TIDMROR
RNS Number : 7596G
Rotork PLC
06 March 2018
Rotork plc
2017 Full Year Results
OCC (2)
2017 2016 % change % change
---------- ---------- --------- ----------
Order intake GBP666.5m GBP576.6m +15.6% +8.2%
Revenue GBP642.2m GBP590.1m +8.8% +2.3%
Adjusted(1) operating
profit GBP130.2m GBP120.6m +7.9% +2.5%
Adjusted(1) operating
margin 20.3% 20.4% -10bps +10bps
Profit before tax GBP80.6m GBP91.1m -11.5% -17.0%
Adjusted(1) profit
before tax GBP124.8m GBP117.9m +5.8% +0.3%
Basic earnings per
share 6.4p 7.7p -16.9% -22.6%
Adjusted(1) basic
earnings per share 10.6p 10.0p +6.0% 0.0%
Full year dividend 5.40p 5.10p +5.9%
(1) Adjusted figures exclude the amortisation of acquired
intangible assets and other adjustments.
(2) OCC is organic constant currency results excluding
acquisitions and restated at 2016 exchange rates.
(3) Order intake represents the value of orders received during
the year.
Summary
-- Market outlook improving
-- Increasing order book
-- Growing contribution from new products and service
-- New Chief Executive appointed
-- Growth acceleration programme initiated
-- Initial opportunities actioned
-- Balance sheet strengthened with cash conversion of 109.1%
Martin Lamb, Executive Chairman, commenting on the results,
said:
"During the year, we saw a return to more favourable market
conditions. We saw modest recovery in certain markets and
geographies in the first half of the year with a continued
improvement during the second half.
Our revenue forecasts for 2018 currently reflect improving order
momentum, pointing to mid to high single digit organic revenue
growth year on year. However reported results will be impacted by
currency movements. Based on current rates we can expect a 4-5%
headwind on both revenues and profits compared with last year.
Adjusted operating profit margins are expected to be similar,
with contributions from higher volumes offset by increased
investments in new products, expansion of our service
infrastructure, and accelerated investment in our systems and IT
capabilities.
One off costs associated with the ongoing strategic reviews, and
any initial rationalisation opportunities arising from those
reviews, are likely to be at similar levels in H1 to H2 last year.
We will update the market on likely costs for H2 in August
alongside more detail around our plans for growth
acceleration."
Tel: +44 (0)1225 733
Rotork plc 200
Martin Lamb, Executive
Chairman
Jonathan Davis, Finance
Director
Sarah Matthews-DeMers, Director of Strategy
and Investor Relations
Tel: + 44 (0)20 3727
FTI Consulting 1340
Nick Hasell / Susanne
Yule
There will be a meeting for analysts and institutional investors
at 9.45 am GMT this morning at the offices of FTI Consulting, 200
Aldersgate, Aldersgate Street, London EC1A 4HD. The presentation
will also be webcast (audio only). Please register at
www.rotork.com.
Executive Chairman's statement
I am pleased to report that, in a period of change for the
Group, Rotork has delivered another solid set of full year results
with growth in order intake, revenue and adjusted operating profit.
Despite inflationary pressures the adjusted operating margin has
been maintained above 20%, demonstrating the resilience of our
business.
We have seen a return to more favourable market conditions
following a stabilisation of the oil price and improving
macroeconomic trends in a number of our geographic markets. Within
the Group's oil and gas markets, representing around half of the
Group's revenues, customers' investment in existing facilities,
both in respect of maintenance and upgrades, has returned to more
normal levels, providing more consistency to order input.
Investments in major new projects remains patchy and although still
below historic highs, increased levels of quotation activity point
to a generally improving position as the break-even point for new
well construction continues to reduce.
