Half Yearly Report

RNS Number : 2272O
Rotork PLC
05 August 2014
 



 Rotork plc

 

2014 Half Year Results

 

 


HY 2014

 

HY 2013

 

% change

 

OCC *2
% change

Order intake

£302.7m
£294.3m
+2.9%
+7.1%

Revenue

£278.5m
£276.1m
+0.9%
+4.4%

Adjusted*1 operating profit

£69.1m
£70.2m
-1.7%
+4.9%

Profit before tax

£61.5m
£63.6m
-3.3%
+7.3%

Adjusted*1 profit before tax

£68.4m
£69.4m
-1.4%
+5.3%

Basic earnings per share

51.5p
52.8p
-2.5%
+8.1%

Adjusted*1 basic earnings per share

57.3p
57.6p
-0.5%
+6.3%

Interim dividend

19.2p
18.05p
+6.4%
 

 

*1 Adjusted figures are before the amortisation of acquired intangible assets

*2 OCC is organic constant currency

 

 

Highlights

·      Record half year order intake of £303m

·      Order book of £203m, up 7.4% from December (OCC +12.1%)

·      OCC operating margin up 20bps to 25.6%

·      9% adverse currency impact on adjusted*1 operating profit

·      Acquisition of YTC in Korea; post period-end acquisition of Midland

·      Interim dividend increased by 6.4%

 

 

Peter France, Chief Executive, commenting on the results, said:

 

"During the first half, we saw an increased level of activity in many of the markets that we serve and our geographic reach and broad product portfolio enabled us to secure a number of major projects. This resulted in record order intake and first half revenue despite a strengthening currency headwind.

 

For the full year, we anticipate that as in previous years the Group's performance will be more weighted towards the second half. Our order book, increased project activity and wide market exposure provide the Board with confidence of achieving further progress in the full year."

 

 

For further information, please contact:

 

Rotork plc

Tel:  01225 733200

Peter France, Chief Executive


Jonathan Davis, Finance Director




FTI Consulting

Tel:  020 3727 1340

Nick Hasell / Susanne Yule


 

 

 

Review of operations

 

Business Review

In the six months to 30 June 2014 Rotork delivered growth in both order intake and revenue, despite sterling strengthening. Record order intake of £302.7m was 2.9% higher than the comparative period, with currency a £23.5m or 7.2% headwind. Removing the impact of currency and acquisitions, order intake grew by 7.1%. Revenue grew 0.9% to £278.5m despite a £20.3m currency headwind. At constant currency, revenue was 8.3% higher and, after removing the contribution from acquisitions, growth was 4.4%. The three acquisitions in the second half of 2013 and the YTC acquisition in March 2014 added £10.7m of revenue.

 

The strengthening of sterling dampened reported margins in the period, resulting in an adjusted operating profit 1.7% lower at £69.1m, and giving a margin of 24.8% compared with 25.4% in the comparative period. Currency reduced adjusted operating profit by £6.8m and removing this impact results in a constant currency margin of 25.4% from profit of £75.9m. The acquisitions were also slightly dilutive so organic constant currency adjusted operating margins were 25.6%, a 20 basis point increase. The order book increased by 7.4% in the period to £202.6m, driven by several major project awards.

 

As a global business operating across a wide range of industries and geographies, we are well placed to benefit from an increase in project activity in any region. The Far East and Latin America performed well in the period. Mexico was once again particularly active and we secured another large order for the automation of more of the existing liquid and gas pipeline network which will be delivered during 2015 and 2016. The Indian market continues to show signs of improvement although we do not expect the Indian power market to recover fully until 2015. China continues to benefit from investment in cleaner power generation. North America had a slower start to the period with the harsh winter in the north of the region affecting a number of our businesses. Europe remains generally subdued. Overall project visibility remains positive and quote activity in the second quarter was encouraging.

 

We continue to actively manage our costs, with a particular focus on bought-in components, which are the largest part of the cost base in our outsourced manufacturing model. Our new factory in Leeds was finished in the period and the transfer of people and activities will be completed during the summer. We have also completed the relocation of our sales office in Spain and opened a new sales office in Poland. We expect to open a new office in Chile in the second half of the year.

 

As well as focusing on organic sales growth and product development, we have continued to grow by acquisition. We announced the acquisition of YTC for £64m in March and, following the period-end, we announced the acquisition of Xylem Flow Control, now Rotork Midland, for £18m in July. Both of these businesses provide us with additional products that are core to the Instruments division's portfolio. YTC, which is based in Korea, also strengthens the Instruments division's presence in the important Far East market. The integration of YTC is progressing well and it made a positive contribution in the period. We continue to look for opportunities to grow both organically and by acquisition that will support our long-term strategic and financial objectives.

 

Financial position

 

Cash flow

Cash flow from operating activities was £39.6m which represents 87.1% cash generation compared with 91.7% in the corresponding period last year. Cash generation is our KPI which compares cashflow from operating activities with operating profit. A working capital outflow of £8.9m compares with a £9.1m outflow in the prior period, with a £7.9m increase in inventory being the largest element of this outflow in the period. The net outflow on the acquisition of YTC (£55.5m) and final dividend payment (£26.0m) were the two largest outflows, although completion of the new Leeds facility resulted in higher than normal capital expenditure (£8.7m) in the period.

