TIDMROR
RNS Number : 5428Q
Rotork PLC
01 March 2016
1 March 2016
Rotork plc
2015 Full Year Results
2015 2014 % change OCC *(2)
% change
Revenue GBP546.5m GBP594.7m -8.1% -11.9%
Adjusted*(1) operating
profit GBP125.3m GBP157.2m -20.3% -23.4%
Adjusted*(1) operating
margin 22.9% 26.4% -350bps -340bps
Profit before tax GBP101.9m GBP141.2m -27.8% -26.2%
Adjusted*(1) profit before
tax GBP122.8m GBP156.1m -21.4% -24.3%
Basic earnings per share 8.6p 11.9p -27.7% -25.8%
Adjusted*(1) basic earnings
per share 10.4p 13.2p -21.0% -24.1%
Full year dividend 5.05p 5.01p +0.8%
*(1) Adjusted figures are before the amortisation of acquired
intangible assets
*(2) OCC is organic constant currency
Key Points
-- Results in line with September and November trading update guidance
-- Oil & Gas market remained weak
-- Accelerated cost management programme delivering greater than
anticipated annualised savings
-- New product launches and continued investment to expand product portfolio
-- Six acquisitions, including Bifold, completed in the year for GBP147.6m
-- Strong cash generation with net debt of GBP71.1m at year end
-- Full year dividend increased by 0.8% to 5.05p (2014: 5.01p)
Peter France, Chief Executive, commenting on the results,
said:
"The challenging market conditions that we saw in the first half
of the year continued for the remainder of 2015, with many of our
key markets and geographies impacted by the weakness of the oil
price, political instability and the slowdown in China.
"We were encouraged by the progress of our accelerated cost
management programme in 2015 and further actions to mitigate the
effect of end market weakness will remain a key focus in the
current year. We continue to see opportunities to gain market share
by expanding our product portfolio and through both organic
development and acquisition. By continuing to implement our
strategy for growth and targeted investment we will ensure that
Rotork is well placed to make further progress over the medium to
long term."
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
An analyst presentation will be held at 8.30am today. This will
be available as a live webcast on the company's website at
www.rotork.com and a recording will be posted on the website
shortly after the meeting.
Chairman's Statement
In this my first year as Chairman, Rotork has delivered a robust
set of results despite increasingly difficult trading conditions.
Although we do not expect conditions to improve in the near term,
the increasing diversity of our end markets and geographies,
together with our strong market positions, leave us well placed to
navigate the current turbulence whilst continuing to put the
building blocks in place for superior medium to long term
growth.
At times such as these, the fundamentals of the business are
tested to the full. This includes the appropriateness and
resilience of the strategy, the strength of our market positions,
the quality of the management, and the cohesiveness of our culture
and values. I have found Rotork to be in good shape in all these
respects.
Over many years, Rotork has established clear leadership
positions in well-defined end markets, based on innovative
technology and excellent customer service, delivered by a team of
highly motivated and experienced employees who put the customer at
the heart of what they do. Our asset-light model provides
considerable flexibility in prioritising resource according to the
greatest need or opportunity, whilst preserving capital for
investment in technology and innovation.
Financial Highlights
Order intake was 15.2% lower than the prior year on an organic
constant currency (OCC) basis but the contributions from
acquisitions, which were mainly completed in the second half of the
year, offset in part by the 0.9% currency headwind, resulted in a
reported reduction of 11.7%.
Revenue of GBP546.5m was supported by the order book at the
start of the year so reduced by less than order intake and was
11.9% lower on an OCC basis and 8.1% lower on a reported basis.
Adjusted* operating profit reduced 20.3% to GBP125.3m. Adjusted*
operating margins reduced by 350 basis points to 22.9%, impacted by
lower sales volumes and the mix effect of newly acquired businesses
at lower margins, partially offset by a GBP4.0m reduction in
overheads. The reduction at gross margin level to 45.7% was
contained to 230 basis points, with only a small increase in
overall material cost percentage, reflecting effective control over
material and labour costs, and good pricing resilience in
challenging market conditions.
Acquisitions
Rotork had a very active year for acquisitions as we continued
to implement our strategy for growth, and invested GBP147.6m on
acquisitions in total. This year we acquired Bifold Group Ltd
(Bifold), M&M Srl, Eltav Wireless Monitoring Ltd, all of which
sit in our Instruments Division, and Roto Hammer Industries Inc for
our Gears Division. We also acquired our agents' businesses in the
South of France and Turkey. The acquisition of Bifold for up to
GBP125m in August is the largest acquisition completed by Rotork to
date and provides a platform for the accelerated growth of the
Instruments division, expanding our addressable market by a further
GBP750m. Bifold performed in line with our expectations during the
year.
Board Composition and Performance
I would like to thank my fellow directors for welcoming me as
their new Chairman and for their considerable support in my first
year in the role.
The Board currently comprises three executive directors, four
independent non-executive directors and myself as Chairman. Two out
of the eight directors are women (25%), which remains the same as
last year.
We are announcing today that Bob Arnold will retire in August
this year. Bob has been President of Rotork Controls Inc. since
1988 and a member of the Board since 2001. I would like to thank
Bob for his contribution since joining Rotork in 1978 and in
particular his significant role in supporting the expansion of the
business throughout the Americas.
The annual performance review of the Board is scheduled to take
place during February and March 2016.
Corporate Governance
The Board continues to be committed to the highest standards of
governance. During the year, the Board and Audit Committee were
involved in continuing consideration of and work related to risk
appetite and the monitoring and disclosure of risk following the
revisions in 2014 to the UK Corporate Governance Code (the
Code).
Our Employees
I would like to thank all of our employees for their continued
high level of commitment and professionalism during this
challenging year.
Dividend
The Board recommends a final dividend of 3.1p per share, a 0.3%
increase over the 2014 final dividend. Taken with the 2015 interim
dividend, the total dividend is 5.05p per share (2014: 5.01p),
representing a 0.8% increase in the total dividend on 2014. The
final dividend will be payable on 16 May 2016 to shareholders on
the register on 8 April 2016.
Outlook
The challenging market conditions that we saw in the first half
of the year continued for the remainder of 2015, with many of our
key markets and geographies impacted by the weakness of the oil
price, political instability and the slowdown in China.
We were encouraged by the progress of our accelerated cost
management programme in 2015 and further actions to mitigate the
effect of end market weakness will remain a key focus in the
current year. We continue to see opportunities to gain market share
by expanding our product portfolio and through both organic
development and acquisition. By continuing to implement our
strategy for growth and targeted investment we will ensure that
Rotork is well placed to make further progress over the medium to
long term.
Martin Lamb
Chairman
29 February 2016
Chief Executive's Statement
The challenging market conditions that we saw in the first half
of the year continued to dominate for the remainder of 2015, with
many of our key markets and geographies impacted by the ongoing
weakness of the oil price, political instability and the slowdown
in China. We saw lower overall activity levels and an increased
number of project deferrals and cancellations. We continue to see
opportunities to gain market share by expanding our product
portfolio and through both organic development and acquisition. By
implementing our strategy for growth and making careful investments
we will ensure that Rotork is well placed to make further progress
over the medium to long term.
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March 01, 2016 02:00 ET (07:00 GMT)
The end of the year usually sees an upturn in revenue as
customers look to complete orders and 2015 was no exception.
However, fourth quarter revenue was 10.7% lower than the record
fourth quarter of 2014 despite the acquisitions completed in the
year and 15.1% lower on an organic constant currency (OCC) basis.
Revenue for the year was 8.1% lower than the previous year, which
on an OCC basis was 11.9% lower. Order intake is usually less
driven by this year-end pattern but the fourth quarter nevertheless
showed an improvement of 3.2% on the third quarter on an OCC basis
or 12.8% with the inclusion of acquisitions. Full year order intake
was 11.7% below 2014, or 15.2% lower on an OCC basis. Lower revenue
was the main driver of the 20.3% reduction in adjusted* operating
profit to GBP125.3m. Cost control and the accelerated cost
management programme delivered more than the anticipated savings in
the year but this was not sufficient to offset the reduction in
revenue.
In 2015, we invested GBP147.6m in six acquisitions. In line with
our strategy, together these businesses bring additional products
that enhance Rotork's product portfolio and technology, expand our
geographical presence and give us access to new markets. Our focus
in 2016 will be to continue to integrate the newly-acquired
businesses and drive the potential revenue synergies. We will also
continue to look for acquisition opportunities as part of our
growth strategy.
During the year we opened four new sales and services offices
and started the move into the new Lucca (Italy) factory, which is
due to be completed in the second quarter of 2016. We now have 31
manufacturing sites, 73 national offices, and 84 regional locations
in 38 countries. In total we have over 850 sales channels in 101
countries. Strengthening our global presence to provide local
support to our customers remains a core part of our strategy.
Our Markets
The long-term drivers of our markets remain positive with
population growth, urbanisation and automation continuing to drive
increased demand for flow control products and services. Our
customers are also increasingly focused on reducing power
consumption, increasing efficiency, maximising cost reduction,
improved safety and minimising their carbon footprints, which will
drive long-term growth in our markets.
In the shorter term our markets continue to be impacted by
various headwinds. In 2015, the oil and gas markets remained active
despite the fall in the oil price. Oil and gas represented 53.3% of
our revenue in 2015, a decline of 360 basis points on the previous
year. In the water and industrial markets, revenue was up on the
previous year, with water showing a small increase of GBP1.3m and
industrial showing a larger increase of GBP10.2m demonstrating that
our strategy of diversifying our end markets is continuing to make
progress. The slowdown in China's economy also impacted our revenue
for the year with sales in the power market declining by GBP7.3m
(7.5%), with GBP6.5m of that total attributable to China.
