IFRS-Part 2
Rotork PLC
21 June 2005
PART 2
Rotork p.l.c.
Audited 2004 accounts restated under International Financial Reporting Standards
Index
1 Consolidated Income Statement
2 Consolidated Balance Sheet
3 Consolidated Statement of Cash Flows
4 Consolidated Statement of Recognised Income and expense
5 - 9 Accounting Policies
10 - 32 Other notes to the Financial Statements
Consolidated Income Statement
for the year ended 31 December 2004
Notes £'000
Revenue 2 146,883
Cost of sales (79,097)
_____
Gross profit 67,786
Other income 4 136
Distribution costs (1,816)
Administrative expenses (35,638)
Other expenses 5 (36)
_____
Profit from operations 2 30,432
Financial income 7 4,766
Financial expenses 7 (3,692)
_____
Profit before tax 8 31,506
Tax expense 9 (10,508)
_____
Net profit for the year 20,998
====
Pence
Basic earnings per share 17 24.5
Diluted earnings per share 17 24.3
Consolidated Balance Sheet
at 31 December 2004
Notes £'000
Assets
Property, plant and equipment 10 13,877
Intangible assets 11 20,169
Deferred tax assets 12 6,988
Other receivables 489
_____
Total non-current assets 41,523
Inventories 13 21,015
Trade receivables 34,060
Current tax 14 2,176
Other receivables 14 2,525
Cash and cash equivalents 15 25,298
_____
Total current assets 85,074
______
Total assets 126,597
======
Equity
Issued capital 4,300
Preference shares 47
Share premium 4,993
Reserves 425
Retained earnings 58,489
______
Total equity 16 68,254
----______
Liabilities
Interest-bearing loans and borrowings 18 268
Employee benefits 19 23,569
Deferred tax liabilities 12 1,155
Provisions 20 521
______
Total non-current liabilities 25,513
Bank overdraft 15 473
Interest bearing loans and borrowings 18 253
Trade payables 21 15,609
Current tax 21 5,779
Other payables 21 9,674
Provisions 20 1,042
______
Total current liabilities 32,830
Total liabilities 58,343
______
Total equity and liabilities 126,597
======
Consolidated Statement of Cash Flows
for the year ended 31 December 2004
Notes £'000 £'000
Cash flows from operating activities
Profit for the year 20,998
Adjustments for:
Amortisation of intangibles 70
Amortisation of development costs 322
Depreciation 2,577
Charge for share schemes 208
Profit on sale of fixed assets (72)
Financial income (4,766)
Financial expenses 3,692
Income tax expense 10,508
_____
33,537
Increase in inventories (2,600)
Increase in trade and other receivables (6,228)
Increase in trade and other payables 4,130
Difference between pension charge and cash contribution (5,633)
Decrease in provisions (130)
Increase in other employee benefits 748
_____
23,824
Income taxes paid (10,441)
_____
Cash flows from operating activities 13,383
Investing activities
Purchase of tangible fixed assets (3,099)
Development costs capitalised (102)
Sale of tangible fixed assets 295
Acquisition of subsidiary net of cash acquired (912)
Interest received 973
_____
Cash flows from investing activities (2,845)
Financing activities
Issue of ordinary share capital 458
Purchase of ordinary share capital (691)
Purchase of own preference shares (5)
Interest paid (136)
Repayment of amounts borrowed 188
Repayment of finance lease liabilities (58)
Dividends paid on ordinary shares (17,751)
Dividends paid on preference shares (4)
______
Cash flows from financing activities (17,999)
______
Net decrease in cash and cash equivalents (7,461)
Cash and cash equivalents at 1 January 2004 32,134
Effect of exchange rate fluctuations on cash held 152
______
Cash and cash equivalents at 31 December 2004 15 24,825
======
Consolidated Statement of Recognised Income and Expense
For the year ended 31 December 2004
£'000
Foreign exchange translation differences (1,212)
Actuarial loss in pension scheme (5,792)
Movement on deferred tax relating to actuarial loss 237
_____
Net loss recognised directly in equity (6,767)
Net profit for the year 20,998
_____
Total recognised income and expense 14,231
=====
Notes to the Financial Statements
for the year ended 31 December 2004
Except where indicated, values in these notes are in £'000
Rotork plc is a Company domiciled in England. The consolidated financial
statements of the Company for the year ended 31 December 2004 comprise the
Company and its subsidiaries (together referred to as the Group).
1. Accounting policies
Basis of preparation
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the company, for the year ended 31 December 2005, be
prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the EU ('adopted IFRS').
These special purpose consolidated financial statements have been prepared on
the basis of the recognition and measurement requirements of IFRS in issue that
are either endorsed by the EU and effective (or available for early adoption) at
31 December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005, the Group's first annual reporting date at
which it is required to use adopted IFRS. Based on these adopted and unadopted
IFRS, the directors have made assumptions about the accounting policies expected
to be applied, which are set out below, when the first IFRS financial statements
are prepared for the year ending 31 December 2005.
In particular, the directors have assumed that the December 2004 amendment to
IAS 19 -Employee Benefits and the April 2005 amendment to IAS39 - Cash Flow
Hedge Accounting of Intra-group Forecast Transactions will be adopted by the EU
in sufficient time that they will be available for use in the IFRS financial
statements for the year ending 31 December 2005. In addition, the adopted IFRS
that will be effective (or available for early adoption) in the financial
statements are still subject to change and to additional interpretations and
therefore cannot be determined with certainty. Accordingly the accounting
policies for the year ended 31 December 2005 will be determined finally only
when the financial statements for that year are prepared.
As permitted by IFRS 1, the following standards: IFRS 5 - Non-current Assets
Held for Sale and Discontinued Operations, IAS 32 - Financial Instruments:
Disclosure and Presentation and IAS 39 - Financial Instruments: Recognition and
Measurement are not expected to be applied until 1 January 2005 and accordingly
have not been applied in these special purpose consolidated IFRS financial
statements for the year ended 31 December 2004.
These special purpose consolidated financial statements are not the Group's
first consolidated financial statements as defined by IFRS 1. For this reason
amounts are presented for the year to 31 December 2004 only and comparative
information as would normally be required under IFRS is not given.
An explanation of how the transition to IFRS has affected the reported financial
position, financial performance and cash flows of the Group is provided in note
28.
Basis of accounting
The financial statements have been prepared under the historical cost convention
subject to the items referred to in the derivative financial instruments note
below. The accounting policies set out below have been consistently applied in
preparing an opening IFRS balance sheet at 1 January 2004 for the purposes of
transition to IFRS. The accounting policies have been applied consistently by
Group entities.
The preparation of financial statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods. The key areas where estimates have been used and the assumption
applied are in the impairment testing of goodwill (note 11) and in assessing the
defined benefit pension scheme liabilities (note 19).
Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries for the year to 31 December 2004. 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.
Foreign currencies
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated to
sterling at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date of
the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to sterling at foreign
exchange rates ruling at the dates the values were determined.
Assets and liabilities of foreign subsidiaries, including goodwill and fair
value adjustments arising on consolidation, are translated into sterling at
rates of exchange ruling at the balance sheet date. The revenues and expenses
of foreign subsidiaries are translated to sterling at rates approximating those
ruling at the date of the transactions. Differences on exchange arising from
the retranslation of the opening net investment in subsidiaries, and from the
translation of the results of those subsidiaries at average rate, are recognised
directly in equity.