 

Balance sheet

The balance sheet at the period end included net cash of £14.9m. The acquisition of Midland for £18m took place shortly after the period end. Gross cash balances of £71.6m were offset by borrowings of £56.7m, £55.0m of which is provided under two committed facilities. Net working capital at the period end was £151.7m, an increase of £8.6m since the year end. This represents 27.2% of revenue compared with 26.8% at the same time last year.

 

Post balance sheet event 

On 2 July 2014 we completed the acquisition of Xylem Flow Control Limited, a UK based subsidiary of Xylem Inc. for £18m. This business makes solenoid valves and other flow control instruments which are sold under the Midland-ACS, Alcon and Landon Kingsway brands and which are used extensively in explosion-proof zoned areas. The business has been renamed Rotork Midland Ltd and has become part of the Rotork Instruments division.

 

Operating Review

Delivery against our twin-track growth strategy is reflected in these results with the benefit of the YTC, Flowco, GTA and Renfro acquisitions supplementing the organic growth of our divisions.

 

Rotork Controls

 

£m

 

H1 2014

 

H1 2013

 

Change

 

OCC*2 Change

 

Order intake

161.3

155.7

+3.6%

+12.0%

Revenue

150.7

152.6

-1.3%

+6.0%

Adjusted*1 operating profit

46.1

49.0

-5.9%

+3.5%

Adjusted operating margin

30.6%

32.1%

-150 bps

-70 bps

 

Order intake grew by 3.6% to £161.3m, a record half year performance for Controls. On an organic constant currency basis, order intake grew 12.0%, with currency having a greater impact on Controls than our other divisions. Activity levels in Europe and North America were stable compared with the first half of 2013 whilst Latin America and the Far East grew strongly. The power market in India continued to improve, although we do not expect it to recover fully until 2015. In China the power market was active, whilst the oil and gas market experienced some delays in order placement. The order book rose 5.0% in the period to £105.4m despite the currency headwind.

 

With a greater concentration of sterling costs than the other divisions, adjusted operating margins in Controls reduced by 150 basis points, largely as a result of currency. Gross margins were impacted by the geographic, end market and product mix of revenue in the period and this reduced underlying margins by 70 basis points.

 

The second half of the year will see the launch of our new Centork electric actuator. The specification for this range has been designed for the power and water markets and will complement the IQ series.

 

Rotork Fluid Systems

 

£m

 

H1 2014

 

H1 2013

 

Change

 

OCC*2 Change

 

Order intake

101.0

101.6

-0.6%

+2.4%

Revenue

88.8

89.2

-0.5%

+1.6%

Adjusted*1 operating profit

14.4

14.2

+1.6%

+8.1%

Adjusted operating margin

16.2%

15.9%

+30 bps

+100 bps

 

 

First half order intake was 0.6% below the record comparative period but up 2.4% on an organic constant currency basis. With the Mexican pipeline order mainly benefiting Fluid Systems, the order book is at a new high of £84.1m and 10.7% higher than December 2013.

 

Activity levels in the Eastern European oil and gas market and the US liquids pipeline business were slower compared with the very active period last year but this was mitigated by oil pipeline and power project successes in Latin America in the current period. North America, Europe and Asia saw consistently good levels of activity.

 

Adjusted operating margins improved 30 basis points to 16.2%, benefiting from material sourcing initiatives and the continued widening of the component supply base for Fluid Systems. Product mix was also favourable.

 

Rotork Gears

 

£m

 

H1 2014

 

H1 2013

 

Change

 

OCC*2 Change

 

Order intake

27.7

29.8

-6.9%

-6.3%

Revenue

28.7

27.1

+5.9%

+6.4%

Adjusted*1 operating profit

6.4

6.1

+5.1%

+8.5%

Adjusted operating margin

22.2%

22.3%

-10 bps

+50 bps

 

Gears' sales focus remains on winning new customer accounts. Whilst there have been some key successes in this area, it has not yet translated into order intake, which was 6.9% lower year-on-year. Currency had less of an impact on Gears so on an organic constant currency basis order intake was 6.3% below 2013. The order book was £9.8m, the same level as in December 2013.

 

In the US our Houston factory saw growth in the period and we benefited from a contribution from Renfro. In Europe we saw fewer subsea projects than in the comparative period so sales from our Italian factory were lower year-on-year, but our Netherlands factory had an improved start to the year. India also had a much more positive period as we continued work to indigenise the sourcing of components. Sourcing from lower cost regions is one of the initiatives which has helped improve Gears' underlying margins.

