RNS Number:9048W
Rotork PLC
25 March 2004
Thursday, 25th March 2004
Rotork p.l.c.
Preliminary Announcement
Rotork p.l.c., the international specialist engineering group, announces audited
results for the year ended 31 December 2003.
Financial Highlights
* Turnover up 4.8% on continuing operations
* Net profit before goodwill and tax up 7%
* Basic earnings per share up 8%
* Cash flowfrom operations up 31% to #34m
* Special interim dividend for 2004 of 5.85p per share
* Luton property sold for #1.7m
Operational review
* All three actuator businesses achieved sales and profit growth
* Rotork Fluid System now accounts for 13.4% of Group turnover up from 12.5%
in 2002
* US second half order intake 32% above first half
* IQT launched to plan in September
* Acquisition of DVA in Australia successfully integrated.
Chief Executive Bill Whiteley, commenting on the results said:
"The year under review was marked by some strong movements in the Group's
geographic and end user markets both within the year and in comparison to the
prior year. Our extensive worldwide coverage andinvestment in developing
markets has allowed us to make progress which would not have been possible had
we had to rely solely on our traditional markets and customers."
For further information, please contact:
Rotork p.l.c. Tel: 01225 733 200
Bill Whiteley, Chief Executive
Bob Slater, Finance Director
Financial Dynamics Tel: 020 7269 7121
Peter Otero
CHAIRMAN'S STATEMENT
Introduction
Trading conditions for Rotork varied around the world, with good levels of
demand in the Far East and Europe being partially offset by difficulties in the
Americas and in the UK. The oil and gas markets were generally more active,
while some of our water andwaste water markets contracted. From continuing
operations before tax, goodwill and exceptional profit from the disposal of the
Luton building, profit increased by 7% to #29m on Group sales 5% ahead at #136m.
If turnover were converted at constant currency year on year, the effect would
have been negligible. The year-end order book was unchanged over the previous
year.
Net cash increased by #12m to #32m and from this substantial balance we intend
to return some cash to investors in the form of an additional interim dividend
to be paid in May with the final dividend. We are also recognising the
underfunded position of the pension scheme with a one off contribution
equivalent to the extra dividend.
Business review
Overall our businesses have performed well in the year. All of the companies
were profitable except the Malaysian assembly facility although the new AWT
actuator produced there did record a positive profit contribution to the Group
as a whole. The US improvedin the second half although the benefit of this was
diluted by the deteriorating dollar. Most of our Far East operations, in
particular China, delivered good growth in the year.
The Electric Actuation business launched its new quarter turn actuator, the IQT,
in the third quarter and this has been well received by customers. This product
offers more benefits than the unit it replaces, representing value for money
improvement and new levels of technical excellence in all its applications. The
AWT actuator, built in Malaysia and launched at the end of 2002, is gaining
acceptance in the market and winning new customers. The factory is now operating
as planned although not yet at capacity.
In Fluid System, the move to the new premises in Lucca at the beginning of the
year was achieved with the minimum of disruption as was the simultaneous
implementation of a new production system. The business has won some large
projects in the year and executed them successfully delivering growth of nearly
17% in operating profit before goodwill on an increase in sales of 13%. This
further progress in profit of the division is driven by our growing ability,
through product and marketing initiatives, to exploit the opportunities in the
fluid power market. Its impact in the US has however been constrained by the
weakening dollar, affecting the cost of its products into the US market. The
acquisition of the Australian business, Deanquip Valve Automation in January
2004, will improve our customer focus in Australasia and complement our Fluid
System service centre in Singapore.
The Leeds based Gears business did well in the year recording a 13% improvement
in both sales volume and in operating profit. The Dutch operation, where
management changes were made at the end of the prior year, has seen much
improved margin performance and contributed well to the results of the division.
The drive in Gears to reduce costs through Far East procurement is now making a
positive impact on the margins as well as enabling us to better meet customer
requirements for cost effective timely product deliveries.
Dividend and Cash
A final dividend of 9.50p is proposed which is an increase of 7% over last year,
and gives a dividend for the year up 6% over 2002.
