period since the acquisition. If the acquisition had occurred on 1 January 2008 the results would not have been materially different.

 

Goodwill has arisen on this acquisition as a result of the value attributed to staff expertise and the assembled workforce, which did not meet the recognition criteria for an intangible asset, and post acquisition synergies within the Fluid Systems division.

 

The acquisition had the following effect on the Group's assets and liabilities.

 

Pre acquisition carrying amounts

Fair value adjustments

Carrying amounts


Property, plant and equipment

Intangible assets

Inventories

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Deferred tax liabilities

Borrowings


Goodwill on acquisition

Consideration paid, satisfied in cash (including £162,000 expenses)


Purchase consideration settled in cash

Cash and cash equivalents in subsidiary acquired

       ______

Cash outflow on acquisition

 

The intangible assets identified comprise customer relationships, brand and acquired order book.

 

 

 

4.         Other income

 

2009



Gain on disposal of property, plant and equipment

654

Non-executive fees receivable

34

Other

-


688

=====

 

Included in gain on disposal of property, plant and equipment is a profit of £587,000 in relation to the sale of a Spanish building.

 

 

5.         Net financing income                                     

 

Recognised in the income statement

2009



Interest income

226

Expected return on assets in the pension schemes

5,408

Foreign exchange gains

150

______


5,784

=====



Interest expense

167

Interest charge on pension scheme liabilities

5,449

Foreign exchange losses

789

______


6,405

=====



Recognised in equity




Effective portion of changes in fair value of cash flow hedges

(217)

Fair value of cash flow hedges transferred to income statement

5,263 

Foreign currency translation differences for foreign operations

(11,928)

______


(6,882)

=====

Recognised in:


Hedging reserve

5,046

Translation reserve

(11,928)

______


(6,882)

=====

 

 

 

6.         Income tax expense

                                                           

 

2009

2009

Current tax:



UK corporation tax on profits for the year

13,757


Double tax relief

(6,074)


Adjustment in respect of prior years

(146)

______




7,537




Overseas tax on profits for the year

18,560


Adjustment in respect of prior years

(9)

______




18,551



______

Total current tax


26,088




 

Deferred tax:



Origination and reversal of other temporary differences

704


Adjustment in respect of prior years

92

______

 


Total deferred tax


796



_____


Total tax charge for year


26,884

=====




Effective tax rate (based on profit before tax)


29.6%






Profit before tax


90,916


75,751






Profit before tax multiplied by standard rate of corporation tax in the UK of 28.0% (2008: 28.5%)


25,456


21,589






Effects of:





Non deductible items


1,468


1,640

Utilisation of overseas tax holidays and losses


(898)


(1,154)

Different tax rates on overseas earnings


921


273

Adjustments to tax charge in respect of prior years


(63)

______


(17)

______

Total tax charge for year


26,884

=====


22,331

=====

 

A tax credit of £670,000 (2008: expense £471,000) in respect of share based payments has been recognised directly in equity in the year.

 

The Group continues to expect its effective rate of corporation tax to be slightly higher than the standard UK rate due to higher rates of tax in the US, Canada, France, Germany, Italy, Japan and India.

 

There is an unrecognised deferred tax liability for temporary differences associated with investments in subsidiaries. Rotork p.l.c. controls the dividend policies of its subsidiaries and subsequently the timing of the reversal of the temporary differences. It is not practical to quantify the unprovided temporary differences as acknowledged within paragraph 40 of IAS 12.

 

 

 

7.         Intangible assets

 

Goodwill

 

 

2009

Development costs

 

2009

Other intangibles

 

2009

Total

 

 

2009

Cost

Balance at 1 January

 

32,792

 

3,879

 

6,941

 

43,612

Exchange differences

(1,696)

-

(19)

(1,715)

Internally developed during the year

-

768

-

768

Reduction in deferred consideration

-

-

-

-

Additions

-

-

-

-

Acquisition through business combinations

2,108

 

______

-

 

______

1,487

 

______

3,595

 

_____

Balance at 31 December

33,204

4,647

8,409

46,260






Amortisation





Balance at 1 January

-

2,153

1,763

3,916

Exchange differences

-

-

9

9

Amortisation for the year

-

402

1,153

1,555


______

______

______

_____

Balance at 31 December

-

 

_____

2,555

 

_____

2,925

 

_____

5,480

 

_____

_____

_____

_____

_____

Net book value at 31 December

 

Net book value at 31 December 2007

33,204

=====

 

 

2,092

=====

 

 

5,484

=====

 

 

40,780

=====

 

 

 

The amortisation charge in both years is recognised within administrative expenses in the income statement. Other intangibles include customer relationships, order books, intellectual property, agency agreements and trading names of acquired companies.