Rotork Controls
GBPm 2015 2014 Change OCC change
-------------------- ------ ------ -------- -----------
Revenue 286.7 324.5 -11.7% -11.7%
-------------------- ------ ------ -------- -----------
Adjusted operating
profit 85.5 104.7 -18.4% -18.6%
-------------------- ------ ------ -------- -----------
Adjusted operating
margin 29.8% 32.3% -250bps -250bps
-------------------- ------ ------ -------- -----------
Order intake was GBP277.0m, a 13.6% reduction compared with the
prior year. On an OCC basis the movement was very similar to the
reported change at -13.5%, as the small benefit from acquisitions
was offset by a modest currency headwind. Revenue was GBP286.7m,
11.7% lower than the prior year, on both a reported and OCC basis,
resulting in a GBP10.7m reduction in the order book to GBP81.0m.
The lower revenue had a knock-on impact on profitability for the
division. Adjusted* operating profit fell 18.4% to GBP85.5m, an
adjusted* operating margin of 29.8%, 250 basis points lower than
2014. The reduced margin is largely attributable to the lower sales
volumes with the cost of components similar to the prior year.
Sales to the oil and gas markets were the most heavily impacted
during the year, with reduced revenue across upstream, midstream
and downstream applications. The proportion of revenue from oil and
gas reduced from 51% to 48% during the year with a majority of the
division's revenue now coming from other markets. North America
continued to grow in total and across all end markets (oil and gas,
water, power and industrial), with the Middle East seeing good
growth in oil and gas and power. The gains in these markets were
insufficient to offset the reduction in revenue in the Far East,
Controls' largest market, where all end markets apart from water
showed a decline. Within this region, the reduced activity in China
in both the oil and gas and power markets had the biggest impact.
Latin America was also impacted, with sales in the oil and gas
markets substantially down, particularly in Mexico.
The integration of our Turkish sales and services agent's
actuator business acquired earlier in 2015 is progressing well and
resulted in us opening a new office and expanding our team in
Turkey. This will enable us to grow our market share in the region.
The purchase of Servo Moteurs Service in France in September
further extended our service coverage in southern France.
We continue to focus on product innovation to support growth in
our markets. During the year, we launched further variants of our
IQ3 range to target profitable niche applications. The main
variants of Centork used in the water and power markets were also
launched in the year with the remaining variants due to be released
in 2016. Two of our existing factories have been set up to produce
this range, with a third factory due to commence production in 2016
as volumes grow. The ExMax M has been adapted for outside
applications as part of the continued expansion of our product
range in the growing HVAC market. A new variant of our compact
modulating actuator (CMA) was also launched, adding further
features to the current CMA range.
Rotork Fluid Systems
GBPm 2015 2014 Change OCC change
-------------------- ------ ------ -------- -----------
Revenue 149.2 180.3 -17.2% -16.3%
-------------------- ------ ------ -------- -----------
Adjusted operating
profit 15.2 31.2 -51.2% -48.8%
-------------------- ------ ------ -------- -----------
Adjusted operating
margin 10.2% 17.3% -710bps -670bps
-------------------- ------ ------ -------- -----------
As the Rotork division with the largest exposure to oil and gas,
2015 was a difficult year for Rotork Fluid Systems (RFS). Within
the other end markets results were mixed with industrial process
sales the largest growth area but this was insufficient to offset
the decline in oil and gas. However, oil and gas continues to
provide opportunities for RFS in some areas. Both our comprehensive
product portfolio and other end market exposure will continue to
drive growth.
The second half of the year proved more challenging than the
first. Order intake in the second half was 27.1% lower than the
second half of 2014, resulting in full year order intake that was
23.4% lower than the prior year. The currency headwind was greater
than the contribution from acquisitions, so on an OCC basis full
year order intake was 22.2% lower than 2014. Revenue of GBP149.2m
was 17.2% lower, with the negative impact of currency again greater
than the contribution from acquisitions, resulting in a reduction
in revenue on an OCC basis of 16.3%. Volume, mix and pricing all
impacted the top line but the containment of overhead costs at all
levels was insufficient to offset this so adjusted* operating
profit was down 51.2% to GBP15.2m, a margin of 10.2% compared with
17.3% last year.
The division's exposure to the oil and gas market reduced once
again in 2015, down from 72% to 68% of the division's revenue, with
upstream, midstream and downstream all reporting a reduction.
Industrial process became the second largest end market with 17%
whilst power remained at 9% of a reduced divisional revenue figure.
Geographically, North America is RFS's largest market, and the
value of its sales remained constant year-on-year. Canada continued
to grow, despite the difficult market conditions. In the USA we had
a good year in securing key Gulf Coast LNG project work, as well as
good project activity around gas pipeline and compressor stations.
Western Europe also saw some growth with most of the increase in
industrial sales coming from that region. All other regions saw a
decline in revenue, with the weakest performer being the Far East,
where project deliveries in Australia and India fell from
historically high levels in 2014.
The improvement and consolidation of our existing facilities
remains a focus as part of our drive to manage costs in the current
market conditions. Our new factory in Lucca (Italy) is due to be
fully operational in the second quarter of 2016. In addition, in
early 2016 we will complete the integration of our three existing
Milan facilities into one combined site in Cusago (Italy) and by
the end of 2016 we expect to complete the consolidation of three
existing Tulsa (USA) facilities into one combined site. The
integration of Masso, our marine focussed business acquired at the
end of 2014, is progressing well and Masso is starting to benefit
from being part of the Rotork Group and from our global sales
network.
We continue to develop our supply chain in India, China and
Malaysia for our higher volume products to control and accelerate
material cost reductions. We also continue to realise synergistic
initiatives with the expanding range of devices within the
Instruments division.
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Product development continues to be a focus for RFS as we look
to build on opportunities to extend or improve our product range to
address new or existing market requirements. During the year we
launched SI3, our third generation Skilmatic SI electric fail-safe
actuator with IQ3 technology, and the CQ range of actuators. CQ can
be used in harsh environments where safety is required and where
space is limited. During the year we also expanded our range of
K-Tork actuators (used in power and industrial markets) by
introducing a wider range of sizes and made further progress with
our nuclear qualification programme.
Rotork Gears
GBPm 2015 2014 Change OCC change
-------------------- ------ ------ -------- -----------
Revenue 58.6 57.8 +1.4% +1.3%
-------------------- ------ ------ -------- -----------
Adjusted operating
profit 12.0 13.0 -7.8% -3.4%
-------------------- ------ ------ -------- -----------
Adjusted operating
margin 20.5% 22.5% -200bps -100bps
-------------------- ------ ------ -------- -----------
The Gears division made progress during the year, developing its
addressable market, identifying new customers, markets and
products, and completing the acquisition of Roto Hammer Industries
Inc. (Roto Hammer) in the USA. Our industry leading expertise
enables us to deliver innovative solutions to meet our customers'
individual valve gearbox and accessory requirements, drawing on a
wide range of products. We maintained our focus on profitability,
return on sales and world class service. We also continued our
efforts to streamline production processes and reduce costs.
Order intake and revenue grew modestly during 2015 on both a
reported and OCC basis. Order intake was 0.4% higher than 2014, and
revenue 1.3% higher, both on an OCC basis. Whilst currency was
neutral for divisional revenue in the first half of the year, it
was a headwind in the second half but the second half also
benefited from the acquisition of Roto Hammer in September. Revenue
was GBP58.6m, 1.4% ahead of last year, fractionally ahead of order
intake, so the order book reduced 6.0% to GBP10.1m at the end of
the year. Gears saw the largest adverse impact of currency on
reported margins as a result of its combination of factory
locations and supply channels. Adjusted* operating profit of
GBP12.0m (2014: GBP13.0m) gives a margin of 20.5%, 200 basis points
lower than 2014, but on an OCC basis this gap narrows to 100 basis
points. This margin reduction can be attributed to the reduction in
oil and gas sales which were largely replaced by sales into the
power and industrial markets, which are typically at a lower
margin.
The GBP8.2m acquisition of Roto Hammer, a US-based manufacturer
of custom designed chain wheel manual valve operators, adds a new
product line to the Gears' product range and increases our presence
in the important US market. Gears further developed its global
sales and service network, providing local support to our customers
around the world. We secured new OEM accounts in the growth markets
of Korea, Japan, China, India and Eastern Europe. In addition, we
saw growth in our sub-sea business, and in the USA we developed
"Factory Stores" short lead-time sales.
Oil and gas remained our largest end market but reduced from 57%
to 50% of sales, whilst sales in power, water and industrial all
grew as we continued to diversify our end market exposure. In terms
of the regional split of sales, North America reduced, despite the
contribution from Roto Hammer from September, as did the Far East.
Western Europe was the best performing region and is our largest
end destination market, representing 31% of sales, up from 28% in
the prior year.
Our Leeds facility is the worldwide headquarters of Gears.
Gearboxes are manufactured here and also at our facilities in
China, India, USA and Continental Europe. Our Leeds-based team is
responsible for research, product development and product
testing.
We continue to work closely with our customers, providing them
with the benefits of innovative, technically advanced, high quality
products and associated services. Our dedicated research and
development team are responsible for new product design and
development, from concept to customer. During 2015, we further
strengthened our diverse product range with the launch of the
AB550M and HOS/MPR gearbox ranges. The AB550M is motorised for
quarter-turn applications, whilst the HOS/MPR is a hand operated
spur gearbox offering comprehensive solutions for multi-turn
valves.
Rotork Instruments
GBPm 2015 2014 Change OCC change
-------------------- ------ ------ -------- -----------
Revenue 67.3 46.0 +46.5% -5.8%
-------------------- ------ ------ -------- -----------
Adjusted operating
profit 18.3 14.4 +26.8% -14.5%
-------------------- ------ ------ -------- -----------
Adjusted operating
margin 27.2% 31.4% -420bps -290bps
-------------------- ------ ------ -------- -----------
2015 was another year of strong growth for the Instruments
division, with the completion of three acquisitions doubling our
addressable market and providing Instruments with excellent
foundations for the future. During the year, we focused on: the
integration of Soldo and YTC; continuing to widen our product range
through synergistic acquisitions and innovating our existing
products; leveraging our sales synergies through our global sales
network; and delivering cost reduction and productivity
improvements.