Any differences that have arisen since 1 January 2004, the date of transition to
IFRS, are presented as a separate component of equity. Translation differences
that arose before the date of transition to IFRS in respect of all foreign
entities are not presented as a separate component.
Revenue
Revenue from the sale of goods is recognised in the income statement when the
significant risks and rewards of ownership have been transferred to the buyer.
Revenue from services rendered is recognised in the income statement in
proportion to the stage of completion of the transaction at the balance sheet
date. The stage of completion is assessed by reference to surveys of work
performed. No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration due, associated costs or the possible
return of goods also continuing management involvement with the goods.
Intangible assets
i) Goodwill
Goodwill represents amounts arising on acquisition of subsidiaries. In respect
of acquisitions that have occurred since I January 2004, goodwill represents the
difference between the cost of the acquisition and the fair value of the net
identifiable assets acquired. Negative goodwill arising on acquisitions would
be recognised directly in profit and loss.
In respect of acquisitions prior to this date, goodwill is included on the basis
of its deemed cost, which represents the amount recorded under UK GAAP on
transition. The classification and accounting treatment of business
combinations that occurred prior to 1 January 2004 has not been reconsidered in
preparing the Group's opening IFRS balance sheet at 1 January 2004. Goodwill is
stated at cost or deemed cost less any impairment losses. The carrying value of
goodwill is reviewed at each balance sheet date and is allocated to
cash-generating units. An impairment loss is recognised whenever the carrying
value of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
ii) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new
scientific or technical knowledge and understanding, is recognised in the income
statement as an expense as incurred. Development costs incurred after the point
at which the commercial and technical feasibility of the product have been
proven, and the decision to complete the development has been taken and
resources made available, are capitalised. The expenditure capitalised includes
the cost of materials, direct labour and an appropriate proportion of overheads.
Capitalised development expenditure is stated at cost less accumulated
amortisation and impairment losses. Development expenditure has and estimated
useful life of 5 years and is written off on a straight-line basis.
iii) Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and impairment losses. The useful life of each of
these assets is assessed on an individual basis and they range from 1 to 15
years. Amortisation is charged on a straight-line basis over the estimated
useful life of the assets.
Property, plant and equipment
Freehold land is not depreciated. Long leasehold buildings are amortised over
fifty years or the expected useful life of the building where less than fifty
years. Other assets are depreciated by equal annual instalments by reference to
their estimated useful lives and residual values at the following annual rates:
Freehold buildings 2% to 4%
Short leasehold buildings period of lease
Machinery, plant and equipment 10% to 30%
Items of property, plant and equipment are stated at cost or deemed cost less
accumulated depreciation. Certain items of property that had been revalued to
fair value on or prior to 1 January 2004, the date of transition to IFRS, are
measured on the basis of deemed cost, being the revalued amount at the date of
that revaluation.
Leases
Where fixed assets are financed by leasing agreements, which give rights
approximating to ownership, the assets are treated as if they had been purchased
and the capital element of the leasing commitments is shown as obligations under
finance leases. Assets acquired under finance leases are initially recognised
at the present value of the minimum lease payments. The rentals payable are
apportioned between interest, which is charged to the income statement, and
liability, which reduces the outstanding obligation so as to give a constant
rate of charge on the outstanding lease obligations. Costs in respect of
operating leases are charged on a straight-line basis over the term of the lease
in arriving at the operating profit.
Taxation
Income tax on the profit for the year comprises current and deferred tax.
Income tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity, in which case it is recognised
in equity. Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or subsequently enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: goodwill not deductible
for tax purposes, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profits, and differences relating to investments
in subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance
sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Inventory and work in progress
Inventory and work in progress is valued at the lower of cost, on a 'first in,
first out' basis, and net realisable value. In respect of work in progress and
finished goods, cost includes all production overheads and the attributable
proportion of indirect overhead expenses which are required to bring inventories
to their present location and condition.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term (with an
original maturity less than three months) deposits. Bank overdrafts that are
repayable on demand form part of cash and cash equivalents for the purpose of
the statement of cash flows.
Share capital
Equity comprises issued capital, share premium and reserves and for the purposes
of these accounts, preference shares. IAS32 will be applied from 1 January 2005
and at that time the preference shares will be reclassified as debt.
When issued capital recognised as equity is repurchased, the amount paid,
including directly attributable costs, is recognised as a change in equity.
Repurchased shares are classified as treasury shares and presented as a
deduction from retained earnings.
Provisions
A provision for warranties is recognised when the underlying products or
services are sold. The provision is based on historical warranty cost data,
known issues and management expectations of future costs.
Employee benefits
i) Pension plans
The Group operates a number of defined benefit pension schemes and contributes
to these schemes in accordance with qualified actuaries' recommendations. All
actuarial gains and losses as at 1 January 2004, the date of transition to IFRS,
were recognised. In respect of all actuarial gains and losses that arise after
that date in calculating the Group's obligation in respect of the plan, these
are recognised in equity. Interest on pension scheme liabilities has been
recognised within financing expenses and the expected return on scheme assets
within financing income in the consolidated income statement.
The Group also operates a number of defined contribution pension schemes. The
costs for these schemes are recognised in the income statement as incurred.
ii) Share-based payment transactions
The Rotork Share Option Scheme allows certain employees to acquire shares in
Rotork plc. This scheme is now closed and the last grant of new options took
place in 2004. Details of the scheme are given in note 19. The fair value of
options granted is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at grant date and spread over
the period during which employees become unconditionally entitled to the
options. The fair value of the options granted is measured using a binomial
model, taking into account the terms and conditions upon which the options were
granted. The amount recognised as an expense is adjusted to reflect the actual
number of share options that vest.
The Rotork Sharesave Plan, introduced in 2004, offers certain employees the
opportunity to purchase shares in Rotork plc at a discounted price compared with
the market price at the time of grant. Details of the scheme are given in note
19. The fair value of the right / option is recognised as an employee expense
with a corresponding increase in equity. The fair value is measured at grant
date and spread over the period between grant and maturity. The right / option
reaches maturity when the employee becomes unconditionally entitled. The fair
value of the grant is measured using a Black-Scholes model, taking into account
the terms and conditions upon which the rights were granted. The amount
recognised as an expense is adjusted to reflect the actual number of share
options that vest.
The Rotork Long-Term Share Incentive Plan grants awards of shares to executive
directors and senior managers. These awards may vest after a period of four
years dependent upon both market and non-market performance conditions being
met. Details of the grants are given in note 19. This plan gives share awards
or cash awards (of equivalent value to the share awards) dependent upon the
employees country of residence at date of grant. The fair value of the award is
measured at grant date, using a Monte Carlo simulation model which takes into
account the market based performance criteria, and spread over the vesting
period. The fair value of the award is recognised as an employee expense with a
corresponding increase in equity for the share settled award and a provision
within employee benefits for the cash settled award. The amount recognised as
an expense is adjusted to exclude options that do not vest as a result of
non-market performance conditions not being met.
Accruals in respect of scheme years pre-dating the implementation of IFRS2 are
held in employee benefits.
iii) Long-term service leave
The Group's net obligation in respect of long-term service leave is the amount
of future benefit that employees have earned in return for their service in the
current and prior periods.
iv) Other employee incentive schemes
In addition to the above schemes the Group offers a number of other bonus and
incentive schemes to employees around the world. The costs of these schemes are
recognised in the income statement as incurred. This includes the Share
Incentive Plan and Overseas Profit Linked Share Scheme both of which are a known
liability at the year end.