 

Impairment tests for goodwill

 

Goodwill is allocated to the Group's cash generating units ('CGUs') identified according to business segment. A segment level summary of goodwill allocation is presented below.

 

2009



Controls

6,687

7,240

Fluid Systems

18,753

17,490

Gears

7,764

8,062


_____

_____


33,204

=====

32,792

=====

 

The recoverable amounts of all CGUs are based on value in use calculations. These calculations use cash flow projections and are based on actual operating results and the latest Group three year plan. The three year plan is based on management's view of the future and experience of past performance. Cash flows for the remainder of the next twenty years are extrapolated using a 2% growth rate which reflects the long-term nature of many of the markets the Group serves. This rate has been consistently bettered in the past so is believed to represent a prudent estimate. The discount rate used is 9.8% (2008: 11%), this represents a reasonable rate for a market participant in this sector. The discount rate of each business segment is not materially different to 9.8%. For the Goodwill to become impaired in the CGU with the minimum headroom, the discount rate would have to increase by 40%. On this basis each business segment has sufficient headroom and therefore no impairment write downs are required.

 

 

8.         Inventories

 

2009



Raw materials and consumables

26,998

Work in progress

13,692

Finished goods

6,022

______


46,712

=====

Included in cost of sales was £140,728,000 (2008: £134,769,000) in respect of inventories consumed in the year. 

 

                                                                                                           

9.         Trade and other receivables

2009

Non-current assets:


Insurance policy

995

Other

124

_____

Other receivables

1,119

=====



Current assets:


Trade receivables

55,384

Less provision for impairment of receivables

(1,593)

______

Trade receivables - net

53,791

=====



Corporation tax

1,818

______

Current tax

1,818

=====



Other non-trade receivables

3,729

Prepayments and accrued income

2,468

______

Other receivables

6,197

=====

 

 

 

10.        Cash and cash equivalents

 


2009




Bank balances


29,704

Cash in hand


89

Short-term deposits


48,883

______

Cash and cash equivalents


78,676

Bank overdrafts


-

______

Cash and cash equivalents in the consolidated statement of cash flows


78,676

=====

 

 

11.        Provisions

 

 

Warranty

 

 

2009

Deferred consideration

 

2009

 

Total

 

2009

 

Balance at 1 January 2009

4,979

193

5,172

Exchange differences

(371)

-

(371)

Provisions used during the year

(1,133)

(193)

(1,326)

Charged in the year

1,439

______

-

_____

1,439

_____

Balance at 31 December 2009

4,914

-

4,914


=====

=====

=====

Maturity at 31 December 2009




Non-current

1,664

-

1,664

Current

3,250

______

4,914

=====

-

_____

-

=====

3,250

_____

4,914

=====





Maturity at 31 December 2008




Non-current

1,660

Current

3,319

______

4,979

=====

 

The warranty provision is based on estimates made from historical warranty data associated with similar products and services. The provision relates mainly to products sold during the last 12 months, the typical warranty period is now 18 months.

 

The deferred consideration arose on the acquisition of PC Intertechnik during 2005, this amount was settled during 2009.

 

 

 

12.        Capital and reserves

 

Share capital and share premium

 

5p Ordinary shares

Authorised

5p Ordinary shares

Issued and fully paid up

£1 Non-redeemable preference shares

5p Ordinary shares

Authorised

5p Ordinary shares

Issued and fully paid up

£1 Non-redeemable preference shares


2009

2009

2009

At 1 January

5,449

4,325

42

Preference shares redeemed

-

-

-

Issued under employee share schemes

-

 

_____

5

 

_____

-

 

_____

At 31 December

5,449

4,330

42


=====

=====

=====




Number of shares (000)

108,990

=====

86,613

=====

 

The ordinary shareholders are entitled to receive dividends as declared and are entitled to vote at meetings of the Company.

 

The Group issued 12,246 Ordinary shares during the year under the Share option scheme (2008: 18,835) at prices between 285p and 387p (2008: 285p and 387p). The Group issued 90,615 (2008: 21,951) under the Sharesave plan at prices between 320p and 592p (2008: 462p).