Order intake grew 43.0% in the year due to the significant
contribution from acquisitions and supported by a currency
tailwind. On an OCC basis order intake was 9.1% lower than the
prior year, with Soldo and Rotork Midland affected by the lower oil
and gas activity and Rotork Midland also impacted by the lumpy
nature of its rail projects. The pattern with revenue was similar,
being 46.5% higher as reported at GBP67.3m but this was 5.8% lower
on an OCC basis. Gross margins were 50 basis points lower than the
prior year on an OCC basis, with the mix impact of lower margin
acquisitions reducing gross margin by a further 200 basis points,
down to 46.3%. Adjusted* operating profit was GBP18.3m, 26.8%
higher than 2014, a 27.2% adjusted* operating margin. OCC adjusted*
operating profit was GBP12.3m, 14.5% lower than 2014, a margin of
28.5%.
In August, we completed the acquisition of Bifold Group Ltd
(Bifold) which has operations in Manchester and Taunton (UK) for up
to GBP125m. Bifold is a manufacturer of pneumatic and hydraulic
instrument valves focused on the oil and gas industry and wider
industrial markets, with expertise in a number of niche sectors
such as subsea and wellhead control systems and was a long held
target of Rotork's. It has market leading technology in areas that
include the development of solenoid valves with ultra-low power
requirements. The combination of Bifold's extensive product
portfolio and leading technology with Rotork's international sales
network and geographic reach will support the continued growth of
the Instruments division in the future. Bifold performed in line
with expectations during the year.
In August we also acquired M&M International Srl (M&M),
based in Bergamo (Italy). M&M is a manufacturer of solenoid
valves, piston actuated valves and automatic drain valves for use
in commercial and industrial flow control industries and will
complement Rotork Midland's range of solenoid valves. Our third
acquisition for the year was Eltav Technologies. Eltav produces an
innovative industrial wireless monitoring solution for actuated
valves. Its diagnostic software enables predictive maintenance on
actuated valves, reducing capital and operational expenses while
increasing safety and productivity in the plant. These acquisitions
support our strategy of broadening our product portfolio and
expanding our addressable markets. Activities to integrate our
routes to market, train the sales teams on the broader product
portfolio and align our product development strategies are all well
underway and progressing according to plan.
Instruments had less exposure than the other divisions to the
oil and gas market in 2015, although it was still the largest end
market at 44% of divisional revenue and that proportion will
increase in the current year with a full year contribution from
Bifold. There was a decline in oil and gas sales in some areas but
these were offset by gains in other areas. We have continued to be
successful in gaining traction in new geographic markets through
selling our growing product portfolio through our integrated global
sales channels. In particular, Rotork Midland and YTC saw good
growth in India, Korea, China and the USA.
In 2015, each of the businesses developed extensions to their
existing product ranges and new variants of products, supporting
global expansion and key end markets. Soldo developed ECL, a
multi-turn manual switch box, in collaboration with Rotork Gears;
Rotork Midland developed a pioneering control system on a Biomass
wagon for the Drax power station that controls the door opening and
locking process; YTC's new TMP-3000 industrial positioner will open
new markets for YTC in the control of piston valves; and Bifold
continues to expand its range of products for the wellhead market
with electro hydraulic power packs and pressure transmitters and
switches.
Rotork Site Services (RSS)
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The RSS team provide service and support to our customers
locally around the world through preventative maintenance
contracts, onsite and workshop service, retrofit solutions and the
tailormade Client Support Programme (CSP). In 2015, RSS opened new
service centres in Glasgow and Korea, expanded its service
provision in France and Turkey and improved existing facilities to
accommodate the CSP and changes in service. With 402
directly-employed service engineers and other service technicians
employed by our agents around the world (2014: 370), we provide the
infrastructure to effectively support all of our customers' service
needs.
Research and Development (R&D)
Innovation continues to be a core part of our strategy as we
work with our customers to find ways of reducing power consumption,
increasing efficiency, lowering the costs of asset ownership and
minimising carbon footprint. Following the acquisition of Bifold
Group Ltd in August, Gary Jacobson was appointed as Group
Innovation Director in October and will head the new Group
Innovation Department. Gary brings a wealth of experience and
technical knowledge of products and markets relevant to Rotork and
I am delighted to have him leading our future development in this
area. 2015 saw the launch of a number of new products across the
divisions and our spend on R&D for the year was GBP9.6m or 1.8%
of revenue.
Our People
Rotork's culture and values are an integral part of our business
model and are embedded in the day to day behaviour of all
employees. Our employees act and behave as smaller family units,
part of the larger Rotork family. This is supported by Rotork being
structured as a number of smaller business units, with individuals
working collaboratively across teams and projects.
Rotork aims to be an employer of choice and is considered a
great place to work by the majority of our employees. We foster an
open and honest culture based on the engagement of our employees.
Our annual employee satisfaction is used to improve the experience
of working at Rotork and has helped to drive many changes around
the Rotork globe. Our annual survey was completed by 2,350
employees, with the response rate being slightly down (71% compared
to 75% last year) and the overall satisfaction score remaining the
same as last year at 3.6. The global results showed that on average
people are most satisfied with Rotork's products and services, our
approach to health and safety and our values and ethics and they
are planning to stay with Rotork for at least another year.
Rotork had a total of 3,759 employees at the end of 2015, an
increase of 300 employees. From the various acquisitions, 389
employees joined the Rotork family. Excluding the acquisitions, the
total number of employees decreased by 89 as a result of the cost
management initiatives that were implemented during the year.
In 2015, there were two changes to our management team, with the
retirement of Graham Ogden in March and Gary Jacobson joining the
Rotork Management Board in October following his appointment as
Group Innovation Director.
The success of Rotork is down to the hard work and dedication of
our people. I would like to personally thank each and every one of
them for making Rotork the world class business that it is
today.
Acquisitions
In August we completed the acquisition of Bifold, the largest
single acquisitions in our history. Taken with M&M, Roto
Hammer, SMS, Eltav and the purchase of the sales and service
activities of our agent in Turkey, acquisition spend was GBP136.7m
in the year with a further GBP10.9m of contingent consideration
most of which is in respect of Bifold. Each of these acquisitions
provides a new product range, access to a new end-user market or
access to a new geographic market or some combination of these
benefits in line with our stated acquisition strategy.
Taking all these acquisitions together, GBP66.7m of the
consideration was attributed to intangible assets which will be
amortised and GBP74.5m is goodwill which will be subject to an
annual impairment review. The increased value of acquisitions this
year and last year led to a rise in the amortisation charge related
to acquired intangible assets to GBP20.9m (2014: GBP14.9m). In
order to adjust the income statement to show a like-for-like period
for each acquisition, 2015 revenue has to be reduced by GBP26.8m
and adjusted* operating profit by GBP6.0m. The profit margin of the
acquired business was slightly dilutive in aggregate, at 22.2%. The
professional fees associated with the acquisitions amounted to
GBP1.3m (2014: GBP0.6m) and are included in adjusted* operating
profit.
Accelerated cost management programme
At our Half Year results in August we presented an accelerated
cost management programme as part of our response to the changing
market conditions. The programme identified GBP8m of annualised
savings, split equally between material costs and overheads with
GBP2m of these savings due to be realised in 2015. The sourcing
initiatives launched in 2015 have been implemented quicker than
anticipated, with annualised savings of GBP5.6m identified and
introduced, and with a material cost benefit of GBP2.8m in the
year. This helped contain the material cost percentage so that the
net impact of pricing, mix, and material cost was only an 80 basis
point increase.
The initiatives to reduce overheads also delivered greater
savings in the year than anticipated with the income statement
benefiting from GBP2.6m of savings which when annualised will be
GBP4.6m. Not replacing leavers and consolidating roles led to a net
headcount reduction of 89 people in the year, including some senior
posts, before the 389 people added with acquisitions are reflected.
This was the largest contributor to both the savings in the year
and the annualised total. Facility consolidation is underway in a
number of locations and is most advanced in Milan. As these moves
were completed in early 2016, the benefit will only start to be
felt in the current year.
Overall, the accelerated cost management programme produced
savings of GBP5.4m in 2015 which on an annualised basis will
increase to GBP10.2m. In addition to these savings, 2015 benefited
from a reduction in variable pay as bonuses at all levels of the
organisation were lower than the prior year. Excluding the impact
of acquisitions and removing the benefit of the specific cost
management programme changes identified above, the like for like
payroll cost decreased marginally but the cost of bonuses and
similar variable benefits reduced by GBP11m.
Currency
The overall impact of currency on our reported results for 2015
was closer to neutral than in 2014. This was particularly true in
the first half of the year when the adjustment to revenue to
restate it at 2014 rates was a net nil. In the second half of the
year both the US dollar and euro strengthened relative to sterling,
resulting in a GBP4.3m (0.8%) headwind to revenue for the full
year. Within this our two main currencies fared very differently,
with US dollar average rates strengthening 7.2% and the euro
weakening 11.0% for the year. Amongst the other 16 currencies that
are home currencies to one or more of our subsidiaries, there was a
net weakening of currencies with seven of the currencies weakening
by more than 10%.
The impact of currency on the Group is both translational and
transactional. Given the locations in which we have operations and
the international nature of our supply base and sales currencies,
the impact of transaction differences can be very different from
the translation impact. We are able to partially mitigate the
transaction impact through matching supply currency with sales
currency, but ultimately we are still net sellers of both US
dollars and euros. It is the net sale of these currencies which we
principally address through our hedging policy, covering up to 75%
of trading transactions in the next 12 months and up to 50% between
12 and 24 months. Net of these mitigating actions adjusted*
operating profit was GBP1.1m (0.7%) lower than it would have been
at 2014 rates.