Derivative financial instruments
The Group uses forward exchange contracts to hedge its exposure to foreign
exchange risk arising from operational and financing activities. These are the
only form of derivative financial instruments used by the Group. In accordance
with its treasury policy, the Group does not hold or issue forward exchange
contracts for trading purposes. However, forward contracts that do not qualify
for hedge accounting are accounted for as trading instruments.
In these special purpose accounts, since IAS39 has not been applied, forward
exchange contracts are held at cost (usually zero). Gains and losses on foreign
currency hedges are recognised in the income statement when the hedged
transaction is recognised.
As from 1 January 2005 the following policy will apply. Forward exchange
contracts are recognised initially at cost and then subsequently re-measured at
fair value. Where a forward exchange contract is designated as a hedge of the
variability in cash flows of a recognised liability, a firm commitment or a
highly probable forecasted transaction, the effective part of any gain or loss
on the forward contract is recognised directly in equity. The cumulative gain
or loss is removed from equity and recognised in the income statement at the
same time as the hedged transaction. The ineffective part of any gain or loss
is recognised in the income statement immediately.
When a hedging instrument or hedge relationship is terminated but the hedged
transaction still is expected to occur, the cumulative gain or loss at that
point remains in equity and is recognised in accordance with the above policy
when the transaction occurs. If the hedged transaction is no longer expected to
take place, the cumulative unrealised gain or loss held in equity is recognised
in the income statement immediately.
Notes to the Financial Statements
2. Analysis of turnover, profit and net assets
The primary format used for segmental reporting is by business segment as this
reflects the internal management structure and reporting of the Group. Segment
results, assets and liabilities include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis. Unallocated
expenses comprise corporate expenses and unallocated assets and liabilities
comprise cash, borrowings tax assets and liabilities respectively. Inter group
trading is determined on an arm's length basis.
Business segments
The Group comprises the following business segments:
Electrics - the design, manufacture and sale of electric valve actuators
Gears - the design, manufacture and sale of gearboxes, adaption and ancillaries
for the valve industry
Fluid system - the design, manufacture and sale of heavy duty pneumatic and
hydraulic valve actuators
Geographic segments
Rotork has a worldwide presence in all three business segments through its
subsidiary selling offices and through an agency network. A full list of
locations can be found at www.rotork.com.
Analysis by operation:
Electrics Gears Fluid system Eliminations Consolidated
Revenue from external 109,345 13,736 23,802 - 146,883
customers
Inter-segment revenue - 4,070 - (4,070) -
Total revenue 109,345 17,806 23,802 (4,070) 146,883
Segment result 26,054 3,203 3,016 - 32,273
Unallocated expenses (1,841)
Profit from operations 30,432
Net financing income 1,074
Income tax expense (10,508)
Net profit for the 20,998
year
Electrics Gears Fluid system Unallocated Consolidated
Segment assets 60,665 9,927 21,542 34,463 126,597
Segment liabilities 40,451 2,467 7,497 7,928 58,343
Depreciation 1,881 284 412 - 2,577
Non-cash items 39 9 57 332 437
Capital expenditure 2,628 177 294 - 3,099
Analysis by Geographical segment Europe Americas Rest of the Unallocated Consolidated
World
Revenue from external customers by 66,036 41,704 39,143 - 146,883
location of customer
Segment assets by location of assets 63,651 20,146 8,337 34,463 126,597
Capital expenditure by location of 2,380 201 518 - 3,099
assets
All of the activities of the Group in the year arise from continuing operations.
3. Acquisition of subsidiary
Acquisitions
On 13 January 2004 the Group acquired all of the business and assets of Deanquip
Valve Automation Pty Ltd for £818,000 from Deanquip Sales Pty Ltd. £692,000 was
paid on completion and the remaining £126,000 paid in January 2005. Deanquip
Valve Automation Pty Ltd was renamed Rotork Fluid System Pty Ltd in January
2005. The company markets and sell pneumatic and hydraulic actuators, controls
and associated products in Australia. The acquisition was accounted for using
the purchase method of consolidation. In the 12 months to 31 December 2004 the
subsidiary contributed £1,622,000 to Group revenue and £43,000 to the
consolidated net profit for the year. The value of intangibles is based on an
assessment by management. Goodwill has arisen on this acquisition as a result
of the synergies Rotork will derive from the business being part of the Group
rather than an independent distributor.
Effect of acquisitions and disposals
The acquisition had the following effect on the Group's assets and liabilities.
Recognised Fair value Carrying
values adjustments amounts
Property, plant and equipment 32 - 32
Intangible assets - 349 349
Deferred tax assets 17 - 17
Inventories 248 - 248
Employee liabilities (56) - (56)
_____ _____ _____
241 349 590
Goodwill on acquisition 322
_____
Consideration paid, satisfied in cash (including £94k expenses) 912
====
4. Other income
Gain on disposal of plant and equipment 80
Other 56
_____
136
====
5. Other expenses
Losses on sale of fixed assets 8
Other 28
_____
36
====
6. Personnel expenses
Wages and salaries (including bonus and incentive plans) 29,243
Compulsory social security contributions 2,950
Current service cost for defined benefit plans 1,502
Contributions to defined contribution plans 533
Share based payments (note 19) 390
Increase in liability for long-service leave 15
_____
34,633
====
A total of £208,000 of the above are equity settled, comprising £41,000 for the
share option scheme, £8,000 for the Sharesave plan and £160,000 of the Long-term
incentive plan. The cash settled portion (£181,000) all related to the
Long-term incentive plan.
No.
During the year, the average weekly number of employees, analysed by business
activity, was:
Electrics 865
Gears 124
Fluid system 151
_____
1,140
====
UK 419
Overseas 721
_____
1,140
====
7. Net financing income
Interest income 849
Expected return on assets in the pension schemes 3,477
Net foreign exchange gain 440
_____
4,766
====
Interest expense (136)
Interest charge on pension schemes liabilities (3,556)
_____
(3,692)
====
8. Profit before tax
Profit before tax is stated after charging / (crediting) the following:
Notes:
Depreciation and other amounts written off tangible fixed assets:
owned assets a 2,497
assets held under finance lease contracts a 80
Amortisation of intangibles b 392
Research and development expenditure b 2,332
Hire of plant and machinery a 538
Other operating lease rentals a 619
Exchange differences realised c (411)
Auditors: b
audit fees and expenses 206
other fees paid to KPMG Audit Plc and its associates analysed between:
further assurance services 15
taxation services 41
other 61
The auditors' remuneration in respect of the Company was £34,000.
These costs can be found under the following headings in the Consolidated income
statement:
a) Both within cost of sales and administrative expenses
b) Within administrative expenses
c) Within financing income and expenses
9. Income tax expense
Recognised in the income statement
Current tax:
UK Corporation tax on profits for the year 6,258
Double tax relief (1,995)
Adjustment in respect of prior years 156
_____
4,419
_____
Overseas tax on profits for the year 5,879
Adjustment in respect of prior years 21
_____
5,900
_____
Total current tax 10,319
_____
Deferred tax:
Origination and reversal of other timing differences 129
Adjustment to estimated recoverable amounts of deferred tax assets arising in 60
previous periods
_____
Total deferred tax 189
_____
Tax charge on profit on ordinary activities 10,508
====
Effective tax rate (based on profit before tax) 33.4%
Profit before tax 31,506
Profit on ordinary activities multiplied by standard rate of corporation tax in the 9,452
UK of 30%
Effects of:
Non deductible expenses 150
Unrelieved losses 25
Higher tax rates on overseas earnings 644
Adjustments to tax charge in respect of prior periods 237
_____
Current tax charge for period 10,508
====
Deferred tax of £175,000 in respect of share based payments has been recognised
directly in equity.