 

Rotork Instruments

 

£m

 

H1 2014

 

H1 2013

 

Change

 

OCC*2 Change

 

Order intake

18.2

13.2

+37.7%

+8.3%

Revenue

17.4

12.4

+40.9%

+13.0%

Adjusted*1 operating profit

5.5

3.9

+40.6%

+10.4%

Adjusted operating margin

31.4%

31.4%

No change

-70 bps

 

Order intake grew strongly on both a reported and underlying basis. The headline increase of 37.7% includes three months contribution from YTC but, removing the effect of acquisitions and currency, orders were still 8.3% higher. We continue to develop our sales channels and expand our product portfolio such that we fully utilise our global reach and sales infrastructure. Instruments benefits from its manufacturing presence in the USA, Italy, Korea and UK, and Rotork Midland and YTC bring to the Group increased engineering resources that will enhance our development of product lines for the international market.

 

Board Composition

As previously announced, Ian King retired from the Board on 20 June 2014 after serving nine years as a non-executive director, at which time John Nicholas became senior independent non-executive director and Sally James became Chair of the Audit Committee. Martin Lamb and Lucinda Bell were appointed as non-executive directors, on 2 June 2014 and 10 July 2014 respectively, and are both members of the Audit, Nomination and Remuneration Committees.

 

Change of auditor

We announced our intention to offer all external audit work for tender in the 2013 Annual Report. Following the completion of this process, Deloitte LLP were appointed as the Group's statutory auditor and have carried out a review of this half year financial report in this capacity.

 

Principal risks and uncertainties

The Group has an established risk management process as part of the corporate governance framework set out in the 2013 Annual Report & Accounts. We regularly review the principal risks and uncertainties facing our businesses and examine the potential impacts on our processes and procedures. The risk management process is described in detail on pages 30 to 33 of the 2013 Annual Report & Accounts. We identify risks in the form of strategic, operational and financial risks and set out mitigations and improvements to our processes and procedures as necessary to manage these risks. The Group has reviewed these risks and concluded that they remain applicable to the second half of the financial year.

 

The principal risks and uncertainties are:

·      Competition on price as a result of a competitor moving to manufacture in a lower cost area of the world;

·      Rotork not having the appropriate products, either in terms of features or costs;

·      Lower investment in Rotork's traditional market sectors;

·      Major in field product failure arising from a component defect or warranty issue which might require a product recall;

·      Failure of a key supplier or a tooling failure at a supplier causing disruption to planned manufacturing;

·      Failure of an acquisition to deliver the growth or synergies anticipated, due to incorrect assumptions or changing market conditions, or failure to integrate an acquisition to ensure compliance with Rotork's policies and procedures;

·      Failure of IT security systems to prevent penetration by unauthorised people and access to commercially sensitive data;

·      Volatility of exchange rates;

·      Political instability in a key end-market;

·      Defined benefit pension scheme deficit.

 

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 2013. A list of current directors is maintained in the About Us section of the Rotork website: www.rotork.com.

 

Dividend

The interim dividend is to be increased by 6.4% to 19.2p per ordinary share and will be paid on 26 September 2014 to shareholders on the register at the close of business on 29 August 2014. 

 

Outlook

During the first half, we saw an increased level of activity in many of the markets that we serve and our geographic reach and broad product portfolio enabled us to secure a number of major projects. This resulted in record order intake and first half revenue despite a strengthening currency headwind.

 

For the full year, we anticipate that as in previous years the Group's performance will be more weighted towards the second half. Our order book, increased project activity and wide market exposure provide the Board with confidence of achieving further progress in the full year.

 

 

By order of the Board

 

Peter France

Chief Executive

4 August 2014

 

 

 

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 2014 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income and Expense, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows related notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London

4 August 2014

 

 

 

Consolidated Income Statement

 



First half

First half

Full year



2014

2013

2013


Notes

£000

£000

£000






Revenue

2

278,543

276,051

578,440

Cost of sales


(144,908)

(143,805)

(304,066)

Gross profit


133,635

132,246

274,374

Other income


158

73

206

Distribution costs


(2,729)

(2,688)

(5,623)

Administrative expenses


(68,864)

(65,161)

(129,576)

Other expenses


(86)

(4)

(116)






Operating profit before the amortisation of
    acquired intangible assets


69,050

70,210

 

151,412

Amortisation of acquired intangible assets


(6,936)

(5,744)

(12,147)

Operating profit

2

62,114

64,466

139,265

Finance income

3

724

613

1,173

Finance expense

4

(1,357)

(1,469)

(2,441)

Profit before tax


61,481

63,610

137,997






Income tax expense

5




UK


(3,766)

(4,327)

(8,060)

Overseas


(13,062)

(13,500)

(30,428)



(16,828)

(17,827)

(38,488)






Profit for the period


44,653

45,783

99,509








pence

pence

pence

Basic earnings per share

8

51.5

52.8

114.8

Adjusted basic earnings per share

8

57.3

57.6

124.9

Diluted earnings per share

8

51.3

52.6

114.3

Adjusted diluted earnings per share

8

57.1

57.3

124.3

 

 

 

Consolidated Statement of Comprehensive Income and Expense


 

First half

First half

Full year

 

2014

2013

2013

 

£000

£000

£000

 

 

 


Profit for the period

44,653

45,783

99,509

 

 

 

 

Other comprehensive income and expense

 

 

 

Items that may be subsequently reclassified to the income statement:

 

 

 

Foreign currency translation differences

(6,554)

6,788

(4,981)

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

270

(1,829)

1,274

 

(6,284)

4,959

(3,707)

Items that are not subsequently reclassified to the income statement:

 

 

 

Actuarial (loss) / gain in pension scheme net of tax

(2,055)

-

5,528

Income and expenses recognised directly in equity

(8,339)

4,959

1,821


 

 

 

Total comprehensive income for the period

36,314

50,742

101,330

 

 

 

Consolidated Balance Sheet




30 June

30 June

31 Dec



2014

2013

2013


Notes

£000

£000

£000






Goodwill


136,409

105,547

105,150

Intangible assets


68,059

56,435

53,481

Property, plant and equipment


58,061

44,521

45,871

Deferred tax assets


11,288

13,549

11,778

Derivative financial instruments


-

-

804

Other receivables


1,530

1,644

1,532

Total non-current assets


275,347

221,696

218,616






Inventories

9

83,831

86,723

75,081

Trade receivables


108,564

103,862

105,976

Current tax


1,570

2,162

1,145

Derivative financial instruments


4,403

582

2,933

Other receivables


16,853

12,554

12,152

Cash and cash equivalents


71,626

41,594

68,873

Total current assets


286,847

247,477

266,160






Total assets


562,194

469,173

484,776






Ordinary shares

11

4,344

4,341

4,344

Share premium


8,882

8,301

8,840

Reserves


365

15,315

6,649

Retained earnings


329,089

268,870

312,246

Total equity


342,680

296,827

332,079






Interest-bearing loans and borrowings

12

1,474

1,936

1,678

Employee benefits


21,500

30,727

22,705

Deferred tax liabilities


20,129

15,799

16,920

Non-current provisions


2,397

1,881

2,628

Total non-current liabilities


45,500

50,343

43,931






Interest-bearing loans and borrowings

12

55,286

226

532

Trade payables


40,715

42,710

38,019

Employee benefits


12,369

10,312

17,479

Current tax


16,996

19,507

14,836

Derivative financial instruments


23

3,104

32

Other payables


39,238

41,576

31,002

Provisions


9,387

4,568

6,866

Total current liabilities


174,014

122,003

108,766






Total liabilities


219,514

172,346

152,697






Total equity and liabilities


562,194

469,173

484,776

 

 

 

Consolidated Statement of Changes in Equity

 


Issued

equity

capital

£000

Share

premium

£000

Translation

reserve

£000

Capital

redemption

reserve

£000

Hedging

reserve

£000

Retained

earnings

£000

Total

£000









4,340

8,258

7,649

1,644

1,063

246,369

269,323

-

-

-

-

-

45,783

45,783








-

-

6,788

-

-

-

6,788

-

-

-

-

(2,383)

-

(2,383)

-

-

-

-

554

-

554

-

-

6,788

-

(1,829)

-

4,959

-

-

6,788

-

(1,829)

45,783

50,742








-

-

-

-

-

(1,301)

(1,301)

-

-

-

-

-

302

302

1

43

-

-

-

-

44

-

-

-

-

-

(3,601)

(3,601)

-

-

-

-

-

4,400

4,400

-

-

-

-

-

(23,082)

(23,082)

4,341

8,301

14,437

1,644

(766)

268,870

296,827









Issued

equity

capital

£000

Share

premium

£000

Translation

reserve

£000

Capital

redemption

reserve

£000

Hedging

reserve

£000

Retained

earnings

£000

Total

£000








4,340

8,258

7,649

1,644

1,063

246,369

269,323

-

-

-

-

-

99,509

99,509








-

-

(4,981)

-

-

-

(4,981)

-

-

-

-

1,598

-

1,598

-

-

-

-

-

7,669

7,669

-

-

-

-

(324)

(2,141)

(2,465)

-

-

(4,981)

-

1,274

5,528

1,821

-

-

(4,981)

-

1,274

105,037

101,330








-

-

-

-

-

143

143

-

-

-

-

-

632

632

4

582

-

-

-

-

586

-

-

-

-

-

(5,601)

(5,601)

-

-

-

-

-

4,401

4,401

-

-

-

-

-

(38,735)

(38,735)

4,344

8,840

2,668

1,644

2,337

312,246

332,079

 

 


Issued

equity

capital

£000

Share

premium

£000

Translation

reserve

£000

Capital

redemption

reserve

£000

Hedging

reserve

£000

Retained

earnings

£000

Total

£000









4,344

8,840

2,668

1,644

2,337

312,246

332,079

-

-

-

-

-

44,653

44,653








-

-

(6,554)

-

-

-

(6,554)

-

-

-

-

344

-

344

-

-

-

-

-

(2,618)

(2,618)

-

-

-

-

(74)

563

489

-

-

(6,554)

-

270

(2,055)

(8,339)

-

-

(6,554)

-

270

42,598

36,314








-

-

-

-

-

(1,560)

(1,560)

-

-

-

-

-

335

335

-

42

-

-

-

-

42

-

-

-

-

-

(3,900)

(3,900)