In order to estimate the impact of currency, at the current
exchange rates we consider the effect of a 1 cent movement versus
sterling. A 1 euro cent movement now results in approximately a
GBP235,000 adjustment to profit and for US dollar, and dollar
related currencies, a 1 cent movement equates to approximately a
GBP400,000 adjustment. Both these adjustments were lower compared
with the equivalent figures in 2014 as a result of the lower
underlying currency flows. If current exchange rates were to apply
for the whole of 2016, this would be a 7% tailwind to both revenue
and profit compared with the average rates for 2015.
Return on capital employed (ROCE)
Our asset-light business model and strong profit margins mean
Rotork generates a high ROCE. Our definition of ROCE is based on
adjusted* operating profit as a return on the average net assets
excluding net debt and the pension scheme liability net of the
related deferred tax. This means that as we make acquisitions our
capital base grows when the associated intangible assets and
goodwill are recognised. During the year intangibles and goodwill
increased by a net GBP119m in total which, after allowing for the
related deferred tax, accounted for more than 23% of the increase
in capital employed, which rose 31% to GBP496m. With the larger
acquisitions taking place in the second half of the year and
therefore only contributing a part year profit together with the
lower organic sales, ROCE reduced to 28.6%.
Group Tax Policy
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The Group's approach to tax continues to be to operate on the
basis of full disclosure and co-operation with all tax authorities
and, where possible, to mitigate the burden of tax within the
framework of local legislation. This approach to tax balances the
various interests of shareholders, governments, employees and the
communities in which we operate and is aligned with our strategy,
enhancing shareholder value whilst protecting the Group's
reputation. In an increasingly complex international environment
and with the broad geographic spread of our businesses, a degree of
tax risk is inevitable. We manage and control these risks
proactively seeking local professional advice where needed.
The Group's effective tax rate reduced from 26.9% to 26.5%. The
Group continues to operate in many jurisdictions where local
profits are taxed at their national statutory rates, ranging from
nil to over 35%, compared to a UK statutory rate of 20.25% for the
year. In the year, the change in profit mix across the Group
resulted in a decrease in the effective tax rate of 0.4 percentage
points. In contrast, the Group benefitted from the reduction in the
UK Corporation Tax rate, generating a one off 0.6% rate benefit. In
addition, the Group continues to benefit from the UK patent box
regime and R&D tax relief.
Cash generation
Following the acquisition of Bifold our net debt position at the
end of the year was GBP71.1m compared with net cash at the start of
the year of GBP25.2m. The three largest categories of cash
expenditure were: GBP138.4m on acquisitions, GBP43.8m of dividends
and GBP35.7m of tax paid. The increase in acquisition spend, from
GBP82.7m last year, was the largest increase and was funded by a
GBP98.3m net increase in bank borrowing during the year. Capital
expenditure was GBP11.8m compared with GBP17.5m in 2014, with the
GBP3.8m spent on the fit out of the new Lucca facility the only
major project during taking place during the year.
Our cash generation KPI shows a conversion of 115.4% of
operating profit into operating cash. Control of working capital as
defined in the cashflow statement, using average exchange rates and
excluding acquisitions, is key to achieving this performance
measure. Looking at the balance sheet figures, inventory increased
GBP6.1m to GBP87.2m in the year and represented 16.0% of annual
revenue but on an OCC basis was a decrease of GBP0.7m, 15.3% of
revenue. Trade receivables fell GBP9.7m as reported, with debtor
days outstanding increasing 2 days to 62 days. In total, net
working capital increased to 31.0% of annual revenue compared with
28.5% in December 2014.This year the combination of acquisitions
taking place late in the year and currency movements at the end of
the year affecting the balance sheet values of working capital
impacted this measure in 2015.
Dividends
The Board is proposing a 0.3% increase in the final dividend to
3.1p per share. When taken together with the 1.95p interim dividend
paid in September, this represents a 0.8% increase in dividends
over the prior year, having taken into account the 10 for 1 share
split which took place in May 2015. This gives dividend cover of
1.7 times (2014: 2.4 times), with the reduction in cover reflecting
the reduction in profits in 2015. Our long-standing dividend policy
is to grow core dividends in line with earnings and supplement core
dividends with additional dividends when the Board considers it
appropriate to do so having considered the near-term expected cash
requirements of the Group.
Peter France
Chief Executive Officer
29 February 2016
* References to adjusted profit throughout this document are
defined as the IFRS profit, whether operating profit or profit
before tax, with GBP20.9m (2014: GBP14.9m) of amortisation of
acquired intangibles added back.
Consolidated income statement
For the year ended 31 December 2015
2015 2014
Notes GBP000 GBP000
------------------------------------------------------- ----- --------- -----------
Revenue 2 546,459 594,739
Cost of sales (296,944) (309,280)
------------------------------------------------------- ----- --------- -----------
Gross profit 249,515 285,459
Other income 427 277
Distribution costs (4,613) (5,466)
Administrative expenses (140,877) (137,832)
Other expenses (66) (211)
------------------------------------------------------- ----- --------- -----------
Operating profit before the amortisation of intangible
assets 125,272 157,167
Amortisation of acquired intangible assets (20,886) (14,940)
------------------------------------------------------- ----- --------- -----------
Operating profit 2 104,386 142,227
Finance income 4 1,740 1,421
Finance expense 4 (4,257) (2,483)
------------------------------------------------------- ----- --------- -----------
Profit before tax 101,869 141,165
Income tax expense 5 (27,012) (37,963)
------------------------------------------------------- ----- --------- -----------
Profit for the year 74,857 103,202
------------------------------------------------------- ----- --------- -----------
Basic earnings per share 12 8.6p 11.9p(1)
Adjusted basic earnings per share 12 10.4p 13.2p(1)
Diluted earnings per share 12 8.6p 11.9p(1)
Adjusted diluted earnings per share 12 10.4p 13.1p(1)
------------------------------------------------------- ----- --------- ---------
(1) Restated to reflect subdivision of 5p ordinary shares into
0.5p ordinary shares.
Consolidated statement of comprehensive income
For the year ended 31 December 2015
2015 2014
GBP000 GBP000
----------------------------------------------------- ------- --------
Profit for the year 74,857 103,202
Other comprehensive income
Items that may be subsequently reclassified to the
income statement:
Foreign exchange translation differences (6,511) (869)
Effective portion of changes in fair value of cash
flow hedges net of tax (1,448) (1,810)
------------------------------------------------------ ------- --------
(7,959) (2,679)
Items that are not subsequently reclassified to the
income statement:
Actuarial gain / (loss) in pension scheme net of tax 8,049 (15,341)
------------------------------------------------------ ------- --------
Income and expenses recognised directly in equity 90 (18,020)
Total comprehensive income for the year 74,947 85,182
------------------------------------------------------ ------- --------
Consolidated balance sheet
At 31 December 2015
2015 2014
Notes GBP000 GBP000
-------------------------------------- ----- ------- -------
Non-current assets
Goodwill 6 222,086 149,679
Intangible assets 7 118,555 72,270
Property, plant and equipment 72,008 64,050
Deferred tax assets 13,698 15,703
Other receivables 9 2,234 1,976
-------------------------------------- ----- ------- -------
Total non-current assets 428,581 303,678
Current assets
Inventories 8 87,210 81,090
Trade receivables 9 118,801 128,472
Current tax 9 4,458 1,962
Derivative financial instruments 25 1,913
Other receivables 9 13,225 12,586
Cash and cash equivalents 10 48,968 46,816
-------------------------------------- ----- ------- -------
Total current assets 272,687 272,839
-------------------------------------- ----- ------- -------
Total assets 701,268 576,517
-------------------------------------- ----- ------- -------
Equity
Issued equity capital 11 4,349 4,346
Share premium 10,018 9,422
Reserves (3,989) 3,970
Retained earnings 397,424 359,057
-------------------------------------- ----- ------- -------
Total equity 407,802 376,795
-------------------------------------- ----- ------- -------
Non-current liabilities
Interest bearing loans and borrowings 13 69,756 1,303
Employee benefits 14 26,320 38,864
Deferred tax liabilities 28,973 20,358
Derivative financial instruments 431 -
Provisions 15 11,990 1,913
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Total non-current liabilities 137,470 62,438
Current liabilities
Interest bearing loans and borrowings 13 50,352 20,274
Trade payables 16 36,724 40,162
Employee benefits 14 11,118 16,018
Current tax 16 14,276 15,200
Derivative financial instruments 3,601 1,119
Other payables 16 34,612 35,191
Provisions 15 5,313 9,320
-------------------------------------- ----- ------- -------
Total current liabilities 155,996 137,284
-------------------------------------- ----- ------- -------
Total liabilities 293,466 199,722
-------------------------------------- ----- ------- -------
Total equity and liabilities 701,268 576,517
-------------------------------------- ----- ------- -------
Consolidated statement of changes in equity
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Balance at 31 December 2013 4,344 8,840 2,668 1,644 2,337 312,246 332,079
Profit for the year - - - - - 103,202 103,202
Other comprehensive income
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Foreign exchange translation
differences - - (869) - - - (869)
Effective portion of changes
in fair value of cash
flow hedges - - - - (2,368) - (2,368)
Actuarial loss on defined benefit
pension plans - - - - - (19,832) (19,832)
Tax in other comprehensive income - - - - 558 4,491 5,049
Total other comprehensive income - - (869) - (1,810) (15,341) (18,020)
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Total comprehensive income - - (869) - (1,810) 87,861 85,182
Transactions with owners, recorded
directly in equity
Equity settled share-based payments
transactions - - - - - 2,799 2,799
Tax on equity settled share-based
payment transactions - - - - - (274) (274)
Share options exercised by employees 2 582 - - - - 584
Own ordinary shares acquired - - - - - (6,300) (6,300)
Own ordinary shares awarded
under share schemes - - - - - 5,427 5,427
Dividends - - - - - (42,702) (42,702)
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Balance at 31 December 2014 4,346 9,422 1,799 1,644 527 359,057 376,795
Profit for the year - - - - - 74,857 74,857
Other comprehensive income
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Foreign exchange translation
differences - - (6,511) - - - (6,511)
Effective portion of changes
in fair value of cash
flow hedges - - - - (1,790) - (1,790)
Actuarial gain on defined benefit
pension plans - - - - - 9,704 9,704
Tax in other comprehensive income - - - - 342 (1,655) (1,313)
Total other comprehensive income - - (6,511) - (1,448) 8,049 90
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Total comprehensive income - - (6,511) - (1,448) 82,906 74,947
Transactions with owners, recorded
directly in equity
Equity settled share-based payments
transactions - - - - - (1,447) (1,447)
Tax on equity settled share-based
payment transactions - - - - - (799) (799)