Notwithstanding this generally lower investment climate for our
oil and gas markets, we are committed, over time, to returning the
business to the higher growth and margin levels previously
delivered by the Group. The lower oil price has focussed our
customers on the need to embrace smarter, more efficient
technologies in driving down the cost of production, and encouraged
the use of the latest predictive maintenance tools in minimising
process downtime. Rotork is exceptionally well placed to capitalise
on these trends, and we plan to increase significantly our
investment in innovative new technologies, and expand our service
capabilities. This additional investment will be funded by a
reshaping of our sales and operating infrastructure, concentrating
resources to drive critical mass and upgrading our management
systems.
Working in partnership with a number of external consultants, we
are engaged in a series of reviews to fully understand the impact
of the changing market dynamics on our innovation funnel, and to
examine ways to better align our commercial infrastructure to our
customers' needs and routes to market. In addition we are also
undertaking a detailed review of our operating footprint, global
supply chain, IT infrastructure and talent base. Outputs to date
already provide considerable assurance around our long-term growth
and margin ambitions. These ongoing reviews are expected to
contribute significantly to the growth acceleration plans being
developed by our newly appointed Chief Executive, Kevin Hostetler.
Initial opportunities arising from the early analysis are already
being actioned, with consolidation of operations in Germany and
Italy presently underway.
Financial highlights
Order intake increased by 15.6% on the prior year, or 8.2% on an
OCC basis, reflecting an improvement in several of our end markets,
with increased activity in upstream oil and gas and power and good
progress in water and industrial processes. Midstream oil and gas
remained challenging while downstream started to improve in the
second half of the year.
Revenue increased by 8.8% to GBP642.2m with currency
contributing 5.6% and the contribution from acquisitions being
0.9%. On an OCC basis, revenue increased by 2.3%, reflecting the
traditional lag in order activity flowing through to revenue.
Adjusted operating profit increased by GBP9.6m to GBP130.2m
(OCC: up GBP3.0m) with adjusted operating margin 10 basis points
lower at 20.3%. Although our gross margins held up well, the
increase in revenue was offset by inflationary cost increases.
Board composition and performance
On 28 July 2017 we announced the resignation of Peter France as
Chief Executive. The Board asked me to assume the role of full time
Executive Chairman on an interim basis until a successor could be
appointed.
The announcement followed a period of reflection by the Board,
together with Peter, on the steps required to foster a return to
higher growth and margin levels in what is likely to be a generally
lower growth macro environment. The Board thanks Peter for all his
efforts and achievements throughout a long and successful career
with the Company and wishes him every success in the future.
We were delighted to announce in January the appointment of
Kevin Hostetler as Chief Executive. Kevin joined the Board on 12
February 2018 and will assume the role of Chief Executive from 12
March 2018, when I will revert to my role as Non-Executive
Chairman.
Kevin has an impressive track record of delivering profitable
growth in a number of highly respected and innovative global
engineering businesses, with significant experience in the flow
control sector. He adopts leading edge practices and processes
honed at Ingersoll Rand, and has delivered transformational growth
for shareholders at IDEX Corp, a flow control business with highly
engineered products and strong customer service requirements
serving similar end markets to Rotork. Kevin has recently concluded
a successful exit after leading a three year turnaround at FDH
Velocitel, a private equity backed telecoms business in the US, and
is in the process of relocating from Chicago to Bath, where he has
received a warm welcome from the whole Rotork team.
We also announced the appointment of Peter Dilnot to the Board
as a non-executive director with effect from 1 September 2017. He
is a member of the Audit, Nomination and Remuneration Committees of
the Board. Peter is Chief Executive Officer of Renewi plc, the
international waste-to-product company created in 2017 by the
merger of Shanks Group plc and Van Gansewinkel Groep B.V.. We are
delighted to welcome Peter to the Board.
The Board currently comprises two executive directors, four
independent non-executive directors and myself as Executive
Chairman. Rotork has complied with the UK Corporate Governance Code
in all respects, save that, following Peter France's resignation as
Chief Executive in July 2017, I have acted as Executive Chairman.