 

The Group received proceeds of £372,000 (2008: £149,000) in respect of the 102,861 (2008: 40,786) Ordinary shares issued during the year: £5,000 (2008: £2,000) was credited to share capital and £367,000 (2008: £147,000) to share premium.

 

The preference shareholders take priority over the ordinary shareholders when there is a distribution upon winding up the Company or on a reduction of equity involving a return of capital. The holders of preference shares are entitled to vote at a general meeting of the Company if a preference dividend is in arrears for six months or the business of the meeting includes the consideration of a resolution for winding up the Company or the alteration of the preference shareholders' rights.

 

Within the retained earnings reserve are own shares held. The investment in own shares represents 363,196 (2008: 413,302) ordinary shares of the Company held in trust for the benefit of directors and employees for future payments under the Share Incentive Plan and Long-term incentive plan. The dividends on these shares have been waived.

 

Translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.

 

Capital redemption reserve

The capital redemption reserve arises when the Company redeems shares wholly out of distributable profits.

 

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments that are determined to be an effective hedge.

 

Dividends

The following dividends were paid in the year per qualifying ordinary share:

2009

 


16.75p final dividend (2008: 14.0p)

14,470

11.15p interim dividend (2008: 9.25p)

9,632

2008 additional interim dividend 11.5p

-


24,102

=====

 

After the balance sheet date the following dividends per qualifying ordinary share were proposed by the directors. The dividends have not been provided for and there are no corporation tax consequences.

 

2009

Final proposed dividend per qualifying ordinary share


17.25p

14,943

=====

16.75p




Additional interim dividend per qualifying ordinary share proposed for 2010


11.5p

9,960

=====

 

 

13.        Earnings per share

 

Basic earnings per share

Earnings per share is calculated for both the current and previous years using the profit attributable to the ordinary shareholders for the year. The earnings per share calculation is based on 86.3m shares (2008: 86.1m shares) being the weighted average number of ordinary shares in issue (net of own ordinary shares held) for the year.

 

2009



Net profit attributable to ordinary shareholders

         64,032

=====

 

Weighted average number of ordinary shares

 
 
 

Issued ordinary shares at 1 January

86,096

Effect of own shares held

172

Effect of shares issued under Share option schemes / Sharesave plans

13

_____

Weighted average number of ordinary shares for the year ended 31 December

86,281

=====



Basic earnings per share

74.2p

 

Diluted earnings per share

Diluted earnings per share is based on the profit for the year attributable to the ordinary shareholders and 86.7m shares (2008: 86.7m shares). 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. The Company has three categories of potentially dilutive ordinary shares: those share options granted to employees under the Share option scheme and Sharesave plan where the exercise price is less than the average market price of the Company's ordinary shares during the year and contingently issuable shares awarded under the Long-term incentive plan.

 

2009



Net profit attributable to ordinary shareholders

64,032

=====

 

Weighted average number of ordinary shares (diluted)

 


Weighted average number of ordinary shares for the year ended 31 December

86,281

Effect of share options in issue

11

Effect of Sharesave options in issue

68

Effect of LTIP shares in issue

327

----_____

Weighted average number of ordinary shares (diluted) for the year ended 31 December

86,687

=====



Diluted earnings per share

73.9p

 

 

 

 

14.        Trade and other payables

2009



Trade payables

26,031

32,096

Bills of exchange

319

______

707

______

Trade payables

26,350

=====

32,803

=====




Corporation tax

9,768

______

12,197

______

Current tax

9,768

=====

12,197

=====




Other taxes and social security

3,627

3,636

Non-trade payables and accrued expenses

21,063

23,145


______

______

Other payables

24,690

26,781


=====

=====

 

 

 

 

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 on pages 84 to 85 of the 2008 Rotork Annual Report and Accounts. Transactions between two subsidiaries for the sale and purchase of products or the subsidiary and parent for management charges are priced on an arms length basis.

 

Sales to subsidiaries and associates of BAE Systems p.l.c., a related party by virtue of non-executive director IG King's directorship of that company, totalled £20,000 during the year (2008: £32,000) and £19,000 was outstanding at 31 December 2009 (2008: £nil).

 

Key management emoluments

The emoluments of those members of the management team, including directors, who are responsible for planning, directing and controlling the activities of the Group were:

 

2009



Emoluments including social security costs

2,455

Post employment benefits

424

Share-based payments

843

_____


3,722

=====

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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