Our continued strong cash generation has contributed to balances exceeding #32m
at the year-end. Assuming that trading remains in line with expectations this
trend will continue in 2004. With this in mind the Board has decided to
recommend the return of some of this cash to shareholders by way of an
additional dividend for 2004 of 5.85p, to be paid on May 28 with the 2003 final
dividend to shareholders on the register at 2 April. Over the last few years our
dividend cover has reduced to around 1.5 times, a level that is lower than we
would like. It is therefore our current intention that when recommending the
levels of interim and final dividends for 2004, following our announcement of
the additional interim dividend for 2004 mentioned above, we will seek to move
towards a greater level of cover. Dividend cover for the year under review is
1.5 times.
Recognising the deficit in the defined benefit pension scheme has encouraged us
to address part of this shortfall with an additional contribution into the
scheme of #5m in 2004, which is approximately equivalent to the third dividend
payment for 2004. This contribution is ahead of the actuarial valuation of the
scheme set for 31 March 2004. There will be no reduction in profit as a result
of this contribution, which is taken account of in the ongoing pension cost
accruals.
Outlook
Overall market indicators are positive, and there is a reasonable level of large
project activity around the world. The weakness of the US dollar, in which a
third of our revenues are denominated, and the strength of the pound against
most other trading currencies will, if maintained at current levels, impact our
expected growth in sterlingterms. However mitigation should come from our cost
reduction programmes, which include procurement from dollar related sources.
These factors, combined with the good level of order intake in the last few
months, give us the confidence to look forward to further progress in 2004.
Roger Lockwood
Chairman
CHIEF EXECUTIVE'S REVIEW
Overview
The year under review was marked by some strong movements in the Group's
geographic and end user markets both within the year itself and in comparison
with the prior year. Our extensive worldwide coverage and investment in
developing markets allowed us to make progress which would not have been
possible had we had to rely solely on our traditional markets and customers. In
the first half of the year we continued to see some of the caution in funding
capital projects which was present for much of 2002, resulting in the end of
June order input being down on the first half of 2002. For the year as a whole
like for like order input was up 4.3% with second half input being 9.2% above
the second half of 2002. The main improvement seen in the second half came from
the US operation where second half order intake was 32% above the first half in
sterling and 38% in US dollar. Worldwide turnover on continuing operations was
up 4.8% over the prior year.
Within the body of the income statement this year there are a number of
adjustments to show the effects of the profit from the Luton business disposed
of in 2002, the sale of that company's building in early 2003, and the effect of
the insurance claim in the Netherlands in 2002, shown in other income in that
year. The statutory accounts record an increase in profit before tax of 7.3%
this year. If we remove the profitsfrom discontinued operations in both years
and the #752k insurance receipt in 2002, the underlying profit growth is 10.2%.
If the accounts had been translated at constant currency, this increase would
have been 10.6%.
All three of our valve actuator businesses achieved sales and profit growth.
The highlight of our electric actuator business was good growth from most
European and Asian markets, offsetting weaker figures from the Americas.
Although difficult trading conditions continued to affect our Venezuelan
operation it managed to make a small profit against the loss suffered in 2002.
The IQT, a quarter turn variant of the successful IQII actuator, was launched to
plan in September. Its reception has been excellent and sales since the launch
are well ahead of forecast.
Further progress was made in overseas sourcing which helped to mitigate
competitive pressures and increase margins.
The Malaysian manufacturing plant set up at the end of 2002 geared up production
throughout the year and it recorded a positive contribution to the Group.
Jordan, with its dependence on the US power sector and Venezuelan oil markets,
experienced difficult trading conditions.
The Rotork Fluid System business continued to make excellent progress and now
accounts for 13.4% of Group turnover. Order intake was up 14.1%, output was up
12.8% and operating profit, which exceeded #2m, was up 16.7%. This was achieved
against a difficult North American market and poor operating results for the US
fluid power operations. The highlights for this business were the opening of a
new larger production facility in Lucca, Italy, the success of new product
lines, and the acquisition of the Deanquip Valve Automation business in
Australia at the beginning of 2004.
Rotork Gears saw a positive turnaround in their operations. Its business
accounts for 11.6% of Group turnover. Order intake was up 6.4%, sales output up
12.4% and operating profits up 11.1%. These results were due to the continued
success of the broadening of the customer base for the Leeds operation and a
much improved performance from Rotork Gears B.V. in the Netherlands.