We are in compliance with our stated aim that at least 25% of our
independent non-executive directors are women.
The annual performance review of the Board took place during
February and March 2017.
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 work related to risk appetite and monitoring and
disclosure of risk, building on the work that was done during
2016.
Operating review
During the year, the market environment started to improve. We
saw modest recovery in certain markets and geographies in the first
half of the year with a continued improvement during the second
half. The oil industry appears to be stabilising around a lower oil
price, with a return to more normal levels of project activity
(albeit that projects are generally smaller in scale). We saw
steady progress across the water and industrial process markets
with power remaining flat. Geographically we saw growth in the
Middle East, parts of Asia, North America and Europe while Latin
America remained subdued.
Full year order intake increased by 15.6% and by 8.2% on an
organic constant currency basis, while revenue increased by 8.8%,
(+2.3% OCC), reflecting the improvement in the market environment.
Adjusted operating profit increased by 7.9% to GBP130.2m (+2.5%
OCC). The improvement in revenue and our material cost saving
initiatives offset the impact of inflationary pressures, with
adjusted operating margins remaining constant at 20.3% (2016:
20.4%).
The order book at 31 December 2017 was GBP192.5m, 6.5% (9.5%
OCC) higher than at 31 December 2016, giving good visibility into
2018.
Overall, oil and gas represented 50.5% (2016: 52.4%) of revenue
with an increase in the percentage of upstream and downstream sales
but a decrease in midstream. In upstream, which accounted for 17.0%
of revenue, positive sentiment in the USA and the Middle East has
provided support for new onshore drilling activity. Midstream
remained challenging, although we saw benefits from an increase in
gas pipeline activity and the extension of some LNG projects.
During the second half of the year we started to see an improvement
in activity in downstream and we are well positioned to take
advantage of any recovery in this market which we expect to be
driven by emerging markets, low raw material costs and new
environmental legislation.
In the water, power and industrial markets, revenue increased
over the prior period by 10.9%, 5.0% and 25.4% respectively,
reflecting improving macroeconomic conditions. This illustrates the
growth opportunities across our other end markets.
The Middle East and Africa showed good growth across all our end
markets while we saw positive sales momentum in North America in
oil and gas, industrial and water, although the power market
remained subdued in the USA. In Europe, growth in the upstream oil
and gas and industrial process markets was strong, while the Latin
American market remained difficult. We remain well positioned
internationally to benefit from opportunities in all our key
markets.
Strategic progress
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 across all
our end markets. Evolving regulations regarding safety improvements
and emissions reduction will also drive growth. The changing oil
and gas environment has driven a much greater focus by our
customers on cost and margins, giving rise to opportunities for
those solution providers who can respond to these needs and we are
focused on assisting our customers to increase efficiency, reduce
power consumption and maximise cost reduction through innovation in
new solutions and enhancements to our service offering.
Delivering high quality, innovative engineered solutions and
services to our customers across diverse end markets and
geographies remains the key element of our strategy. Our commitment
to ensure we are well placed to accelerate growth in revenues and
margins and to increase our market share across our customer base
requires a fresh perspective on our approach to our business. Such
an approach will include increased investment in new product
development and a significant enhancement of our service offering.
Both represent fertile territory, with oil and gas customers, for
example, demanding much greater innovation from their supply chain
as they seek to regroup around a lower oil price; while service
represents an area of competitive advantage for the Group, being a
reliable and profitable growth engine even in a downturn.
The investment in new product development and our service
offering will be funded by a reshaping of our sales and operating
infrastructure. We are re-examining our cost base, which has grown
in scale and complexity over the years, a natural consequence of
sustained growth, extensive product and geographic diversification
and an active acquisition programme over a long period. We are
engaged in a series of reviews across all aspects of our business
to examine our routes to market, innovation funnel, operations
footprint, supply chain, talent development and IT systems.