-

-

-

-

-

5,416

5,416

-

-

-

-

-

(26,046)

(26,046)

4,344

8,882

(3,886)

1,644

2,607

329,089

342,680

 

 

 

Consolidated Statement of Cash Flows



First half

First half

Full year


2014

2013

2013


£000

£000

£000





Profit for the period

44,653

45,783

99,509

Amortisation of acquired intangible assets

6,936

5,744

12,147

Amortisation of development costs

700

602

1,214

Depreciation

3,635

3,130

6,801

Equity settled share based payment expense

1,137

1,037

2,178

Net loss / (gain) on sale of property, plant and equipment

4

(40)

(25)

Finance income

(724)

(613)

(1,173)

Finance expense

1,357

1,469

2,441

Income tax expense

16,828

17,827

38,488


74,526

74,939

161,580

Increase in inventories

(7,852)

(11,633)

(1,740)

Increase in trade and other receivables

(7,133)

(5,409)

(10,786)

Increase / (decrease) in trade and other payables

6,128

7,910

(1,778)

Difference between pension charge and cash contribution

(4,258)

(285)

(534)

(Decrease) / increase in provisions

(726)

(421)

863

(Decrease) / increase in employee benefits

(4,808)

(1,021)

2,621


55,877

64,080

150,226

Income taxes paid

(16,318)

(13,617)

(39,866)

Cash flows from operating activities

39,559

50,463

110,360





Purchase of property, plant and equipment

(8,715)

(4,453)

(10,419)

Development costs capitalised

(1,050)

(714)

(2,033)

Proceeds from sale of property, plant and equipment

128

91

159

Acquisition of subsidiaries, net of cash acquired

(55,486)

(34,255)

(43,235)

Contingent consideration paid

(971)

(200)

(250)

Interest received

214

469

917

Cash flows from investing activities

(65,880)

(39,062)

(54,861)





Issue of ordinary share capital

42

44

586

Purchase of ordinary share capital

(3,900)

(3,601)

(5,601)

Interest paid

(198)

(292)

(653)

Increase / (decrease) in borrowings

54,602

(193)

(618)

Repayment of finance lease liabilities

(22)

(7)

(34)

Dividends paid on ordinary shares

(26,046)

(23,082)

(38,735)

Cash flows from financing activities

24,478

(27,131)

(45,055)





Net (decrease) / increase in cash and cash equivalents

(1,843)

(15,730)

10,444





Cash and cash equivalents at 1 January

68,873

59,868

59,868

Effect of exchange rate fluctuations on cash held

4,596

(2,544)

(1,439)

Cash and cash equivalents at end of period

71,626

41,594

68,873

 

 

 

Notes to the Half Year Report

 

 

1.       Status of condensed consolidated interim statements, accounting policies and basis of significant estimates

 

 

General information

 

Rotork plc is a company domiciled in England and Wales. 

 

The Company has its premium listing on the London Stock Exchange.

 

The condensed consolidated interim financial statements for the 6 months ended 30 June 2014 are unaudited and the auditors have 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 2013 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006, statutory accounts for the year ended 31 December 2013 were approved by the Board on 4 March 2014 and delivered to the Registrar of Companies. The Auditors' 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 2013 are available from the Company's registered office or website, see note 19.

 

 

Basis of preparation

 

The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2014 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 2013, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

 

Going concern

 

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information. In forming this view, the directors have considered trading and cash flow forecasts, financial commitments, the significant orderbook with customers spread across different geographic areas and industries and the significant net cash position.

 

 

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 2013.

 

 

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 2013.

 

 

New accounting standards and interpretations

 

The following amendments have been applied from 1 January 2014:

·    Amendments to IAS32 - Offsetting Financial Assets and Financial liabilities

·    Amendments to IAS 36 - Recoverable Amount Disclosures for Non-Financial Assets

·    Amendments to IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting

Application of these standards and amendments has not had any material impact on the disclosures, net assets or results of the Group.

 

Recent accounting developments

IFRS 9 Financial Instruments has been issued but is not yet effective and has not been adopted as application was not mandatory for the year. The directors anticipate that the adoption of this standard will not have a material impact on the disclosures, net assets or results of the Group.

 

 

2.       Analysis by operating segment

 

The Group has chosen to organise the management and financial structure by the grouping of related products. The four identifiable operating segments where the financial and operating performance is reviewed monthly by the chief operating decision maker are as follows:

 

Controls - the design, manufacture and sale of electric actuators

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

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

Instruments - the manufacture of high precision pneumatic controls and power transmission products for a wide range of industries

 

Unallocated expenses comprise corporate expenses.