The key drivers for the Group's businesses are related to the investment in oil
and gas, water and waste water and power generation installations around the
world with demand being generated by new and expanded capacity, upgrades to
existing facilities and replacements. This is often linked to projects which
are aimed at improving efficiency, safety and environmental performance of
plants. Valve actuators are critical components and their long-term reliability
and performance is of importance to users. They also act as an important
interface between plant control systems and related hardware. Rotork's
reputation for quality, worldwide support and technical innovation is crucial to
its leadership position in the field. The broad geographic spread of our
operations and applications means that we have a large number of repeat
customers around the world and no one customer accounts for more than 5% of our
turnover in any year.
Programmes aimed at increasing the efficiency of our processes were underway at
most of our main operations during the year. These 'lean' programmes are
enabling us to become more effective and efficient suppliers to our market
place.
Electric actuators
UK Operations
The UK market both for new projects and our important retrofit activities
remained subdued. A certain amount of predicted investment activity was delayed
due to re-organisations in the water industry. The main electric actuator
manufacturing plant in Bath again had to contend with inconsistent production
programmes but coped well with a late surge of delivery requirements and the
introduction of a major new product line, the IQT.
Rotork adhere to an in-house assembly only philosophy of manufacture in which we
rely on high quality vendors for all of our components. There is an on going
initiative to develop more Far Eastern sources for components to reduce our
costs and the sterling component of the cost base. Further progress was made in
2003 which meant that our cost reduction targets were exceeded and that we are
positioned to reap further benefits during 2004. Most of our new sources of
supply are purchased in US dollars or in currencies closely tied to the US
dollar.
Europe
Our European sales companies traded successfully during the year. The star
performance was undoubtedly from our German subsidiary which benefited from its
customers' successes in Eastern Europe. The Italian and Spanish companies also
saw substantial increases in their sales and profits. The French and Dutch
companies' profits met our expectations but were down from a very good prior
year in France and a result in the prior year in the Netherlands which included
an insurance receipt following a fire. As expected a stronger euro assisted all
these companies.
The Americas
Our US and Canadian subsidiaries recorded high growth in 2002, which was not
maintained in the year. Sales and profits for both subsidiaries were down,
which was exacerbated by the steep decline in the US dollar when translated into
sterling. Order intake in the US was particularly hard to come by in the first
half of the year. Fortunately the second half showed a significant improvement
with a number of the projects which had been anticipated in the first half being
booked. The number of actuators sold to municipalities was lower than the prior
year while those destined for hydro carbon projects increased. The new Houston
service and support operation benefited our regional business in the Gulf Coast
market. In Canadathis trend was reversed with less business in the Western
oil and gas sector and more in the East where more diverse users are served.
The economic and political problems in Venezuela continued to be present for the
whole year. Our strategy, in this uncertain but important market, was to reduce
our exposure, while maintaining a strong presence, and to eliminate the loss
suffered in 2002. We succeeded in making a profit but on a much reduced
turnover.
Jordan Controls continued to face difficult market conditions in the US power
sector which, together with problems in its Venezuelan market, held back its
profits. However, Jordan took important steps in establishing sales in the Far
East, Latin America and Europe which it should benefit from in 2004. Further
benefits will accrue from the current re-organisation of its production
processes to bring it in line with Rotork's methodology.
The Far East and Rest of the World
We again saw good growth from this region with most of our operations exceeding
their targets and the prior year's figures. Impressive growth was recorded in
China, Singapore, Australia and South Africa.
The new production facility in Malaysia steadily increased its output during the
year. As expected this operation made a trading loss in its first year of
operation. However, margins at our sales companies for products manufactured
at this facility were better than expected which meant that the project as a
whole made a positivecontribution to Group results.
Rotork Fluid System
Rotork Fluid System design, produce and market fluid power valve actuators,
which are operated either pneumatically or hydraulically. This business
continued to make good progress on all fronts. Order input was up 14.1%, sales
output was up 12.8% and operating profits were up 16.7%. This meant that its
order book was up at the year-end and that it achieved a further increase in its
percentage return on sales. These figures were achieved despite a disappointing
US performance and an unhelpful euro cost base.
The new, larger, production facility in Lucca, Italy, played an important role
in enabling us to meet the increased sales targets and in taking on large, more
complex, projects. The unit recorded a major increase in its operating profits.