Share options exercised by employees 3 596 - - - - 599
Own ordinary shares acquired - - - - - (2,785) (2,785)
Own ordinary shares awarded
under share schemes - - - - - 4,257 4,257
Dividends - - - - - (43,765) (43,765)
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Balance at 31 December 2015 4,349 10,018 (4,712) 1,644 (921) 397,424 407,802
------------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Consolidated statement of cash flows
For the year ended 31 December 2015
2015 2015 2014 2014
Notes GBP000 GBP000 GBP000 GBP000
------------------------------------------- ----- --------- --------- -------- ---------
Cash flows from operating activities
Profit for the year 74,857 103,202
Adjustments for:
Amortisation of intangibles 20,886 14,940
Amortisation of development costs 1,814 1,461
Depreciation 9,759 7,996
Equity settled share-based payment expense 2,810 5,160
(Profit) / loss on sale of property, plant
and equipment (280) 88
Finance income (1,740) (1,421)
Finance expense 4,257 2,483
Income tax expense 27,012 37,963
------------------------------------------- ----- --------- --------- -------- ---------
139,375 171,872
Decrease / (Increase) in inventories 731 (1,891)
Decrease / (increase) in trade and other
receivables 15,664 (16,349)
Decrease in trade and other payables (6,931) (1,327)
Difference between pension charge and cash
contribution (5,051) (5,241)
Decrease in provisions (56) (1,379)
(Decrease) / increase in employee benefits (4,226) 2,176
------------------------------------------- ----- --------- --------- -------- ---------
139,506 147,861
Income taxes paid (35,716) (42,992)
------------------------------------------- ----- --------- --------- -------- ---------
Cash flows from operating activities 103,790 104,869
Investing activities
Purchase of property, plant and equipment (11,762) (17,518)
Development costs capitalised (3,063) (2,676)
Sale of property, plant and equipment 1,508 224
Acquisition of businesses, net of cash
acquired 3 (133,857) (81,263)
Contingent consideration paid (4,536) (1,463)
Interest received 1,103 1,048
------------------------------------------- ----- --------- --------- -------- ---------
Cash flows from investing activities (150,607) (101,648)
Financing activities
Issue of ordinary share capital 599 584
Own ordinary shares acquired (2,785) (6,300)
Interest paid (1,759) (1,120)
Increase in bank loans 98,326 19,496
Repayment of finance lease liabilities (100) (36)
Dividends paid on ordinary shares (43,765) (42,702)
------------------------------------------- ----- --------- --------- -------- ---------
Cash flows from financing activities 50,516 (30,078)
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------------------------------------------- ----- --------- --------- -------- ---------
Increase / (decrease) in cash and cash
equivalents 3,699 (26,857)
Cash and cash equivalents at 1 January 46,816 68,873
Effect of exchange rate fluctuations on
cash held (1,547) 4,800
------------------------------------------- ----- --------- --------- -------- ---------
Cash and cash equivalents at 31 December 10 48,968 46,816
------------------------------------------- ----- --------- --------- -------- ---------
Notes to the Financial Statements
For the year ended 31 December 2015
Except where indicated, values in these notes are in GBP000.
Rotork plc is a company domiciled in England. The consolidated
financial statements of the Company for the year ended 31 December
2015 comprise the Company and its subsidiaries (together referred
to as the Group).
1. Accounting policies
Basis of preparation
The consolidated financial statements of Rotork plc have been
prepared and approved by the directors in accordance with
International Financial Reporting Standards as adopted by the
European Union (IFRSs as adopted by the EU), IFRIC Interpretations
and the Companies Act 2006 applicable to companies reporting under
IFRS.
New accounting standards and interpretations
The following narrow scope amendments which were issued as part
of the IFRS Annual improvement cycles have been applied from 1
January 2015:
-- Amendment to IAS19 Defined benefit plans - Employee contributions
-- IFRS2 Share-based payment - Definition of vesting condition
-- IFRS3 Business combination - Accounting for contingent consideration
-- IFRS8 Operating segments - Aggregation of operating segments
and Reconciliation of the total of reportable assets
-- IFRS13 Fair value measurement - Short-term receivable and payables
-- IAS24 Related party disclosure - Key management personnel services
Application of these standards and amendments has not had any
material impact on the disclosures or on the amounts recognised in
the Group's consolidated financial statements
Recent accounting developments
IFRS15 Revenue from contracts with customers has been issued but
is not yet effective and has not been adopted as application was
not mandatory for the year. The new standard requires the
separation of performance obligations within contracts with
customers and the contractual value to be allocated to the
performance obligations. Once a performance obligation is satisfied
revenue should be recognised on that element of the contract. The
introduction of the standard is likely to have some impact on
Rotork but this is unlikely to be material due to the relatively
straightforward contractual terms and conditions with customers. An
assessment will be carried to understand the impact of this
standard prior to it becoming effective in January 2018.
IFRS9 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.
IFRS16 Leases was issued on 13 January 2016 and has a mandatory
effective date of 1 January 2019. The new standard will eliminate
the classification of leases as either operating or finance leases
and result in operating leases being treated as finance leases.
This will result in previously recognised operating leases being
treated as property, plant and equipment and a finance lease
creditor. The introduction of the standard will increase the value
of property, plant and equipment and the finance lease liability on
the balance sheet but it is unlikely to have a material impact on
the profit in any year. An assessment will be carried out to
understand the full impact of the standard prior to it becoming
effective in January 2019.
The narrow scope amendments in the Annual Improvements to IFRSs:
2012 - 2014 cycle which are mandatory for periods commencing after
1 January 2016 will not have a material impact on the disclosures,
net assets or results of the Group.
Going concern
After carrying out a detailed review of the viability of the
business, 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 financial statements. In
forming this view, the directors have considered trading and cash
flow forecasts, financial commitments, the significant order book
with customers spread across different geographic areas and
industries and the net cash position.
Consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries for the year to 31
December 2015. The financial statements of subsidiaries are
included in the consolidated financial statements from the date
that control commences until the date control ceases. Intra-group
balances and any unrealised gains or losses or income and expenses
arising from intra-group transactions are eliminated in preparing
the consolidated financial statements.
Status of this preliminary announcement
The financial information contained in this preliminary
announcement does not constitute the Company's statutory accounts
for the years ended 31 December 2015 or 2014. Statutory accounts
for 2014, which were prepared under International Financial
Reporting Standards as adopted by the EU, have been delivered to
the registrar of companies, and those for 2015 will be delivered in
due course. The auditors have reported on those accounts; their
reports were (i) unqualified, (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
Full financial statements for the year ended 31 December 2015, will
shortly be posted to shareholders, and after adoption at the Annual
General Meeting on 29 April 2016 will be delivered to the
registrar.
2. Operating segments
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.
Transfer prices between business segments are set on an arm's
length basis in a manner similar to transactions with third
parties.
Geographic analysis
Rotork has a worldwide presence in all four operating 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 operating segment:
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
2015 2015 2015 2015 2015 2015 2015
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Revenue from external customers 286,708 149,228 46,072 64,451 - - 546,459
Inter segment revenue - - 12,562 2,875 (15,437) - -
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Total revenue 286,708 149,228 58,634 67,326 (15,437) - 546,459
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Adjusted operating profit 85,479 15,215 11,991 18,306 - (5,719) 125,272
Amortisation of acquired intangible
assets (3,326) (2,300) (990) (14,270) - - (20,886)
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Operating profit 82,153 12,915 11,001 4,036 - (5,719) 104,386
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Net finance expense (2,517)
Income tax expense (27,012)
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Profit for the year 74,857
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
2014 2014 2014 2014 2014 2014 2014
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
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Revenue from external customers 324,539 180,260 45,771 44,169 - - 594,739
Inter segment revenue - - 12,035 1,788 (13,823) - -
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Total revenue 324,539 180,260 57,806 45,957 (13,823) - 594,739
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Adjusted operating profit 104,709 31,180 13,011 14,433 - (6,166) 157,167
Amortisation of acquired intangible
assets (3,477) (1,585) (428) (9,450) - - (14,940)
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Operating profit 101,232 29,595 12,583 4,983 - (6,166) 142,227
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Net finance expense (1,062)
Income tax expense (37,963)
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Profit for the year 103,202
------------------------------------ -------- -------- ------ ----------- ----------- ----------- --------
Fluid
Controls Systems Gears Instruments Unallocated Group
2015 2015 2015 2015 2015 2015
-------------------------------------------- -------- -------- ----- ----------- ----------- -------
Depreciation 4,585 2,560 1,194 1,369 51 9,759
Amortisation:
* Other intangibles 3,326 2,300 990 14,270 - 20,886
* Development costs 1,514 148 67 85 - 1,814
Non-cash items : equity settled share-based
payments 1,911 549 351 103 (104) 2,810
Net financing expense - - - - (2,517) (2,517)
Acquired as part of business combinations:
* Goodwill 1,321 - 3,933 69,206 - 74,460
* Intangible assets 3,048 - 4,951 58,685 - 66,684
Capital expenditure 5,093 4,970 811 818 46 11,738
-------------------------------------------- -------- -------- ----- ----------- ----------- -------
Fluid
Controls Systems Gears Instruments Unallocated Group
2014 2014 2014 2014 2014 2014
-------------------------------------------- -------- -------- ----- ----------- ----------- -------
Depreciation 4,396 2,012 813 715 60 7,996
Amortisation:
* Other intangibles 3,477 1,585 428 9,450 - 14,940
* Development costs 1,342 20 44 55 - 1,461
Non-cash items : equity settled share-based
payments 2,779 1,162 574 181 464 5,160
Net financing expense - - - - (1,062) (1,062)
Acquired as part of business combinations:
* Goodwill - 1,753 - 43,301 - 45,054
* Intangible assets - 1,346 - 31,042 - 32,388
Capital expenditure 6,082 6,820 3,875 613 2 17,392
-------------------------------------------- -------- -------- ----- ----------- ----------- -------
Balance sheets are reviewed by subsidiary and operating segment
balance sheets are not prepared, as such no further analysis of
operating segments assets and liabilities is presented.