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 and India.
No deferred tax is recognised on the unremitted earnings of overseas
subsidiaries. As the unremitted earnings are continually reinvested by the
Group, no tax is expected to be payable on them in the foreseeable future.
There is an unrecognised deferred tax liability for temporary timing differences
associated with investments in subsidiaries. Rotork plc 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 unrecognised
deferred tax liability as acknowledged within paragraph 40 of IAS12.
10. Property, plant and equipment
Land and Plant and
buildings equipment Total
Cost
At 1 January 2004 10,490 17,544 28,034
Exchange differences (158) (221) (379)
Additions 939 2,307 3,246
Disposals (173) (882) (1,055)
Acquisition through business combinations - 32 32
_____ _____ _____
At 31 December 2004 11,098 18,780 29,878
===== ===== =====
Depreciation
At 1 January 2004 3,078 11,316 14,394
Exchange differences (23) (132) (155)
Charge for year 333 2,244 2,577
Disposals (24) (791) (815)
_____ _____ _____
At 31 December 2004 3,364 12,637 16,001
===== ===== =====
Net book value 7,734 6,143 13,877
at 31 December 2004 ===== ===== =====
The net book value of the Group's plant and machinery includes £186,000 in
respect of assets held under finance leases.
On conversion to IFRS the fair value of fixed assets held at a valuation was
deemed to be their cost. The aggregate of adjustments from carrying value under
previous GAAP was nil.
11. Intangible assets
Goodwill Development Acquired Total
costs intangibles
Cost
Balance at 1 January 25,919 1,610 - 27,529
Exchange differences (269) - - (269)
Internally developed during the year - 102 - 102
Acquisition through business combinations 322 - 349 671
_____ _____ _____ ____
Balance at 31 December 25,972 1,712 349 28,033
Amortisation and impairment losses
Balance at 1 January 6,862 618 - 7,480
Exchange differences (8) - - (8)
Amortisation for the year - 322 70 392
_____ _____ _____ _____
Balance at 31 December 6,854 940 70 7,864
Carrying amount at 31 December 19,118 772 279 20,169
===== ===== ===== =====
Carrying amount at 1 January 19,057 992 - 20,049
===== ===== ===== =====
The amortisation charge is recognised in the following lines of the income
statement:
Cost of sales 50
Administrative expenses 342
_____
392
=====
Impairment tests for cash generating units containing goodwill
The following businesses have significant carrying amounts of goodwill:
Rotork Fluid System Srl 6,476
Exeeco Ltd 4,776
Jordan Controls Inc 3,769
Rotork Gears BV 2,014
_____
17,035
Multiple businesses without significant goodwill 2,083
_____
19,118
=====
The recoverable amounts of all cash-generating units 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 two per cent 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. A pre-tax
discount rate of 9%, being the Groups weighted average cost of capital, has been
used in discounting the projected cash flows. On this basis no impairment write
downs are required.
12. Recognised deferred tax assets and liabilities
Assets Liabilities Net
Property, plant and equipment 47 (1,054) (1,007)
Intangible assets 21 (231) (210)
Employee benefits 6,234 - 6,234
Provisions 897 - 897
Other items 116 (197) (81)
_____ _____ _____
Net tax assets/ (liabilities) 7,315 (1,482) 5,833
Set off of tax (327) 327 -
_____ _____ _____
6,988 (1,155) 5,833
===== ===== =====
A deferred tax asset of £6,988,000 has been recognised at 31 December 2004.
This asset principally relates to other differences in the defined benefit
pension schemes. The directors are of the opinion, based on recent and forecast
trading that the level profits in the current and future years make it more
likely than not that the asset will be recovered. Details of the movement in
deferred tax assets and liabilities are shown in note 28.
Deferred tax assets have not been recognised in respect of the following items:
Tax losses 2,259
Tax credits 468
_____
2,727
=====
A deferred tax asset of £2,727,000 has not been recognised in relation to
capital losses and certain tax credits, tax losses and other timing differences.
These assets may be recovered if sufficient taxable or capital profits are
made in future in the companies concerned.
13. Inventories
Raw materials and consumables 14,590
Work in progress 3,585
Finished goods 2,840
_____
21,015
=====
14. Trade and other receivables
Current assets:
Corporation tax 2,176
_____
Current tax 2,176
=====
Other non trade receivables 1,345
Prepayments and accrued income 1,180
_____
Other receivables 2,525
=====
15. Cash and cash equivalents
Bank balances 7,415
Cash in hand 54
Short-term deposits 17,829
_____
Cash and cash equivalents 25,298
Bank Overdrafts (473)
_____
Cash and cash equivalents in the statement of cash flows 24,825
=====
16. Capital and reserves
Share Preference Share Translation Capital Retained Total
capital shares premium reserve redemption earnings
reserve
Balance at 1 January 2004 4,292 50 4,543 - 1,634 60,567 71,086
Profit for the financial year 20,998 20,998
Other items in the statement (1,212) (5,555) (6,767)
of recognised income and
expense
Equity settled transactions 228 228
net of tax
Share options exercised by 8 450 458
employees
Own ordinary shares acquired (691) (691)
Own ordinary shares awarded 702 702
under share schemes
Own preference shares acquired (3) 3 (5) (5)
Dividends to shareholders (17,755) (17,755)
_____ _____ _____ _____ _____ _____ _____
Balance at 31 December 2004 4,300 47 4,993 (1,212) 1,637 58,489 68,254
===== ===== ===== ===== ===== ===== =====
Share capital and share premium
Number of shares (000) 5p Ordinary shares 5p Ordinary shares £1 Non-redeemable
Authorised Issued and full paid 9.5% Preference
shares
2004 2004 2004
On issue at 1 January 5,449 4,292 50
Purchased for cash and cancelled - - (3)
Issued under employee share schemes - 8 -
_____ _____ _____
On issue at 31 December - fully paid 5,449 4,300 47
===== ===== =====
Number of shares 108,990 85,944
===== =====
The ordinary shareholders are entitled to receive dividends as declared and are
entitled to vote at meetings of the Company. 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.
When IAS32 is applied for the 2005 year end the preference shares will be
reclassified as debt because interest payments cannot be deferred and an
ordinary dividend still paid.
The only ordinary shares issued during the year were 161,137 under The Rotork
Employee Share Option Schemes at prices between 192p and 328p. No shares were
issued under The Rotork Share Incentive Plan or under The Overseas Profit-Linked
Share Scheme during 2004.
On 1 May 2004 options over 166,015 shares exercisable after three years (subject
to satisfying performance criteria) at 3.87p were granted under The Rotork
Employee Share Option Scheme (1995). On 8 October 2004 options over 162,357
shares were granted under the Rotork Sharesave Scheme at 319.6p. Of these
options, 63,336 were exercisable after 3 years and 99,021 after 5 years.
There were 528,941 outstanding options under The Rotork Employee Share Option
Schemes at 31 December 2004, exercisable at various prices between 192p and 387p
per ordinary share and between 2005 and 2014.
Within the retained earnings reserve are own shares held. The investment in own
shares represents 130,671 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 market value of these shares at 31
December 2004 was £540,000. 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 that are not
integral to the operations of the Company.