The new product ranges launched in 2002 were well received in the market and
accounted for #2m of sales. Further product developments were undertaken to
capitalise on our increasing market penetration. Enhanced fluid power
operations were established at a number of our companies around the world and a
number of key appointments were made. In early January 2004 we announced the
acquisition of Deanquip Valve Automationfor 2 million Australian dollars. This
company, which is based in Melbourne, is the major distributor of fluid power
actuators in Australia and will become the focus of our fluid power product and
service offerings in the region.
Rotork Gears
The positive results for the year were driven by increased sales and profits
from the Leeds operation due to a broader product range, component cost savings
and positive sales growth in most of our markets. Rotork Gears B.V. also
increased its profits significantly due to improved cost control and management
of the operation in the Netherlands following the re-organisation in late 2002.
Rotork Valvekits, based near Nottingham, UK, achieved sales growth, but ended
with similar operating profits to the prior year.
Research & Development
In the year under review we spent #2.1m on research and development. This was
slightly down on the prior year due to the timing of expenditure for the two
major new ranges, the IQT and AWT, falling into the prior year. The IQT range,
which was launched in September, brings IQII technology to quarter turn
actuators. Since its launch, sales of the product have exceeded expectations
and it has considerably enhanced the attractiveness of theIQ range of products.
We have also increased the range and capability of our digital actuator
control system offerings and continue to invest in this important area of
activity.
Innovation has been a fundamental driver to our past success andremains at the
heart of our strategy for future growth. Important initiatives are in place to
ensure that innovative ideas for valve actuation are nurtured and brought to the
market.
Treasury
With 75% of the Group's turnover, and 57% of its operating profit originating
from outside the UK, the Group's results are sensitive to movements in exchange
rates, particularly the US dollar and the euro. Currency movements in the year
affect our results through the translation of local currency profits into
sterling, as well as the transaction impact arising from the movement of
components and products around the world. An increasing proportion of our
components are being sourced in the Far East.
Free Cash flow
Rotork is highlycash generative. Fixed asset spend is usually around the level
of depreciation. Working capital, although historically not excessive, has seen
debtors, in terms of days outstanding, reduce over the last three years. They
are currently 67 days compared with 70 days last year.
In the current year free cash flow available to shareholders has been #24.7m:
#m Year ended Year ended
31 December 2003 31 December 2002
Cash flow from operations 33.8 25.8
Purchase of fixed assets (2.3) (2.6)
Sale offixed assets 1.8 0.7
Interest 0.6 0.4
Tax (9.2) (9.0)
____ ____
Free cash flow 24.7 15.3
Tax
The effective tax rate onprofit before goodwill amortisation has decreased
slightly from 32.3% to 32.1%. This is mainly as a result of the gain in April on
the disposal of the Luton building, which was covered by capital losses from
prior years, and the lower earnings from the US, offset by the effect of
dividend repatriation from the Far East. We are anticipating the tax rate for
2004 to be around 32.5%.
Earnings per share and Dividend
Profit after tax amounted to #18.6m (#17.3m in 2002) giving basic earningsper
share up 8% at 21.7p (2002: 20.1p). If we exclude goodwill, the earnings per
share was 23.2p (2002: 21.6p). As stated in the Chairman's statement and the
directors' report, the Board are recommending an increase in the final dividend
and an additional interim dividend for 2004 to be paid at the same time as the
final dividend for 2003, in May. Our strong cash resources and cash generation
gives us the confidence to do this, but we would like to move toward a stronger
level of dividend cover over time.