Geographical analysis:
Revenue by location of subsidiary 2015 2014
---------------------------------- ------- -------
UK 64,415 57,424
Italy 57,254 66,447
Rest of Europe 92,908 110,790
USA 137,898 144,366
Other Americas 30,698 36,327
Rest of the World 163,286 179,385
---------------------------------- ------- -------
546,459 594,739
---------------------------------- ------- -------
Rest Rest
of Other of
UK Europe USA Americas World Group
2015 2015 2015 2015 2015 2015
------------------------------------- ------ ------- ------ --------- ------ -------
Non-current assets:
* Goodwill 81,328 53,645 48,817 740 37,556 222,086
* Intangible assets 60,917 20,833 16,827 - 19,978 118,555
* Property, plant and equipment 25,675 22,362 7,834 618 15,519 72,008
------------------------------------- ------ ------- ------ --------- ------ -------
Rest Rest
of Other of
UK Europe USA Americas World Group
2014 2014 2014 2014 2014 2014
------------------------------------- ------ ------- ------ --------- ------ -------
Non-current assets:
* Goodwill 14,107 53,409 42,565 759 38,839 149,679
* Intangible assets 11,972 21,767 16,824 - 21,707 72,270
* Property, plant and equipment 21,770 18,257 7,265 801 15,957 64,050
------------------------------------- ------ ------- ------ --------- ------ -------
3. Acquisitions
i) Bifold
On 27 August 2015 the Group acquired 100% of the share capital
of Bifold Group Limited. ("Bifold") for GBP125,643,000. Bifold is a
leading manufacturer of pneumatic and hydraulic instrument valves
and components focused on the oil and gas industry and wider
industrial markets, headquartered in Manchester, UK. The acquired
business is reported within the Instruments division. In the four
months to 31 December 2015 Bifold contributed GBP10,893,000 to
Group revenue and GBP2,004,000 to consolidated operating profit
before amortisation. The amortisation charge in the four month
period from the acquired intangible assets was GBP4,141,000.
If the acquisition had occurred on 1 January 2015 the business
would have contributed GBP33,296,000 to Group revenue, GBP4,388,000
to Group operating profit and GBP3,534,000 to profit attributable
to equity shareholders.
ii) Other acquisitions
The Group acquired 100% of the share capital of M&M
International Srl ("M&M") for GBP7,649,000 on 3 August 2015.
M&M is a leading manufacturer of solenoid valves, piston
actuated valves and automatic drain valves for use in commercial
and industrial flow control industries based in Bergamo, Italy. The
acquired businesses is reported within the Instruments
division.
The Group acquired 100% of the share capital of Roto Hammer
Industries Inc. ("Roto Hammer") for GBP8,215,000 on 24 September
2015. Roto Hammer is a manufacturer of custom-designed chain wheel
manual valve operators based in Tulsa, USA. The acquired business
is reported within the Gears division.
The Group acquired 100% of the share capital of Servo Moteurs
Service sarl ("SMS") for GBP1,303,000 on 29 September 2015. SMS, an
actuator service business is based in Marseilles, France. The
acquired business is reported within the Controls division.
The Group acquired 100% of the share capital of Eltav Wireless
Monitoring Limited ("Eltav") for GBP1,980,000 on 30 October 2015.
Eltav is engaged in the research and development of wireless
systems for monitoring production activity in the process industry
based in Tel-Aviv, Israel. The acquired business is reported within
the Instruments division.
The Group purchased the assets of the actuator and service
business of a former Rotork agent, OMAS Teknik based in Turkey
("Turkey") for GBP2,843,000 on 26 February 2015. This purchase is
reported within the Controls division.
In the period from acquisition to 31 December 2015, the other
acquisitions contributed GBP4,305,000 to Group revenue and
GBP836,000 to consolidated operating profit before amortisation.
The amortisation charge in respect of these acquisitions during the
year was GBP1,031,000. If these other acquisitions had occurred on
1 January 2015 they would have contributed GBP11,497,000 to Group
revenue, GBP1,372,000 to Group operating profit and GBP730,000
profit attributable to equity shareholders.
iii) Acquisitions fair value table
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The six acquisitions had the following effect on the Group's
assets and liabilities.
Bifold Other acquisitions Total
--------------------------------- --------------------------------- -----------
Provisional Provisional Provisional
Book Fair Book fair fair
value Adjustments value value Adjustments value value
--------------------------------- ------- ----------- ----------- ------- ----------- ----------- -----------
Non-current assets
Property, plant and equipment 5,251 - 5,251 1,308 1,448 2,756 8,007
Intangible assets - 53,599 53,599 11 13,074 13,085 66,684
Deferred tax asset - - - - 518 518 518
Current assets
Inventory 7,115 (304) 6,811 1,835 (260) 1,575 8,386
Trade and other receivables 7,849 (80) 7,769 2,454 8 2,462 10,231
Corporation tax - - - 188 - 188 188
Cash 1,030 - 1,030 1,117 - 1,117 2,147
Current liabilities
Trade and other payables (4,643) (271) (4,914) (1,667) (285) (1,952) (6,866)
Employee benefits - - - (544) - (544) (544)
Warranty provision (182) - (182) - (50) (50) (232)
Corporation tax (263) (200) (463) (55) - (55) (518)
Loans and other borrowings (397) - (397) (18) - (18) (415)
Non-current liabilities
Deferred tax liability (102) (9,980) (10,082) - (4,331) (4,331) (14,413)
Total net assets 15,658 42,764 58,422 4,629 10,122 14,751 73,173
Goodwill 67,221 7,239 74,460
--------------------------------- ------- ----------- ----------- ------- ----------- ----------- -----------
Purchase consideration 125,643 21,990 147,633
Paid in cash 115,143 21,604 136,747
Contingent consideration 10,500 386 10,886
--------------------------------- ------- ----------- ----------- ------- ----------- ----------- -----------
Purchase consideration 125,643 21,990 147,633
Cash movements in respect of
acquisitions Total
Purchase consideration paid
in cash 136,747
Cash held in acquired subsidiary (2,147)
Price adjustment in respect
of YTC acquisition in 2014 (743)
133,857
--------------------------------- ------- ----------- ----------- ------- ----------- ----------- -----------
The adjustments shown in the table represent the alignment of
accounting policies of the acquired businesses to Rotork Group
policies and the fair value adjustments of the assets and
liabilities at the acquisition date of each of the businesses.
Due to their contractual dates, the fair value of receivables
(shown above) approximate to the gross contractual amounts
receivable. The amount of gross contractual receivables not
expected to be recovered is immaterial.
The contingent consideration in respect of Bifold is payable in
2017 or 2018 and is dependent on an EBITDA target being
achieved.
The goodwill arising from these acquisitions represents the
opportunity to grow by exploiting new routes to market via the
Rotork sales network and the technical expertise of the acquired
workforce. Goodwill arising on acquisition is not deductible for
income tax purposes except for the GBP1,320,000 in respect of the
asset purchase.
The intangible assets identified comprise customer
relationships, brands, intellectual property, product design
patents and acquired order books.
iv) Acquisition costs
Acquisition costs of GBP1,321,000 have been expensed in
administration expenses in the income statement (2014:
GBP598,000).