Dividends
After the balance sheet date the following dividends were proposed by the
directors. The dividends have not been provided for and there are no
corporation tax consequences.
9.7p per qualifying ordinary share 8,303
=====
17. 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 85.8 million shares being the weighted average
number of ordinary shares in issue for the year.
Net profit attributable to ordinary shareholders
Net profit for the year 20,998
Dividends on non-redeemable cumulative preference shares (4)
_____
Net profit attributable to ordinary shareholders 20,994
=====
Weighted average number of ordinary shares
Issued ordinary shares at 1 January 85,832
Effect of own shares held (127)
Effect of shares issued under options 96
_____
Weighted average number of ordinary shares at 31 December 85,801
=====
Diluted earnings per share
Diluted earnings per share is based on the profit for the year attributable to
the ordinary shareholders and 86.4 million shares. The number of shares is
equal to the weighted average number of ordinary shares in issue adjusted to
assume conversion of all dilutive potential ordinary shares. The Company has
two categories of dilutive potential ordinary shares: those share options
granted to employees 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.
Net profit attributable to ordinary shareholders (diluted)
Net profit attributable to ordinary shareholders 20,994
=====
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares at 31 December 85,801
Effect of share options on issue 86
Effect of LTIP shares on issue 482
_____
Weighted average number of ordinary shares (diluted) at 31 December 86,369
=====
18. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings. For more information about the Group's
exposure to interest rate and currency risk, see note 22.
Non-current liabilities
Bank loans 169
Finance lease liabilities 99
_____
268
=====
Bank loans are secured by accepted letters of credit and corporate guarantees.
Current liabilities
Bank loans 165
Finance lease liabilities 88
_____
253
=====
Finance lease liabilities
Finance lease liabilities are payable as follows:
Minimum Interest Principal
lease
payments
Less than one year 95 7 88
Between one and five years 105 6 99
More than five years - - -
_____ _____ _____
200 13 187
===== ===== =====
19. Employee benefits
Recognised liability for defined benefit
obligations:
Present value of unfunded obligations 74,486
Fair value of plan assets (54,650)
_____
19,836
Defined contribution scheme liabilities 502
Employee bonus and incentive plan 1,663
Long-term incentive plan 1,075
Employee indemnity provision 356
Liability for long-service leave 137
_____
23,569
=====
Liability for defined benefit obligations
The Group makes a contribution to three defined benefit plans to provide
benefits for employees upon retirement.
Movements in the net liability recognised in the balance sheet
2004
Net liability at 1 January 19,503
Contributions received (7,040)
Expense recognised in the income statement (see below) 1,581
Actuarial loss 5,792
_____
Net liability at 31 December 19,836
=====
Expense recognised in the income statement
2004
Current service costs 1,502
Interest on obligation 3,556
Expected return on plan assets (3,477)
_____
1,581
=====
The expense is recognised in the following line items in the income statement
2004
Cost of sales 382
Administrative expenses 1,120
Net financing income 79
_____
1,581
=====
Actual return on plan assets 884
=====
Liability for defined benefit obligations
The principal actuarial assumptions at the balance sheet date (expressed as
weighted averages)
UK scheme US scheme Average
(% per annum) (% per annum) (% per annum)
2004 2003 2002 2004 2003 2002 2004 2003 2002
Discount rate 5.30 5.45 5.65 5.66 6.10 6.60 5.32 5.48 5.70
Rate of increase in 3.9 3.8 3.3 4.5 4.5 5.0 3.93 3.84 3.39
salaries
Rate of increase in 2.9 2.8 2.3 0.0 0.0 0.0 2.78 2.66 2.19
pensions (post May
2000)
Rate of increase in 4.5 4.5 4.5 0.0 0.0 0.0 4.31 4.28 4.28
pensions (pre May
2000)
Rate of price 2.9 2.8 2.3 3.5 3.5 4.0 2.93 2.84 2.39
inflation
The expected rates of return were:
Expected rate of return
%
2004 2003 2002
Equities 7.90 8.20 8.30
Bonds 4.90 5.10 5.00
Other 4.90 4.90 4.44
US deposit administration contract 6.00 6.00 6.00
Total
Volatility assumptions for equity based payments
The expected volatility of all equity compensation benefits is based on the
historic volatility (calculated based on the weighted average remaining life of
each benefit), adjusted for any expected changes to future volatility due to
publicly available information.
a) Share option scheme
At 1 January 1995 the Group established a share option programme for employees.
The allocation of options was linked to the completion of 5 years service. In
accordance with the programme, once vested the options grant the right to
purchase shares at the market price they were at the date of grant. Exercise
prices range from 192p to 387p. Options vest after three years and expire ten
years after being granted.
Only the 2003 and 2004 grant occurred after 7 November 2002, the start date for
recognition under IFRS2. Therefore only charges in respect of these grants have
been made to the accounts in accordance with IFRS2 and the relevant disclosures
made below. Additionally, six share option arrangements granted before 7
November 2002 exist. The recognition and measurement principles in IFRS2 have
not been applied to these grants in accordance with the transitional provisions
in IFRS1 and IFSR2.
2003 grant 2004 grant
Grant date 11 April 03 1 May 2004
Exercise price / Share price at grant date of all options £2.78 £3.87
Number of employees 20 118
Shares under option 78,045 163,102
Vesting period 3 years 3 years
Expected volatility 23% 23%
Option life taken as expected life 3 - 10 years 3 - 10 years
Risk free rate 4.0% 4.8%
Expected dividends expressed as a dividend yield 4.6% 3.7%
Probability of ceasing employment before vesting 20% 20%
Expectation of meeting performance criteria 100% 100%
Fair value £0.64 £0.94
Option (exercise price) Outstanding at Granted during Exercised Lapsed during Outstanding at
start of year year during year year end of year
* exercisable at end of year
1996 grant (£1.92)* 12,361 - (3,645) - 8,716
1997 grant (£2.59)* 8,480 - (8,480) - -
1998 grant (£3.28)* 14,747 - (8,992) - 5,755
1999 grant (£3.62)* 81,274 - - - 81,274
2000 grant (£2.85)* 289,093 - (134,772) (5,066) 149,255
2001 grant (£2.98)* 22,752 - (5,248) - 17,504
2002 grant (£3.72) 17,311 - - (2,422) 14,889
2003 grant (£2.78) 78,045 - - - 78,045
2004 grant (£3.87) - 163,102 - (5,537) 157,565
524,063 163,102 (161,137) (13,025) 513,003
Weighted average exercise £2.97 £3.87 £2.80 £3.44 £3.29
price
Weighted average contractual 7 years
life remaining
The 2001 grant vested during the year. The intrinsic value of shares vested as
at 31 December 2004 is £278,000.
The Group received proceeds of £458,000 in respect of the 161,137 options
exercised during the year: £8,000 was credited to share capital and £450,000 to
share premium (see note 16). The options were exercised throughout the year at
prices between 192p and 328p.
b) Long-term Incentive Plan
Following shareholder approval of the LTIP at the Company's Annual General
Meeting on 18 May 2000, awards over shares were made to executive directors and
senior managers in each year from 2000 to 2004.
The performance period for the 2001 Award ended at 31 December 2004. Messrs
Hewitt Bacon and Woodrow as independent actuaries have certified to the
Remuneration Committee that there was a 100% vesting of this Award as the
Company's position relative to the comparator group at the end of the relevant
performance period was above the 75th percentile position and the Company's
earnings per share growth has exceeded the growth in the Retail Price Index plus
2% per annum. The awards will vest during 2005.