Bill Whiteley
Chief Executive
Audited Consolidated Profit and Loss Account
for the year ended 31 December 2003
2003 2002
#'000 #'000
Turnover
Continuing operations 135,964 129,677
Discontinued operations - 3,783
135,964 133,460
Cost of sales (72,159) (71,875)
_____ _____
Gross profit 63,805 61,585
Distribution costs (1,768) (1,748)
Administrative expenses (35,586) (35,348)
Other operating income 262 1,233
Operating profit
Continuing operations 26,713 25,248
Discontinued operations - 474
26,713 25,722
Continuing operations before amortisation of goodwill 28,018 26,553
Discontinued operations - 474
_____ _____
Operating profit before amortisation of goodwill 28,018 27,027
Amortisation of goodwill (1,305) (1,305)
_____ _____
Operating profit 26,713 25,722
Profit on disposal of fixed assets - discontinued 597 -
operations
Interest receivable and similar income 841 530
Interest payable and similar charges (80) (90)
_____ _____
Profit on ordinary activities before taxation 28,071 26,162
Tax on profit on ordinary activities (9,439) (8,868)
_____ _____
Profit for the financial year 18,632 17,294
Dividends- including non-equity (12,592) (11,959)
_____ ______
Retained profit for the financial year 6,040 5,335
_____ ______
Pence Pence
Basic earnings per share 21.7 20.1
Basic earnings per share before goodwill amortisation 23.2 21.6
Diluted earnings pershare 21.6 20.0
Note:
If approved at the annual general meeting on 21 May 2004, the final dividend for
2003 and the additional interim dividend for 2004 will be paid on 28 May 2004 to
shareholders on the register on 2 April 2004.
Audited Group Balance Sheet
at 31 December 2003
Group Group
2003 2002
#'000 #'000
Fixed assets
Intangible assets 19,057 20,886
Tangible assets 13,640 14,816
Investments 341 958
_____ _____
33,038 36,660
_____ _____
Current assets
Stocks 18,570 17,687
Debtors due within one year 32,966 32,421
Debtors due after more than one year 486 409
Cash at bank and in hand 32,253 20,371
_____ _____
84,275 70,888
_____ _____
Creditors:
Amounts falling due within one year (37,807) (33,603)
_____ _____
Net current assets 46,468 37,285
_____ _____
Total assets less current liabilities 79,506 73,945
Creditors:
Amounts falling due after more than one year (129) (197)
Provisions for liabilities and charges (2,890) (2,038)
_____ _____
Net assets 76,487 71,710
===== =====
Capital and reserves
Called up share capital 4,342 4,358
Share premium account 4,543 4,036
Revaluation reserve 2,405 2,400
Capital redemption reserve 1,634 1,609
Profit and loss account 63,563 59,307
_____ _____
Rotork shareholders' funds 76,487 71,710
===== =====
Equity 76,437 71,658
Non-equity 50 52
Shareholders' funds 76,487 71,710
Note:
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2003 or 2002. The financial
information for 2002 is derived from the statutory accounts for 2002 which have
been delivered to the Registrar of Companies. The auditors have reported on the
2002 and 2003 accounts; their reports were unqualified and did not contain a
statement under section 237(2) or (3) of the Companies Act 1985. The statutory
accounts for 2003 will be delivered to the Registrar of Companies following the
Company's annual general meeting.
Audited Statement of Group Cash Flow
for the year ended 31 December 2003
2003 2002
#'000 #'000
Net cash inflow from operating activities 33,798 25,771
Returns on investments and servicing of finance
Interest and similar income received 729 478
Interest paid (80) (90)
Dividends paid on non-equity preference shares (5) (5)
_____ _____
644 383
_____ _____
Taxation
UK corporation tax paid (3,804) (4,032)
Overseas tax paid (5,427) (4,958)
_____ _____
(9,231) (8,990)
_____ _____
Capital expenditure and financial investments
Purchase of tangible fixed assets (2,287) (2,563)
Sale of tangible fixed assets 89 706
Sale of tangible fixed assets - exceptional 1,675 -
Purchase of own equity shares held as investments - (380)
_____ _____
(523) (2,237)
_____ _____
Acquisitions and disposals
Sale of business - 1,306
Purchase of business - (7,781)
Cash acquired with business - 202
Deferred consideration on sale of business - 77
_____ _____
- (6,196)
_____ _____
Dividends paid on equity ordinary shares (12,068) (11,423)
_____ _____
Net cash inflow / (outflow) before management of liquid 12,620 (2,692)
resources and financing
===== =====
Management of liquid resources
(Increase) in term deposits (11,301) (1,752)
Financing
Issue of ordinary share capital 516 94
Purchase of ordinary share capital (1,223) -
Purchase of own preference shares (2) (2)
(Decrease) / increase in amounts borrowed (132) 46
Repayment of capital element of finance lease (67) (55)
_____ _____
(908) 83
Increase / (decrease) in cash in the year 411 (4,361)
===== =====
This information is provided by RNS
The company news service from the London Stock Exchange
END
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