 

 

Half year to 30 June 2014

 


 

Controls

£000

Fluid
Systems
£000

 

Gears
£000

 

Instruments

£000

 

Elimination
£000

 

Unallocated
£000

 

Group
£000

Revenue from external customers

150,689

88,831

22,315

16,708

-

-


278,543

Inter segment revenue

-

-

6,418

697

(7,115)

-

-

Total revenue

150,689

88,831

28,733

17,405

(7,115)

-

278,543









Operating profit before amortisation of acquired intangible assets

46,107

14,390

6,375

5,465

-

(3,287)

69,050

Amortisation of acquired intangibles assets

(1,860)

(851)

(211)

(4,014)

-

-

(6,936)

Operating profit

44,247

13,539

6,164

1,451

-

(3,287)

62,114

Net financing expense







(633)

Income tax expense







(16,828)

Profit for the period







44,653

 

 

Half year to 30 June 2013


 

Controls

£000

Fluid
Systems
£000

 

Gears
£000

 

Instruments

£000

 

Elimination
£000

 

Unallocated
£000

 

Group
£000

Revenue from external customers

152,619

89,241

22,051

12,140

-

-

276,051

Inter segment revenue

-

-

5,088

217

(5,305)

-

-

Total revenue

152,619

89,241

27,139

12,357

(5,305)

-

276,051









Operating profit before amortisation of acquired intangible assets

49,020

14,163

6,063

3,886

-

(2,922)

70,210

Amortisation of acquired intangibles assets

(2,024)

(810)

(109)

(2,801)

-

-

(5,744)

Operating profit

46,996

13,353

5,954

1,085

-

(2,922)

64,466

Net financing expense







(856)

Income tax expense







(17,827)

Profit for the period







45,783

 

 

Full year to 30 December 2013


 

Controls
£000

Fluid
Systems
£000

 

Gears
£000

 

Instruments

£000

 

Elimination
£000

 

Unallocated
£000

 

Group
£000

Revenue from external customers

321,902

186,969

45,353

24,216

-

-

578,440

Inter segment revenue

-

-

10,682

706

(11,388)

-

-

Total revenue

321,902

186,969

56,035

24,922

(11,388)

-

578,440









Operating profit before amortisation of acquired intangible assets

105,472

31,010

12,972

7,833

-

(5,875)

151,412

Amortisation of acquired intangibles assets

(4,363)

(1,920)

(403)

(5,461)

-

-

(12,147)

Operating profit

101,109

29,090

12,569

2,372

-

(5,875)

139,265

Net financing expense







(1,268)

Income tax expense







(38,488)

Profit for the year







99,509

 

 

Revenue by location of subsidiary

 


First half

First half

Full year


2014

2013

2013


£000

£000

£000





UK

25,683

26,240

51,027

Italy

34,803

29,991

64,861

Rest of Europe

57,737

55,287

117,467

USA

68,970

72,151

147,039

Other Americas

12,290

17,850

38,201

Rest of the World

79,060

74,532

159,845


278,543

276,051

578,440

 

This disclosure has been restated to revenue by location of subsidiary because this gives a better reflection of the geographic distribution of where the sale occurred.

 

3.         Finance income

 






First half

First half

Full year


2014

2013

2013


£000

£000

£000





Interest income

500

469

917

Foreign exchange gain

224

144

256


724

613

1,173

 

 

4.         Finance expense

 






First half

First half

Full year


2014

2013

2013


£000

£000

£000





Interest expense

(495)

(292)

(653)

Interest charge on pension scheme liabilities

(394)

(584)

(1,168)

Foreign exchange loss

(468)

(593)

(620)


(1,357)

(1,469)

(2,441)

 

 

5.         Income taxes

 

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year ended 31 December 2014 is 27.4% (the effective tax rate for the year ended 31 December 2013 was 27.9%).

 

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

 

 

6.         Acquisitions

 

On 31 March 2014 the Group acquired 100% of the entire share capital of Young Tech Co., Ltd. ("YTC") for £68,240,000. YTC, based in Seoul, Korea, is a leading manufacturer and supplier of valve positioners and accessories certified for use in international markets. The acquired business will be reported within the Instruments division. In the period since acquisition YTC has contributed £4,431,000 to Group revenue and £1,462,000 to consolidated operating profit before amortisation. The amortisation charge in the period since acquisition from the acquired intangible assets was £1,486,000.

 

If the acquisition had occurred on 1 January 2014 YTC would have contributed £8,447,000 to Group revenue and £2,787,000 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.

 

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

 


 

Book value

Provisional

Adjustments

Provisional

Fair values


£000

£000

£000

Current assets 




Inventory

3,167

(316)

2,851

Trade and other receivables

3,307

(135)

3,172

Cash

4,514

-

4,514





Current liabilities




Trade and other payables

(983)

(398)

(1,381)

Employee benefits

(147)

-

(147)

Warranty provision

-

(168)

(168)





Non-current assets / liabilities




Property, plant and equipment

7,889

-

7,889

Intangible assets

226

22,353

22,579

Deferred tax

-

(5,365)

(5,365)





Total net assets

17,973

15,971

33,944





Goodwill



34,296

Purchase consideration



68,240





Paid in cash



60,000

Deferred consideration



4,240

Contingent consideration



4,000

Purchase consideration



68,240





Purchase consideration paid in cash



60,000

Cash held in subsidiary



(4,514)

Cash outflow on acquisition



55,486

 

 

The provisional adjustments shown in the table above represent the alignment of accounting policies to Rotork Group policies and the fair value adjustments of the assets and liabilities at the acquisition date.  Goodwill has arisen on the acquisition as a result of the value attributed to staff expertise and the assembled workforce, which did not meet the recognition criteria for a separate intangible asset. The intangible assets identified are customer relationships, the YTC brand, product design patents and the acquired order book.