The LTIP is a performance share or cash unit plan under which shares or cash
units are conditionally allocated to selected members of senior management at
the discretion of the Remuneration Committee on an annual basis. No shares or
cash units will normally be released to participants unless they are still in
the Group's service following completion of four year performance periods and
the Company's relative TSR against a comparator group of companies places it in
at least the 50th percentile position in the comparator group at the end of the
relevant performance period. TSR measures the change in value of a share and
reinvested dividends over the period of measurement. The actual number of
shares or cash units transferred will be determined by the number of shares or
cash units initially allocated multiplied by a vesting percentage which will be
40% at the 50th percentile rising to 100% at the 75th percentile with each
percentile position above the 50th adding 2.4% to the vesting percentage. The
Company's earnings per share is also monitored during the relevant performance
period to ensure it meets a minimum average annual growth equal to the rise in
the Retail Price Index plus 2% per annum. Failure to meet the 'RPI' requirement
will result in nil vesting.
Share scheme
Grant date 29 March 2004 24 March 2003
Share price at grant date £3.87 £2.68
Number of employees 10 9
Shares / Share equivalents under scheme 223,370 148,174
Vesting period 4 years 4 years
Expected volatility 22% 22%
Risk free rate 4.6% 4.0%
Expected dividends expressed as a dividend yield 4.3% 5.8%
Probability of ceasing employment before vesting Zero Zero
Fair value £2.27 £1.45
Cash scheme
Grant date 29 March 2004 24 March 2003 28 March 2002
Share price at grant date £3.87 £2.68 £3.84
Number of employees 18 20 20
Shares / Share equivalents under scheme 123,091 91,244 54,313
Vesting period 4 years 4 years 4 years
Expected volatility 22% 22% 22%
Risk free rate 4.4% 4.4% 4.5%
Expected dividends expressed as a dividend yield 3.6% 3.6% 3.6%
Probability of ceasing employment before vesting Zero Zero Zero
Fair value £2.42 £2.35 £2.29
Share based scheme Outstanding at Granted during Vested during Lapsed during Outstanding at
start of year year year year end of year
2001 Award 112,615 - - - 112,615
2002 Award 100,111 - - - 100,111
2003 Award 148,174 - - - 148,174
2004 Award - 223,370 - - 223,370
360,900 223,370 - - 584,270
Cash based scheme Outstanding at Granted during Vested during Lapsed during Outstanding at
start of year year year year end of year
2001 Award 66,970 - - - 66,970
2002 Award 54,313 - - - 54,313
2003 Award 91,244 - - - 91,244
2004 Award - 123,091 - - 123,091
212,527 123,091 - - 335,618
c) Sharesave plan
Following shareholder approval of the Sharesave plan at the Company's Annual
General Meeting on 18 May 2000, the first offer was made to employees in 2004.
UK employees are invited to join the Sharesave plan when an offer is made each
year. The offer for 2004 was made at a 20% discount to market price at the
time. There are no performance criteria for the Sharesave plan. Employees are
given the option of joining either the 3 year plan or the 5 year plan.
2004 Award
3 year scheme 5 year scheme
Grant date 8 October 2004 8 October 2004
Share price at grant date £4.00 £4.00
Exercise price £3.20 £3.20
Shares / Share equivalents under scheme 63,336 99,021
Vesting period 3 years 5 years
Expected volatility 23% 23%
Risk free rate 4.6% 4.6%
Expected dividends expressed as a dividend yield 3.5% 3.5%
Probability of ceasing employment before vesting 20% 20%
Fair value £1.06 £1.13
3 year plan Outstanding at Granted during Vested during Lapsed during Outstanding at
start of year year year year end of year
2004 Award - 63,336 - - 63,336
5 year plan Outstanding at Granted during Vested during Lapsed during Outstanding at
start of year year year year end of year
2004 Award - 99,021 - - 99,021
d) Employee expenses
The employee expense included in the income statement can be analysed as
follows:
Share options granted 2003 13
Share options granted 2004 28
Long-term incentive plan - cash settled 181
Long-term incentive plan - equity settled 160
Sharesave plan - 3 year 4
Sharesave plan - 5 year 4
_____
Total expense recognised as employee costs (note 6) 390
=====
20. Provisions
Warranty
Balance at 1 January 2004 1,725
Exchange differences (30)
Provisions used during the year (362)
Charged in the year 230
_____
Balance at 31 December 2004 1,563
=====
Non-current 521
Current 1,042
_____
1,563
=====
The 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 twelve months, the typical warranty period is now
eighteen months.
21. Other Payables
Trade creditors 15,363
Bills of exchange 246
_____
Trade payables 15,609
=====
Corporation tax 5,779
_____
Current tax 5,779
=====
Other taxes and social security 1,709
Non trade payables and accrued expenses 7,965
_____
Other payables 9,674
=====
22. Financial instruments
Financial risk and treasury policies
The treasury department maintains liquidity, manages relations with the Group's
bankers, identifies and manages foreign exchange risk and provides a treasury
service to the Group's businesses. Treasury dealings such as investments,
borrowings and foreign exchange are conducted only to support underlying
business transactions.
The Group has clearly defined policies for the management of foreign exchange
and interest rate risk. Group treasury is not a profit centre and, therefore,
does not undertake speculative foreign exchange dealings for which there is no
underlying exposure. Exposures resulting from sales and purchases in foreign
currency are matched where possible and the net exposure may be hedged by the
use of forward exchange contracts.
The numerical disclosures in this note deal with financial assets and financial
liabilities as defined in Financial Reporting Standard 13: 'Derivatives and
Other Financial Instruments: Disclosures' (FRS13). Certain financial assets
such as investments in subsidiary and associated companies are excluded from the
scope of these disclosures.
As permitted by FRS13, short-term debtors and creditors have been excluded from
the disclosures, other than the currency disclosures.
Interest rate risk profile
Financial liabilities
The interest rate profile of the Group's financial liabilities at 31 December
was as follows:
Fixed rate Floating rate Total
of interest of interest
Euro 187 473 660
Yen 102 66 168
Other - 166 166
_____ _____ _____
289 705 994
===== ===== =====
The floating rate financial liabilities comprise bank loans / overdrafts bearing
interest rates fixed by reference to the relevant LIBOR or equivalent rate.
The weighted average interest rate of the fixed rate financial liabilities is
3.5% per annum.
The weighted average period for which interest rates on the fixed rate financial
liabilities are fixed is 2 years.
Financial assets
The interest rate profile of the financial assets held as part of the financing
arrangements of the Group at 31 December was as follows:
Fixed rate cash Other cash
Sterling 14,314 662
US dollar 2,258 3,264
Euro 940 1,859
Other 317 1,684
_____ _____
17,829 7,469
===== =====
All cash deposits are held on fixed rates of interest. All other cash amounts
are on floating rates or overnight rates based on the relevant LIBOR or
equivalent rate.
Further analysis of the interest rate profile at 31 December is as follows:
Fixed rate
Weighted average Weighted average
interest rate period for fixed
rate (months)
(%)
Sterling 4.8 0
US dollar 2.3 1
Euro 2.1 1
Other - -
_____ _____
Group 4.5 1
==== ====
Currency exposures
The table below shows the Group's balance sheet currency exposures that give
rise to the net currency gains and losses recognised in the income statement.