Our initial hypothesis, that we can accelerate growth though
investing in innovation, service and routes to market, funded by
savings generated from rationalisation of our cost base, has been
validated by the work completed to date.
We commenced the data capture and analysis phase of these
reviews in 2017 and have made good progress across each
workstream.
The changes to our market drivers have been assessed and
validated along with the implications for the Group. We have
completed a high level review of our innovation funnel, having
developed a framework for analysing opportunities against changing
market drivers and are now examining the areas of most interest
more closely.
The workstream to review the operating footprint and supply
chain is well underway, with phase one (data capture and
consideration of first steps and early opportunities) having been
completed. We have already implemented a number of these first
steps, including the closure of our Melle factory and relocation of
three businesses in Italy. Actions in early 2018 are likely to be
procurement related. Investigation of strategic options for the
longer term has commenced.
We have completed the first wave of our talent development
programme with our senior team and are now widening this to include
a broader group of people. The review of our routes to market has
also now commenced. We will use the output from the route to market
work and the review of our operations to assess the impact on our
business systems and ensure these are able to support the business
in the future.
The outcome of the analysis will contribute significantly to the
growth acceleration programme being formulated by our incoming
Chief Executive, Kevin Hostetler and the management team and we
expect to be in a position to give a further details of our plans
with the announcement of our half year results.
We will keep stakeholders informed as our programme progresses
and once we are in a position to lay out the detailed plan we will
also set out key metrics. We will be very transparent around our
achievements, splitting out the underlying trading performance from
the restructuring costs, the investment in the customer offering
and how these are funded by cost savings.
Rotork Controls
OCC(2)
GBPm 2017 2016 Change Change
Order intake 333.0 295.2 +12.8% +6.9%
Revenue 325.2 298.4 +9.0% +3.3%
Adjusted(1)
operating profit 92.9 87.3 +6.4% +2.1%
Adjusted(1)
operating margin 28.6% 29.3% -70bps -40bps
Order intake was GBP333.0m, a 12.8% increase compared with the
prior year, with revenue up 9.0% to GBP325.2m. On an OCC basis
order intake and revenue increased by 6.9% and 3.3% respectively.
Adjusted operating profit of GBP92.9m was up 6.4% with an adjusted
operating margin of 28.6%, down 70 basis points on the prior year,
with gross margin maintained but overheads impacted by inflationary
increases.
Oil and gas revenues remained stable in 2017 and represented 44%
of divisional revenues. Whilst both upstream and midstream revenues
declined this was offset by an increase in downstream business.
Increased revenues were delivered from water, waste water and
industrial process markets which are seen as being steady growth
sectors. The power market remained slow across a number of
geographies and although our market exposure declined slightly
year-on-year we will continue to focus on expanding in certain
sectors of this market. Positive growth was also delivered from
service activities.
We saw positive sales momentum across North America, Europe and
the Middle East and Africa. Latin America had its challenges
although power and industrial grew in that region.
In 2017 we enhanced the resilience of our supply chain by
working with a number of our suppliers to improve the reliability
of their manufacturing processes. We continued to invest in
additional tooling to reduce manufacturing bottlenecks, improving
delivery performance. We have also been developing new products
which will be launched through 2018.
Rotork Fluid Systems
OCC(2)
GBPm 2017 2016 Change Change
Order intake 160.1 134.7 +18.9% +11.7%
Revenue 150.1 145.3 +3.3% -2.8%
Adjusted(1)
operating profit 9.0 6.2 +45.9% +33.0%
Adjusted(1)
operating margin 6.0% 4.3% +170bps +150bps
Order intake was up 18.9% to GBP160.1m (up 11.7% OCC), with
revenue up 3.3% to GBP150.1m (-2.8% OCC). Adjusted operating profit
was up 45.9% to GBP9.0m (+33.0% OCC) and adjusted operating margin
increased by 170 basis points.