 

The deferred consideration is an adjustment based on the completion balance sheet and was paid on 14 July 2014. The contingent consideration is payable in April 2015 dependant on an EBIT target being achieved.

 

None of the goodwill recognised is expected to be deductible for income tax purposes.

 

 

7.         Dividends

 


First half

First half

Full year


2014

2013

2013


£000

£000

£000

The following dividends were paid in the period per

qualifying ordinary share:

 




30.0p final dividend (2013: 26.6p)

26,046

23,082

23,082

18.05p interim dividend

-

-

15,653


26,046

23,082

38,735





The following dividends per qualifying ordinary share were declared / proposed at the balance sheet date:








30.0p final dividend

-

-

26,061

19.2p interim dividend declared (2013: 18.05p)

16,680

15,670

-


16,680

15,670

26,061

 

The interim dividend of 19.2p pence will be payable to shareholders on 26 September 2014 to those on the register on 29 August 2014.

 

 

8.         Earnings per share

 

Earnings per share is calculated using the profit attributable to the ordinary shareholders for the period and 86.7m shares (six months to 30 June 2013: 86.7m; year to 31 December 2013: 86.7m) 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 87.1m shares (six months to 30 June 2013: 87.1m; year to 31 December 2013: 87.1m). The number of shares is equal to the weighted average number of ordinary shares in issue (net of own ordinary shares held) adjusted to assume conversion of all potentially dilutive ordinary shares.

 

Adjusted basic and diluted earnings per share is calculated using the profit attributable to the ordinary shareholders for the year after adding back the amortisation charge net of tax.

 


First half

First half

Full year


2014

2013

2013


£000

£000

£000





Net profit attributable to ordinary shareholders

44,653

45,783

99,509

Amortisation

6,936

5,744

12,147

Tax effect on amortisation at effective rate

(1,898)

(1,610)

(3,388)

Adjusted net profit attributable to ordinary shareholders

49,691

49,917

108,268

 

 

9.         Inventories

 


30 June

2014

£000

30 June 2013

£000

31 Dec 2013

£000





Raw materials and consumables

56,568

56,478

51,844

Work in progress

12,036

14,577

8,445

Finished goods

15,227

15,668

14,792


83,831

86,723

75,081

 

 

10.       Pension schemes - Defined Benefit deficit

 

The defined benefit obligation at 30 June 2014 of £18,952,000 (30 June 2013: £28,760,000; 31 December 2013: £20,198,000) is estimated based on the latest full actuarial valuations at 31 March 2013 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 2014 by independent actuaries to reflect updated assumptions regarding discount rates, inflation rates and asset values.

 


30 June

2014

30 June

2013

31 Dec 2013





Discount rate

4.4

4.3

4.6

Rate of inflation

3.3

2.9

3.4

 

 

In addition, the defined benefit plan assets and liabilities have been updated to reflect the regular payments, the £3.4 million payment made in March 2014 in respect of past service and the benefits earned during the period to the 30 June 2014.

 

 

11.       Share capital and reserves

 

The number of ordinary 5p shares in issue at 30 June 2014 was 86,875,000 (30 June 2013: 86,814,000; 31 December 2013: 86,871,000). All issued shares are fully paid.

 

The Group acquired 143,335 of its own shares through purchases on the London Stock Exchange during the period, (30 June 2013: 123,509; 31 December 2013: 194,724). The total amount paid to acquire the shares was £3,900,000 (30 June 2013: £3,601,000; 31 December 2013: £5,601,000), and this has been deducted from shareholders equity. At 30 June 2014 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 108,116 (30 June 2013: 91,303; 31 December 2013: 162,518).

 

Awards under the Group's long-term incentive plan and share investment plan vested during the period and 83,672 and 114,065 shares respectively were transferred to employees.

 

Employee share options schemes: options exercised during the period to 30 June 2014 resulted in 3,912 ordinary 5p shares being issued (30 June 2013: 5,393 shares), with exercise proceeds of £42,000 (30 June 2013: £44,000). The weighted average market share price at the time of exercise was £26.53 (30 June 2013: £27.19) per share.

 

The share based payment charge for the period was £1,137,000 (30 June 2013: £1,037,000; 31 December £2,177,000).

 

 

12.       Loans and borrowings

 

The following loans and borrowings were issued and repaid during the six months ended 30 June 2014:


Year of maturity

Interest rate

Carrying value

£000





Balance at 1 January 2014



2,210





Movement in the period:




Drawdown under UK loan facility

2015

1.26%

55,000

Repayment of Euro denominated loans

2014-32

2.15%

(376)

Repayment of finance leases

2014-15

1.5% - 5.6%

(22)

Exchange differences



(52)





Balance at 30 June 2014



56,760





Current



55,286

Non-current



1,474




56,760

 

The Group has increased its committed loan facilities to £75,000,000 (First half 2013: £15,000,000; Full year 2013: £15,000,000), of which £55,000,000 (30 June 2013: £nil; 31 December 2013: £nil) has been drawn down, the outstanding amount attracts a blended interest rate of LIBOR plus 0.764%. Repayment of £35,000,000 is due by January 2015 and £20,000,000 is repayable in May 2015.   