Such exposures comprise the monetary assets and monetary liabilities of the
Group that were not denominated in the operating (or 'functional') currency of
the operating unit involved.
At 31 December these exposures were as follows:
Net foreign currency monetary assets / (liabilities)
Functional currency of Group operation
Sterling US dollar Euro Other Total
Sterling - (1,585) (434) (2,644) (4,663)
US dollar 588 - 18 3,689 4,295
Euro 1,415 165 - (55) 1,525
Other 503 - (1) 529 1,031
_____ _____ _____ _____ _____
Total 2,506 (1,420) (417) 1,519 2,188
===== ===== ===== ===== =====
The amounts shown above take into account the effect of any forward contracts
entered into to manage these currency exposures.
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at 31 December was as
follows:
In one year or less 726
In more than one year but not more than two years 126
In more than two years but not more than five years 142
In more than five years -
_____
Total 994
=====
The Group had no undrawn committed borrowing facilities at 31 December 2004.
Fair values
The table below shows a comparison by category of book values and fair values of
the Group's financial assets and liabilities at 31 December
Book value Fair value
Primary financial instruments held or issued to finance the Group's operations:
Short-term financial liabilities and current proportion of long-term borrowings (726) (726)
Long-term borrowings (268) (268)
Cash deposits 17,829 17,829
Other cash balances 7,469 7,469
Derivative financial instruments held to manage the currency profile:
Forward foreign currency contracts - 277
Gains and losses on hedges
The Group enters into forward foreign currency contracts to eliminate the
currency exposures that arise on sales denominated in foreign currencies.
Changes in the fair value of instruments used as hedges are not recognised in
the financial statements until the hedged position matures.
Gains Losses Total
Unrecognised gains and losses on hedges
At 1 January 2004 684 (54) 630
Amounts arising in previous years that were recognised (684) 54 (630)
during the year
_____ _____ _____
Amounts arising before 1 January 2004 that were not - - -
recognised during the year
Amounts arising in the year that were not recognised
during the year
373 (96) 277
_____ _____ _____
At 31 December 2004 373 (96) 277
===== ===== =====
Of which:
Gains / (losses) expected to be recognised in less than 297 (96) 201
one year
Gains / (losses) expected to be recognised in more than 76 - 76
one year
23. Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year 177
Between one and five years 1,355
More than five years 170
_____
1,702
=====
Of the £1.7m, £0.8m relates to property and the balance to plant and equipment.
The largest single lease commitment is for less than £0.3m.
24. Capital commitments
Capital commitments at 31 December for which no provision has been made in these
accounts were:
Contracted 332
25. Contingencies
Performance guarantees and indemnities 3,466
The UK banking arrangements are subject to cross-guarantees between the Company
and its UK subsidiaries. These accounts are subject to a right of set-off. The
performance guarantees and indemnities have been entered into in the normal
course of business. A liability would only arise in the event of the Group
failing to fulfil its contractual obligations.
26. Related parties
The Group has a related party relationship with its subsidiaries and with its
directors. A list of subsidiaries is shown on pages 63 and 64 of the full 2004
financial statement. 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.
Directors' interests
The interests of the directors in the ordinary share capital of the Company
according to the register required to be kept by section 325 of the Companies
Act 1985, at 31 December were as follows:
No.
RC Lockwood -
JW Matthews 10,600
A Walker 5,000
GE Malcolm 29,430
WH Whiteley 87,478
RE Slater 20,911
RH Arnold 14,384
All interests were beneficial and include directors' directly held and family
share interests.
The beneficial interests at 31 December included the following ordinary shares
held under the Rotork Share Incentive Plan (SIP), and the Rotork Overseas
Profit-Linked Share Plan (OPLSS) in trust:
GE Malcolm 3,693
WH Whiteley 4,159
RE Slater 3,623
*RH Arnold 2,841
*RH Arnold participates in the Rotork Overseas Profit-Linked Share Scheme
(OPLSS), and the figures shown for RH Arnold for 2004 and the prior year relate
solely to OPLSS.
Details of directors remuneration and allocations to directors in 2004 and
further details of the SIP and OPLSS schemes are provided in the remuneration
report included in the filed 2004 financial statements.
The only changes in the directors interests post year end relate to shares
purchased by the UK based directors monthly under the Rotork SIP partnership
plan to a maximum £125 per month.
Save as disclosed, no director or his family had any interest in the shares of
the Company at 31 December 2004.
27. Subsequent event
Subsequent to the balance sheet date, the Group purchased the trade and assets
of PC Intertechnik GmbH. The total consideration for the transaction is €9.8m
all payable in cash. A sum of €2m is deferred in tranches with full release
over 12 months subject to performance and no relevant warranty claims by the
purchaser.
28. Explanation of transition to IFRS
Balance sheets 1 January 2004 31 December 2004
Previous Effect of IFRS Previous Effect of IFRS
GAAP transition GAAP transition to
to IFRS IFRS
Notes
Assets
Property, plant and equipment 13,640 - 13,640 13,877 - 13,877
Intangible assets a, c 19,057 992 20,049 18,174 1,995 20,169
Deferred tax assets b - 6,605 6,605 - 6,988 6,988
Other receivables 486 - 486 489 - 489
_____ _____ _____ _____ _____ _____
Total non-current assets 33,183 7,597 40,780 32,540 8,983 41,523
Inventories 18,570 - 18,570 21,015 - 21,015
Trade receivables 28,973 - 28,973 34,060 - 34,060
Current tax receivable 1,226 - 1,226 2,176 - 2,176
Other receivables b 2,767 (954) 1,813 3,442 (917) 2,525
Cash and cash equivalents 32,253 - 32,253 25,298 - 25,298
_____ _____ _____ _____ _____ _____
Total current assets 83,789 (954) 82,835 85,991 (917) 85,074
_____ _____ _____ _____ _____ _____
Total assets 116,972 6,643 123,615 118,531 8,066 126,597
===== ===== ===== ===== ===== =====
Equity
Issued capital 4,292 - 4,292 4,300 - 4,300
Preference shares 50 - 50 47 - 47
Share premium 4,543 - 4,543 4,993 - 4,993
Reserves d 4,039 (2,405) 1,634 4,042 (3,617) 425
Retained earnings 49,569 10,998 60,567 44,753 13,736 58,489
_____ _____ _____ ______ ______ ______
Total equity 62,493 8,593 71,086 58,135 10,119 68,254
_____ _____ _____ ----______ ----______ ----______
Liabilities
Interest-bearing loans and 129 - 129 268 - 268
borrowings
Employee benefits e 13,653 9,113 22,766 13,885 9,684 23,569
Deferred tax liabilities f 128 665 793 275 880 1,155
Provisions e 1,612 (1,037) 575 1,159 (638) 521
_____ _____ _____ ______ ______ ______
Total non-current liabilities 15,522 8,741 24,263 15,587 9,926 25,513
Bank overdraft 119 - 119 473 - 473
Interest bearing loans and 118 - 118 253 - 253
borrowings
Trade payables 12,460 - 12,460 15,609 - 15,609
Current tax payable 5,020 - 5,020 5,779 - 5,779
Other payables e , g 20,090 (10,691) 9,399 21,653 (11,979) 9,674
Provisions 1,150 - 1,150 1,042 - 1,042
_____ _____ _____ ______ ______ ______
Total current liabilities 38,957 (10,691) 28,266 44,809 (11,979) 32,830
Total liabilities 54,479 (1,950) 52,529 60,396 (2,053) 58,343
_____ _____ _____ ______ ______ ______
Total equity and liabilities 116,972 6,643 123,615 118,531 8,066 126,597
===== ===== ===== ===== ===== =====
Notes to the explanation of transition to IFRS
a) Intangible assets
No amortisation of goodwill is charged to the income statement in the year under
IFRS. Under UK GAAP £1,293,000 was charged during the year so this has been
reversed.