4. FINANCE INCOME AND EXPENSE
Recognised in the income statement
2015 2014
----------------------------------- ----- -----
Interest income 1,119 1,057
Foreign exchange gains 621 364
----------------------------------- ----- -----
Finance income 1,740 1,421
----------------------------------- ----- -----
2015 2014
---------------------------------------------- ------- -------
Interest expense (1,811) (1,159)
Interest charge on pension scheme liabilities (1,181) (788)
Foreign exchange losses (1,265) (536)
---------------------------------------------- ------- -------
Finance expense (4,257) (2,483)
---------------------------------------------- ------- -------
Recognised in equity
2015 2014
---------------------------------------------------------------- ------- -------
Effective portion of changes in fair value of cash flow
hedges (1,123) 667
Fair value of cash flow hedges transferred to income statement (667) (3,035)
Foreign currency translation differences for foreign operations (6,511) (869)
---------------------------------------------------------------- ------- -------
(8,301) (3,237)
---------------------------------------------------------------- ------- -------
Recognised in:
Hedging reserve (1,790) (2,368)
Translation reserve (6,511) (869)
---------------------------------------------------------------- ------- -------
(8,301) (3,237)
---------------------------------------------------------------- ------- -------
5. Income tax expense
2015 2015 2014 2014
-------------------------------------------------------- ------- ------- ------- -------
Current tax:
UK corporation tax on profits for the year 3,154 6,122
Adjustment in respect of prior years (668) (766)
-------------------------------------------------------- ------- ------- ------- -------
2,486 5,356
Overseas tax on profits for the year 28,995 36,283
Adjustment in respect of prior years (232) 229
-------------------------------------------------------- ------- ------- ------- -------
28,763 36,512
-------------------------------------------------------- ------- ------- ------- -------
Total current tax 31,249 41,868
-------------------------------------------------------- ------- ------- ------- -------
Deferred tax:
Origination and reversal of other temporary differences (3,540) (3,650)
Impact of rate change (732) -
Adjustment in respect of prior years 35 (255)
-------------------------------------------------------- ------- ------- ------- -------
Total deferred tax (4,237) (3,905)
-------------------------------------------------------- ------- ------- ------- -------
Total tax charge for year 27,012 37,963
-------------------------------------------------------- ------- ------- ------- -------
Effective tax rate (based on profit before tax) 26.5% 26.9%
Profit before tax 101,869 141,165
Profit before tax multiplied by the blended standard
rate of corporation tax in
the UK of 20.25% (2014: 21.5%) 20,629 30,350
Effects of:
Different tax rates on overseas earnings 7,910 8,841
Permanent differences 1,331 1,444
Losses not recognised 463 -
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Research and development credits (1,724) (1,880)
Impact of rate change (732) -
Adjustments to tax charge in respect of prior
years (865) (792)
-------------------------------------------------------- ------- ------- ------- -------
Total tax charge for year 27,012 37,963
-------------------------------------------------------- ------- ------- ------- -------
A tax expense of GBP799,000 (2014: GBP274,000) in respect of
share-based payments has been recognised directly in equity in the
year.
The reduction in the effective tax rate from 26.9% to 26.5% is
primarily due the impact of the reduction of the UK rate of
corporation tax substantively enacted on 26 October 2015. The Group
continues to expect its effective rate of corporation tax to be
higher than the standard UK rate due to higher rates of tax in the
USA, China, Canada, France, Germany, Italy, Japan and India.
There is an unrecognised deferred tax liability for temporary
differences associated with investments in subsidiaries. Rotork plc
controls the dividend policies of its subsidiaries and the timing
of the reversal of the temporary differences. The value of
temporary differences associated with unremitted earnings of
subsidiaries for which deferred tax has not been recognised is
GBP307,714,000 (2014: GBP292,704,000).
6. Goodwill
2015 2014
--------------------------------------------------- -------- --------
Cost
At 1 January 149,679 105,150
Acquisition through business combinations (note 3) 74,460 45,054
Other movements (743) -
Exchange adjustments (1,310) (525)
--------------------------------------------------- -------- --------
At 31 December 222,086 149,679
Provision for impairment
At 1 January and 31 December - -
--------------------------------------------------- -------- --------
Carrying amounts 222,086 149,679
--------------------------------------------------- -------- --------
Other movements represents a final purchase price adjustment in
respect of YTC which was acquired in 2014.
Cash generating units
Goodwill acquired through business combinations have been
allocated to the lowest level of cash generating unit (CGU) and to
the division in which it is reported. Where the acquired entity's
growth into new markets is through the Group's existing sales
network and/or where manufacturing of certain products is
transferred to other divisional businesses the lowest level of CGU
is considered to be at a divisional sub-group level. During the
year Fairchild, Soldo, YTC and Midland where combined to form an
Instruments sub-group.
Cash generating unit Discount rates 2015 2014
---------------------- ---------------------------------- -------- --------
Controls
Schischek 14.7% (2014: 13.3%) 16,835 17,874
Other cash generating (2014: 14.8%
units 12.7% - 16.7% -15.1%) 10,723 9,428
---------------------- ------------- ------------------- -------- --------
27,558 27,302
Fluid Systems
Rotork Fluid Systems 14.4% (2014: 15.1%) 6,728 7,143
Rotork Sweden 13.7% (2014: 13.3%) 5,818 5,965
Other cash generating (2014: 14.1%
units 13.5% - 14.8% -15.1%) 13,717 13,786
---------------------- ------------- ------------------- -------- --------
26,263 26,894
Gears
Other cash generating
units 12.1% - 14.7% (2014:13.1% -15.1%) 12,963 8,991
---------------------- ------------- ------------------- -------- --------
12,963 8,991
Instruments
Bifold 12.5% n.a 67,221 -
Instruments sub-group 12.5% (2014: 13.8%) 86,016 86,492
Other cash generating
units 14.6% n.a 2,065 -
155,302 86,492
Total Group 222,086 149,679
---------------------- ------------- ------------------- -------- --------
Impairment testing
Goodwill is not amortised but is tested annually for
impairment.
Value in use calculations are used to determine the recoverable
amount of goodwill allocated to each of the CGUs. These
calculations use cash flow projections from management forecasts
which are based on the budget and the three year plan. The three
year plan is a bottom up process which takes place as part of the
annual budget process. Once the budget for the next financial year
is finalised years 2 and 3 of the three year plan are prepared by
each reporting entity's management reflecting their view of the
local market, known projects and experience of past performance.
The annual budget and the three year plan are reviewed and approved
by the Board each year.
The key assumptions in the annual impairment review which are
common to all CGUs are set out below:
i) Long term growth rates
In the period after the three year plan growth rates are
forecast at 5% per annum for the first two years and 2% thereafter
for each CGU. The 5% rate reflects a realistic market forecast for
the flow control market up until 2020. The continued need for our
customers to improve their infrastructure by automating valves
gives confidence that the growth rate of our market will exceed the
long term growth rate of 2% used in the impairment
calculations.
ii) Discount rates
The discount rates presented above are pre-tax nominal weighted
average cost of capital (WACC) for each of the CGUs. The WACC is
the weighted average of the pre-tax cost of debt financing and the
pre-tax cost of equity finance.
Sensitivity analysis
Sensitivity analysis has been undertaken for each CGU to assess
the impact of any reasonable change in assumptions. Using the key
assumptions above and applying sensitivities to these assumptions
below, Bifold and the Instruments sub-group would be the first CGUs
to trigger a potential impairment. Apart from these there is no
reasonable change that would cause the carrying amount of any other
CGU goodwill to exceed the recoverable amount.
The Instruments sub-group downside sensitivities have been
assessed. A decrease in the growth rate by 7% in each of the next
five years or an increase in the discount rate by 3% to 15.5% would
result in the headroom being reduced from GBP44,500,000 in the base
case to zero. It is anticipated that as the acquired businesses
continue to leverage the sales network opportunities from being
part of the Rotork Group the long term growth rate of the CGU
should comfortably exceed the growth rates assumed in the
impairment review.
Bifold downside sensitivities have also been assessed. A growth
rate of 2% per annum from year three of the 3 year plan would
result in a reduction of the headroom from GBP39,200,000 in the
base case to zero. It is anticipated that as Bifold continues to
develop its sales of recently launched products, brings more
products to market over the next couple of years and at the same
time develops the sales network opportunities from being part of
the Group, the growth rates will exceed the long term growth rate
of 2% used in the impairment review.
7. Intangible assets
Acquired intangible
assets
------------------------------
Research
&
development Customer
costs Brands relationships Other Total
------------------------------------------ ------------ ------ -------------- ------ -------
Cost
1 January 2014 11,096 29,680 38,436 7,730 86,942
Acquisition through business combinations 226 4,808 22,579 4,775 32,388
Internally developed 2,746 - - - 2,746
Exchange adjustments 16 (135) 82 (77) (114)
------------------------------------------ ------------ ------ -------------- ------ -------
31 December 2014 14,084 34,353 61,097 12,428 121,962
Acquisition through business combinations - 11,004 45,414 10,266 66,684
Internally developed 3,050 - - - 3,050
Exchange adjustments 13 (25) (364) (134) (510)
------------------------------------------ ------------ ------ -------------- ------ -------
31 December 2015 17,147 45,332 106,147 22,560 191,186
------------------------------------------ ------------ ------ -------------- ------ -------
Amortisation
1 January 2014 6,064 7,725 15,020 4,652 33,461
Charge for the year 1,461 4,188 8,255 2,497 16,401
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Exchange adjustments 1 (38) (121) (12) (170)
------------------------------------------ ------------ ------ -------------- ------ -------
31 December 2014 7,526 11,875 23,154 7,137 49,692
Charge for the year 1,814 4,974 12,014 3,898 22,700
Exchange adjustments 1 196 74 (32) 239
------------------------------------------ ------------ ------ -------------- ------ -------
31 December 2015 9,341 17,045 35,242 11,003 72,631
------------------------------------------ ------------ ------ -------------- ------ -------
Net Book Value
31 December 2014 6,558 22,478 37,943 5,291 72,270
------------------------------------------ ------------ ------ -------------- ------ -------
31 December 2015 7,806 28,287 70,905 11,557 118,555
------------------------------------------ ------------ ------ -------------- ------ -------
Other acquired intangible assets represent order books and
intellectual property.
The amortisation charge is recognised within administrative
expenses in the income statement.
8. Inventories
2015 2014
------------------------------ ------ ------
Raw materials and consumables 60,604 58,590
Work in progress 8,890 10,088
Finished goods 17,716 12,412
------------------------------ ------ ------
87,210 81,090
------------------------------ ------ ------
Included in cost of sales was GBP192,826,000 (2014:
GBP206,104,000) in respect of inventories consumed in the year.