Fluid Systems is the division with the highest proportion of oil
and gas sales, at 67%. Upstream increased significantly due to an
increase in project activity in Eastern Europe and the Middle East.
However, this was offset by a reduction in midstream, predominantly
in North America, in relation to both Liquefied Natural Gas (LNG)
activity, as we completed projects started in 2016, and pipeline
projects, which were generally smaller in size than those in 2016.
Downstream was mixed, with increases arising from new builds in
China, India and Korea offset by a reduction in revenues from the
Middle East. We saw growth across the water and industrial process
markets, with industrial particularly strong in Europe. Exposure to
power reduced slightly due to lower activity in North America,
partially offset by an increase in the Middle East. Overall, the
reduction in activity in North America was offset by increases in
Europe, Latin America and the Middle East and Africa.
Fluid Systems delivered significant material cost savings,
benefiting from value engineering efforts on our core products,
supported by our ongoing low cost country sourcing programme which
have benefited both our European manufacturing facilities and also
enabled our regional China and India manufacturing operations to
better address their regional markets.
Rotork Gears
OCC(2)
GBPm 2017 2016 Change Change
Order intake 86.1 70.5 +22.1% +6.1%
Revenue 83.9 72.4 +15.9% +3.3%
Adjusted(1)
operating profit 15.7 14.1 +11.9% +6.5%
Adjusted(1)
operating margin 18.7% 19.4% -70bps +60bps
Gears performed well over the period, with order intake
increasing 22.1%, including contributions from the recent
acquisition, Mastergear. Revenue grew 15.9% including contributions
from Mastergear and currency tailwinds. On an OCC basis, order
intake and revenue increased by 6.1% and 3.3% respectively.
Adjusted operating profit increased 11.9% to GBP15.7m (OCC +6.5%)
with an adjusted operating margin of 18.7%, down 70 basis points
due to a change in the geographic mix following expansion of our
Chinese activity and integration costs in relation to
Mastergear.
In the division's largest market, oil and gas, upstream remained
flat, but midstream and downstream both grew, mainly in Asia and
also North America, benefiting from the acquisition of
Mastergear.
We saw growth across water, power and industrial process markets
with particularly strong growth in industrial in North America.
Asia grew overall, mainly due to an increase in activity in China
across all end markets, while Europe and North America also
experienced good sales growth.
The acquisition of Mastergear was completed in June 2016 for
GBP16.3m and, with a well regarded portfolio of manual and
motorised gearboxes, enables us to offer our customers a more
comprehensive range of products and services. During 2017, we moved
the Mastergear Italy operation into our existing Cusago site and
also brought the North American operation into our Houston
facility. This proved to be a longer and more complex process than
originally envisaged but the Houston team, under our new General
Manager, have worked through the issues and made a number of
process improvements.
Rotork Instruments
OCC(2)
GBPm 2017 2016 Change Change
Order intake 104.5 92.5 +13.0% +8.8%
Revenue 100.6 91.2 +10.4% +6.1%
Adjusted(1)
operating profit 20.5 20.1 +1.6% -4.4%
Adjusted(1)
operating margin 20.3% 22.1% -180bps -220bps
Order intake increased 13.0% to GBP104.5m, with revenue up 10.4%
to GBP100.6m. Excluding currency tailwinds, OCC increases were 8.8%
and 6.1% respectively. Adjusted operating profit increased by 1.6%
to GBP20.5m (OCC -4.4%) while the adjusted operating margin
decreased by 180 basis points to 20.3% due to a change in the mix
of products sold with operating margins further affected by
inflationary cost increases.
The overall mix of Instruments sales shifted towards industrial
process markets. In oil and gas, upstream was strong in North
America, however growth in this market was offset by softness in
Europe. Midstream held up well and downstream grew in North America
and Asia. The division recorded double digit growth in the water,
power and industrial process markets across Asia and Europe. The
other markets we are now serving include a wide variety of
geographies and end markets, including industrial automation,
commercial vehicles, rail and life sciences.