 

 

13.       Financial instruments fair value disclosure

 

The Group held forward currency contracts designated as hedge instruments in a cash flow hedging relationship. At 30 June 2014 the fair value of these contracts was a net asset of £4,380,000 (30 June 2013: a net liability of 2,522,000; 31 December 2013: a net asset of £3,705,000). 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 of 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.

 

 

14.       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 2013 Annual Report & Accounts. Transactions between key subsidiaries for the sale and purchase of products or between the subsidiary and parent for management charges are priced on an arms length basis.

 

Sales to subsidiaries and associates of BAE Systems plc, a related party by virtue of non-executive director IG King's directorship of that company, totalled £nil during the period to 30 June 2014 (First half 2013: £49,000; Full year 2013: £49,000) and no balance was outstanding at 30 June 2014 (30 June 2013: £16,032; 31 December 2013: £nil).

 

UBS Investment Bank are a related party by virtue of non-executive director SA James' directorship of UBS Limited. UBS Investment Bank provides the Group financial advice and stockbroking services.  The current arrangement with UBS Investment Limited is that out of pocket expenses will be reimbursed and no fees will be charged for their regular advisory or broking services. Expenses of £6,000 have been reimbursed during the period to 30 June 2014 (First half 2013: £3,000: Full year 2013: £4,000) and no balance was outstanding at 30 June 2014 (30 June 2013: £nil; 31 December 2013: £nil).

 

 

15.       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 are:

 


First half

2014

£000

First half 2013

£000

Full year 2013

£000





Emoluments including social security costs

2,475

2,469

4,816

Post employment benefits

274

244

493

Share based payments

743

697

1,465


3,492

3,410

6,774

 

 

16.       Share-based payments

 

A grant of shares was made on 6 March 2014 to selected members of senior management at the discretion of the Remuneration Committee. The key information and assumptions from this grant were:

 


Equity Settled
TSR condition

Equity Settled

EPS condition




Grant date

6 March 2014

6 March 2014

Share price at grant date

£27.52

£27.52

Shares awarded under scheme

53,201

53,201

Vesting period

3 years

3 years

Expected volatility

25.1%

25.1%

Risk free rate

1.0%

1.0%

Expected dividends expressed as a dividend yield

1.7%

1.7%

Probability of ceasing employment before vesting

5% p.a.

5% p.a.

Fair value

£12.56

£26.21

 

The basis of measuring fair value is consistent with that disclosed in the 2013 Annual Report & Accounts.

 

 

17.       Events Post Balance Sheet Date

 

On 2 July 2014 the Group acquired 100% of the share capital of Xylem Flow Control Limited, a leading manufacturer of solenoid valves and instruments based in Wolverhampton, United Kingdom. The acquired business will be reported within the Rotork Instruments division. The provisional consideration was £19,779,000 and the net cash outflow on completion was £18,000,000. The business will contribute to Group revenue and operating profit in the second half of the year.

 

The provisional net assets are £6,514,000, including net cash of £1,779,000. If these acquisitions had occurred on 1 January 2014 the businesses would have contributed £7,400,000 to Group revenue and £770,000 to Group operating profit in the six months to 30 June.

 

Due to the proximity of the acquisitions to the date of approval of the interim financial statements the initial accounting for these business combinations is incomplete and therefore the disclosures regarding the fair value of the assets acquired and liabilities assumed, the valuation of the goodwill and other intangibles, the amount of goodwill expected to be deductible for tax purposes, the fair value of contingent liabilities and assets and the amount and treatment of acquisition costs cannot be made.

 

 

18.       Shareholder information

 

This interim report is being sent to shareholders who requested it and copies are available to the public from the Registered Office at the address below.  The interim report is also available on the Rotork website at www.rotork.com.

 

General shareholder contact numbers:

Shareholder General Enquiry Number (UK):

0871 384 2030

International Shareholders - General Enquiries:

(00) 44 121 415 7047

 

For enquires regarding the Dividend Reinvestment Plan (DRIP) contact:

 

The Share Dividend Team

Equiniti

Aspect House

Spencer Road

Lancing

West Sussex

BN99 6DA

 

Tel: 0871 384 2268

 

 

19.       Group information

 

Secretary and registered office:

Stephen Rhys Jones

Rotork plc

Rotork House

Brassmill Lane

Bath

BA1 3JQ

 

Company website:

www.rotork.com

 

Investor Section:

http://www.rotork.com/en/investors/index/

 

 

20.       Financial Calendar

 

5 August 2014

Announcement of half year financial results for 2014

27 August 2014

Ex-dividend date for 2014 interim dividend

29 August 2014

Record date for 2014 interim dividend

26 September 2014

Payment date for 2014 interim dividend

 


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