9. Trade and other receivables
2015 2014
--------------------------------------------- ------- -------
Non-current assets:
Other non-trade receivables 2,234 1,976
--------------------------------------------- ------- -------
Other receivables 2,234 1,976
--------------------------------------------- ------- -------
Current assets:
Trade receivables 124,285 130,819
Less provision for impairment of receivables (5,484) (2,347)
--------------------------------------------- ------- -------
Trade receivables - net 118,801 128,472
--------------------------------------------- ------- -------
Corporation tax 4,458 1,962
--------------------------------------------- ------- -------
Current tax 4,458 1,962
--------------------------------------------- ------- -------
Other non-trade receivables 2,025 2,161
Other taxes and social security 6,002 6,046
Prepayments 5,198 4,379
--------------------------------------------- ------- -------
Other receivables 13,225 12,586
--------------------------------------------- ------- -------
10. Cash and cash equivalents
2015 2014
-------------------------------------------------------- ------ ------
Bank balances 35,013 23,777
Cash in hand 63 45
Short term deposits 13,892 22,994
-------------------------------------------------------- ------ ------
Cash and cash equivalents 48,968 46,816
Bank overdraft - -
-------------------------------------------------------- ------ ------
Cash and cash equivalents in the Consolidated Statement
of Cash Flows 48,968 46,816
-------------------------------------------------------- ------ ------
11. Capital and reserves
Share capital and share premium
0.5p 0.5p
Ordinary Ordinary
shares GBP1 shares GBP1
Issued Non- Issued Non-
and fully redeemable and fully redeemable
paid preference paid preference
up shares up shares
2015 2015 2014 2014
------------------------------------ ---------- ----------- ---------- -----------
At 1 January 4,346 40 4,344 40
Issued under employee share schemes 3 - 2 -
------------------------------------ ---------- ----------- ---------- -----------
At 31 December 4,349 40 4,346 40
------------------------------------ ---------- ----------- ---------- -----------
Number of shares (000) 869,738 869,279(1)
------------------------------------ ---------- ----------- ---------- -----------
(1) Restated to reflect subdivision of 5p ordinary shares into
0.5p ordinary shares.
The ordinary shareholders are entitled to receive dividends as
declared and are entitled to vote at meetings of the Company.
The Group received proceeds of GBP599,000 (2014: GBP584,000) in
respect of the 458,990 (2014(1) : 573,210) ordinary shares issued
during the year: GBP3,000 (2014: GBP2,000) was credited to share
capital and GBP596,000 (2014: GBP582,000) to share premium.
The preference shareholders take priority over the ordinary
shareholders when there is a distribution upon winding up the
Company or on a reduction of equity involving a return of capital.
The holders of preference shares are entitled to vote at a general
meeting of the Company if a preference dividend is in arrears for
six months or the business of the meeting includes the
consideration of a resolution for winding up the Company or the
alteration of the preference shareholders' rights.
Within the retained earnings reserve are own shares held. The
investment in own shares held is GBP3,920,000 (2014: GBP5,393,000)
and represents 1,406,000 (2014(1) : 2,020,980) ordinary shares of
the Company held in trust for the benefit of directors and
employees for future payments under the Share Incentive Plan and
Long Term Incentive Plan. The dividends on these shares have been
waived.
Translation reserve
The translation reserve comprises all foreign exchange
differences arising from the translation of the financial
statements of foreign operations.
Capital redemption reserve
The capital redemption reserve arises when the Company redeems
shares wholly out of distributable profits.
Hedging reserve
The hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash flow hedging
instruments that are determined to be an effective hedge.
Dividends
The following dividends were paid in the year per qualifying
ordinary share:
2015
Payment date 2015 2014
----------------------------------------- -------------- ------ ------
3.09p final dividend(1) (2014(1) : 3.0p) 19 May 26,835 26,046
1.95p interim dividend (2014(1) : 1.92p) 26 September 16,930 16,656
43,765 42,702
-------------------------------------------------------- ------ ------
After the balance sheet date the following dividends per
qualifying ordinary share were proposed by the directors. The
dividends have not been provided for and there are no corporation
tax consequences.
2015 2014
----------------------------------------------------- ------ ------
Final proposed dividend per qualifying ordinary share
3.10p 26,962
----------------------------------------------------- ------ ------
3.09p(1) 26,861
----------------------------------------------------- ------ ------
(1) Restated to reflect subdivision of 5p ordinary shares into
0.5p ordinary shares.
12. 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 867.8m shares (2014: 867.4m shares(1) ) being the weighted
average number of ordinary shares in issue (net of own ordinary
shares held) for the year.
2015 2014(1)
----------------------------------------------------------- ------- -------
Net profit attributable to ordinary shareholders 74,857 103,202
----------------------------------------------------------- ------- -------
Weighted average number of ordinary shares
Issued ordinary shares at 1 January 867,258 867,080
Effect of own shares held 428 246
Effect of shares issued under Sharesave plans 131 68
----------------------------------------------------------- ------- -------
Weighted average number of ordinary shares during the year 867,817 867,394
----------------------------------------------------------- ------- -------
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Basic earnings per share 8.6p 11.9p
----------------------------------------------------------- ------- -------
(1) Restated to reflect subdivision of 5p ordinary shares into
0.5p ordinary shares.
Adjusted basic earnings per share
Adjusted basic earnings per share is calculated for both the
current and previous years using the profit attributable to the
ordinary shareholders for the year after adding back the after tax
amortisation charge.
2015 2014(1)
----------------------------------------------------------- -------- --------
Net profit attributable to ordinary shareholders 74,857 103,202
Amortisation 20,886 14,940
Tax effect on amortisation at effective rate (5,538) (4,018)
----------------------------------------------------------- -------- --------
Adjusted net profit attributable to ordinary shareholders 90,205 114,124
----------------------------------------------------------- -------- --------
Weighted average number of ordinary shares during the year 867,817 867,394
----------------------------------------------------------- -------- --------
Adjusted basic earnings per share 10.4p 13.2p
----------------------------------------------------------- -------- --------
(1) Restated to reflect subdivision of 5p ordinary shares into
0.5p ordinary shares.
Diluted earnings per share
Diluted earnings per share is based on the profit for the year
attributable to the ordinary shareholders and 869.3m shares (2014:
870.9m shares(1) ). The number of shares is equal to the weighted
average number of ordinary shares in issue (net of own ordinary
shares held) adjusted to assume conversion of all potentially
dilutive ordinary shares. The Company has two categories of
potentially dilutive ordinary shares: those share options granted
to employees under the Sharesave plan where the exercise price is
less than the average market price of the Company's ordinary shares
during the year and contingently issuable shares awarded under the
Long Term Incentive Plan (LTIP).
2015 2014(1)
------------------------------------------------------------ ------- -------
Net profit attributable to ordinary shareholders 74,857 103,202
------------------------------------------------------------ ------- -------
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares for the year 867,817 867,394
Effect of Sharesave options 1,214 1,123
Effect of LTIP share awards 300 2,378
------------------------------------------------------------ ------- -------
Weighted average number of ordinary shares (diluted) during
the year 869,331 870,895
------------------------------------------------------------ ------- -------
Diluted earnings per share 8.6p 11.9p
------------------------------------------------------------ ------- -------
Adjusted diluted earnings per share
2015 2014(1)
------------------------------------------------------------ -------- --------
Net profit attributable to ordinary shareholders 74,857 103,202
Amortisation 20,886 14,940
Tax effect on amortisation at effective rate (5,538) (4,018)
------------------------------------------------------------ -------- --------
Adjusted net profit attributable to ordinary shareholders 90,205 114,124
------------------------------------------------------------ -------- --------
Weighted average number of ordinary shares (diluted) during
the year 869,331 870,895
------------------------------------------------------------ -------- --------
Adjusted diluted earnings per share 10.4p 13.1p
------------------------------------------------------------ -------- --------
(1) Restated to reflect subdivision of 5p ordinary shares into
0.5p ordinary shares.
13. 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, liquidity
and currency risks.
2015 2014
------------------------------------- ------- -------
Non-current liabilities
Preference shares classified as debt 40 40
Bank loans 69,645 1,253
Finance lease liabilities 71 10
------------------------------------- ------- -------
69,756 1,303
------------------------------------- ------- -------
Current liabilities
Bank loans 50,098 20,259
Finance lease liabilities 254 15
------------------------------------- ------- -------
50,352 20,274
------------------------------------- ------- -------
Terms and debt repayment schedule
The terms and conditions of outstanding loans were as
follows:
Interest
Currency rates Year of maturity 2015 2014
-------------------------- --------------- --------- ---------------- ------- ------
Non-redeemable preference
shares Sterling 9.5% - 40 40
Bank loans and overdrafts Sterling, Euro 0% - 4.5% 2016-32 119,743 21,512
Finance lease liabilities Sterling, Euro 0% - 1.9% 2016-18 325 25
-------------------------- --------------- --------- ---------------- ------- ------
120,108 21,577
------------------------------------------ --------- ---------------- ------- ------
Repayment profile
Finance leases and bank loans are payable as follows:
Minimum Minimum
Principal Interest payments Principal Interest payments
2015 2015 2015 2014 2014 2014
---------------------------------- ---------- --------- ---------- ---------- --------- ----------
Bank loans less than one year 50,098 386 50,484 20,259 45 20,304
Bank loans more than one and less
than five years 68,987 73 69,060 494 87 581
Bank loans more than five years 658 99 757 759 113 872
Finance leases less than one year 254 7 261 15 1 16
Finance leases more than one and
less than five years 71 2 73 10 1 11
---------------------------------- ---------- --------- ---------- ---------- --------- ----------
120,068 567 120,635 21,537 247 21,784
---------------------------------- ---------- --------- ---------- ---------- --------- ----------
14. Employee benefits
2015 2014
------------------------------------------------------ ---------- ----------
Recognised liability for defined benefit obligations:
* Present value of funded obligations 180,406 187,918
* Fair value of plan assets (157,131) (151,786)
------------------------------------------------------ ---------- ----------
23,275 36,132
Other pension scheme liabilities 239 435
Employee bonuses 8,601 13,105
Long term incentive plan 80 404
Employee indemnity provision 2,495 1,971
Other employee benefits 2,748 2,835
37,438 54,882
------------------------------------------------------ ---------- ----------
Non-current 26,320 38,864
Current 11,118 16,018
------------------------------------------------------ ---------- ----------
37,438 54,882
------------------------------------------------------ ---------- ----------
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