During 2017 we consolidated our M&M and Soldo businesses
into one site in Bergamo, Italy. This integrated site was also the
first manufacturing facility to which we rolled out our new ERP
system, which continues to drive a number of operational
improvements in both processes and reporting. While the rollout to
further sites has been paused pending our operations footprint
review, we learned a number of valuable lessons through this
implementation. We continued to leverage our product range, with
good growth in sales of our positioners product range and other new
products developed by our Bifold business.
Rotork Site Services (RSS)
Our global service network is a key differentiator for us. Our
highly trained service team provides service and support to our
customers around the world through preventative maintenance
contracts, onsite and workshop service, retrofit solutions and
through the Client Support Programme which offers maintenance
contracts tailored to our customers' specific needs. In 2017, we
continued to invest in our aftermarket business with 480 directly
employed service engineers, an increase of 10% on the previous year
(2016: 430). In future we expect to continue to accelerate this
growth and expand and enhance our service offering, both in terms
of geographic spread and number of service engineers and also in
terms of additional services to assist our customers in reducing
costs and maximising uptime.
Research and development (R&D)
In 2017 our R&D spend increased by 18.9% to GBP14.0m and
focused on enhancements to our existing product range. As noted
above, we are currently carrying out a review of our innovation
funnel and in future expect to concentrate on responding more
rapidly to changing customer requirements, particularly given the
increased emphasis in the oil and gas industry on cost reduction
and efficiency and the drive across all end markets to increase
connectivity and digital automation and reduce power consumption.
We are developing solutions that have a number of applications
across our end markets, using several common technologies.
As already announced, we are making a major investment in Bath
to replace our factory and corporate headquarters and develop a
state-of-the-art R&D centre, to be completed by 2020.
Innovation and organic product development remains a key part of
our strategy for growth.
Corporate social responsibility (CSR)
Corporate social responsibility values continue to be an
integral part of our business model. We take our responsibilities
to our stakeholders very seriously and continuously look for ways
to improve our performance. The work in this area is led by our CSR
committee and sub-committees who met throughout the year.
We supported WaterAid and Sightsavers again in 2017 and The
Forever Friends Appeal (Royal United Hospitals Bath, UK), donating
a total of GBP90,000. Our employees also gave support to their
local communities with the Group contributing a further GBP175,000
to support these causes. This brought the total Group contributions
in the year to GBP265,000 (2016: GBP259,000).
Our people
We are delighted that Kevin Hostetler is joining us as Chief
Executive and look forward to the fresh insight and leadership
skills he will bring to the Group.
We recognise that to implement our business strategy we need
highly trained and motivated staff. We invest in our people and
encourage internal development and operate a recruitment policy
that supports our future growth plans. As noted above, we are
currently engaged in a talent development programme to assess the
needs of our people and ensure we are providing the best career
enhancement and support.
We aim to be a 'great place to work' with strong, consistent
values across all of our business units and clear adherence to our
published group ethics policies. Our entrepreneurial, open culture
is an enabler to getting the job done.
Rotork's total employee number in 2017 was 3,835, broadly in
line with the previous year.
Rotork's success is due to the dedication and hard work of our
employees. I would like to thank all of our employees for their
continued high level of commitment and professionalism during 2017,
particularly during this period of change. I have been impressed by
their ability to deal with the different demands placed on them as
we undertake this series of reviews of different areas of our
business, while still delivering the high levels of quality and
service that our customers expect. I am sure they will rise to the
challenges ahead as we embark on our growth acceleration
programme.
Financial review
Adjusted items
Adjusted profit measures are presented alongside statutory
results as the Directors believe they provide a useful comparison
of business trends and performance from one period to the next.
The statutory profit measures are adjusted to exclude
amortisation of acquired intangibles and other adjustments,
comprising the release of contingent consideration, goodwill
impairment and restructuring costs.