Development costs of £992,000 at 1 January 2004 and £772,000 at 31 December 2004
that qualified for recognition as an intangible asset under IFRSs had not been
recognised under UK GAAP. They are recognised under IFRS at the date of
transition and at 31 December 2004 respectively. During 2004 £322,000 of
development expenditure was amortised and £102,000 of costs expensed under UK
GAAP were capitalised.
b) Deferred tax assets
Under UK GAAP the defined benefit pension scheme liability was reflected in the
financial statements net of deferred taxation. On transition to IFRS this has
been shown in the accounts as a deferred tax asset. The deferred tax asset on
accumulated actuarial gains and losses at 1 January 2004 was £5,850,000, the tax
charge in the year was £101,000 resulting in an asset of £5,951,000 at 31
December 2004. All other deferred tax assets which were shown within debtors
have been transferred to non-current assets and deferred tax has been provided
on the share based payments:
1 January 2004 Movement 31 December
2004
Deferred tax asset
Previously in pension liabilities 5,850 101 5,951
Previously in debtors 954 (37) 917
Previously in deferred tax liabilities - 253 253
Amortisation of intangibles - 21 21
Share based payments 155 18 173
Set off of tax (354) 27 (327)
_____ _____ _____
Total 6,605 383 6,988
===== ===== =====
c) Acquisition of subsidiary
The acquisition of Deanquip Valve Automation in January 2004 has been restated
under IFRS3. As a consequence of applying IFRS3 the acquisition has been
re-examined with a view to identifying specific intangibles. As a result
intangibles previously treated as goodwill and amortised over 20 years are now
being held on the balance sheet and are amortised over their estimated useful
lives. The intangible assets identified and the charge to the accounts in 2004
in respect of these intangibles is as follows:
Intangible at Amortisation
acquisition charge in 2004
Company name 31 21
Customer relationships 233 15
Order backlog at acquisition 25 25
Agency agreements 60 12
Currency adjustment - (3)
_____ _____
349 70
Goodwill 322 -
_____ _____
671 70
===== =====
The intangible amortisation for the year has been charged partly in cost of
sales (£50,000) and partly in administration expenses (£20,000).
d) Reserves
A number of reserves are required under IFRS which were not recorded under UK
GAAP. The breakdown of this movement is as follows:
UK GAAP Adjustment IFRS
Capital redemption reserve 1,637 - 1,637
Revaluation reserve 2,405 (2,405) -
Translation reserve - (1,212) (1,212)
_____ _____ _____
Total 4,042 (3,617) 425
===== ===== =====
The revaluation reserve is eliminated under IFRS as on first time adoption the
value at which the assets are held is deemed to be cost.
The translation reserve historically under UK GAAP has been included in the
retained earnings reserve.
e) Employee benefits
Rotork adopted FRS17 for the 2004 year end under UK GAAP. Liabilities under the
Group defined benefit pension schemes were shown on the face of the balance
sheet but were stated net of the associated deferred tax asset. Under IFRS the
deferred tax has been transferred to non-current assets (see note b above) and
the pension liability shown gross under employee liabilities. At 1 January 2004
the liability was £19,503,000 and at 31 December 2004, £19,836,000.
Under IFRS certain liabilities have been reclassified as employee benefits from
payables and provisions. These are:
1 January 2004 Movement 31 December
2004
UK GAAP employee liabilities 13,653 232 13,885
Transfer to deferred tax assets (see note b) 5,850 101 5,951
Transfer from provisions 1,037 (399) 638
Transfer from other payables - non share based payment 1,447 573 2,020
accruals
Transfer from other payables - share based payment accruals 1,102 516 1,618
Adjustment of share based payments to IFRS (323) (220) (543)
_____ _____ _____
Total 22,766 803 23,569
===== ===== =====
f) Deferred taxation liabilities
Under UK GAAP certain properties had been revalued. This revaluation was shown
within reserves as a separate reserve but under IFRS this has been consolidated
into retained earnings. On transition, following IFRS1 the revaluations have
been deemed cost. As a consequence deferred tax of £722,000 has been provided
on the balance at 1 January and 31 December 2004. In addition, the
capitalisation of development costs has led a reduction in the historic charge
to the income statement and requires the creation of a deferred tax liability.
The liability at 1 January 2004 was £297,000 reducing by £65,000 during the year
to £232,000 at 31 December 2004.
1 January 2004 Movement 31 December
2004
Deferred tax liability
UK GAAP deferred tax liabilities 128 147 275
Previously in deferred tax assets - 253 253
Revaluation reserve tax liability 722 - 722
Capitalised development costs liability 297 (65) 232
Set off of tax (354) 27 (327)
_____ _____ _____
Total 793 362 1,155
===== ===== =====
g) Other payables
Under UK GAAP dividends are accounted for once proposed but IFRS only reports
dividends as a charge to the accounts once paid. Reversal of the proposed
dividend has reduced other payables by £8,341,000. Together with the £3,638,000
transfer in respect of UK GAAP employee benefits noted above this accounts for
the £11,979,000 reduction in other payables.
Income statement Notes Previous Effect of IFRS
GAAP transition
to IFRS
Revenue 146,883 - 146,883
Cost of sales c, h (79,030) (67) (79,097)
_____ _____ _____
Gross profit 67,853 (67) 67,786
Other income j 631 (495) 136
Distribution expenses (1,816) - (1,816)
Administration expenses a, c, h (36,720) 1,082 (35,638)
Other expenses j (91) 55 (36)
_____ _____ _____
Profit from operations 29,857 575 30,432
Net financing income j 634 440 1,074
_____ _____ _____
Profit before tax 30,491 1,015 31,506
Tax expense i (10,591) 83 (10,508)
_____ _____ _____
Net profit for the year 19,900 1,098 20,998
===== ===== =====
Basic earnings per share 23.2p 1.3p 24.5p
Diluted earnings per share 23.0p 1.3p 24.3p
h) Employee share schemes
The Group applied IFRS2 to its active share based payment arrangements at 1
January 2004 except for those granted before 7 November 2002. The effect of
accounting for equity settled share based payment transactions at fair value is
to increase cost of sales by £17,000 and reduce administration expenses by
£29,000. The reduction in administration expenses reflects the reversal of
provisions made under UK GAAP for the Long-Term Incentive Plan.
i) Income tax expense
The income tax charge in the income statement has changed as a result by the tax
effect of some of the UK GAAP to IFRS adjustments. The analysis of the net
change is:
Amortisation of intangibles (see note b) 21
Cash settled share based payments (see note b) 18
Capitalised development costs (see note f) 65
Equity settled share based payments (21)
_____
83
=====
j) Exchange gains and losses
Under UK GAAP exchange gains and losses were reported in operating profit.
Under IFRS any gains and losses resulting from retranslation of currency
deposits are shown in net financing income which has resulted in Other income
being reduced by £495,000 and other expenses being reduced by £54,000, the net
result of £440,000 now being presented as a credit in net financing income.
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