Statutory Restructuring Adjusted
GBPm results Amortisation Acquisition-related costs results
Operating profit 86.0 27.2 11.6 5.4 130.2
Profit before
tax 80.6 27.2 11.6 5.4 124.8
Tax (25.0) (6.7) 0.0 (1.2) (32.9)
Profit after
tax 55.6 20.5 11.6 4.2 91.9
Acquisitions
The Mastergear acquisition, completed in June 2016 for GBP16.3m,
expanded our Gears portfolio, making our gears product range one of
the most comprehensive in the industry. The integration of the
business into existing Rotork facilities in China, Italy and the
USA is now complete.
The increased value of acquisitions over the last three years
led to a rise in the amortisation charge related to acquired
intangible assets to GBP27.2m (2016: GBP26.8m). In order to adjust
the income statement to show a like-for-like period for each
acquisition, 2017 revenue has been reduced by GBP5.4m. There is no
adjustment at the operating profit level.
The acquisition of Bifold in 2015 included a stretching GBP10.0m
earn-out which did not become payable therefore the related
provision has been released in the year. In addition, following our
annual goodwill impairment review and changes in our assumptions
regarding the likely speed of recovery of some of Bifold's
traditional markets, we have written down the related goodwill by
GBP19.8m.
We continue to seek acquisitions that meet our stated
acquisition criteria and support the diversification of our
portfolio.
Currency
The income statement once again benefited from a significant
currency tailwind in 2017. The major currencies impacting the
income statement were universally stronger against Sterling. The
US$/GBP average rate of $1.29 (2016: $1.36) was a 7 cent tailwind
whilst the euro/GBP average rate was EUR1.14 (2016: EUR1.22), an 8
cent tailwind. These were the main contributors to the GBP33.4m or
5.6% benefit reported in revenue.
The impact of currency on the Group is both translational and
transactional. Given the locations in which we have operations and
the international nature of our supply base and sales currencies,
the impact of transaction differences can be very different from
the translation impact. We are able to partially mitigate the
transaction impact through matching supply currency with sales
currency, but ultimately we are still net sellers of both US
dollars and euros. It is the net sale of these currencies which we
principally address through our hedging policy, covering up to 75%
of trading transactions in the next 12 months and up to 50% between
12 and 24 months.
In order to estimate the impact of currency, at the current
exchange rates we consider the effect of a 1 cent movement versus
sterling. A 1 euro cent movement now results in approximately a
GBP300,000 (2016: GBP250,000) adjustment to profit and for US
dollar, and dollar related currencies, a 1 cent movement equates to
approximately a GBP400,000 (2016: GBP450,000) adjustment.
Towards the end of 2017 we saw a reversal in currency movements
as the US dollar weakened in the fourth quarter. The rates used to
translate the balance sheet are therefore different, with the
US$/GBP closing rate of $1.35 (December 2016: $1.24), 11 cents
(8.7%) weaker than the start of the year. This reduces the closing
balance sheet values in US dollar denominated assets but it also
results in a currency headwind as we start 2018.
Return on capital employed (ROCE)
Our capital-efficient 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. The average capital employed increased
year-on-year by 1.2% to GBP522m as there were no acquisitions
during 2017. This, combined with the higher adjusted operating
profit resulted in an increase in ROCE to 24.9% (2016: 23.4%).
Taxation
The Group's effective tax rate was impacted this year by changes
in US corporate tax rates and the adjustments to operating profit.
The headline rate therefore increased from 26.2% in 2016 to 31.0%
in 2017. Removing the impact of the non-recurring adjustments to
profit that weren't present in 2016, the effective tax rate returns
to 26.3%. Were it not for the changes in US corporate tax rates,
this would have been 90 basis points lower at 25.4%, as the change
in rates triggered a reassessment of the US deferred tax assets and
a GBP1.2m tax charge in the year. This deferred tax charge will not
repeat in 2018. The benefit arising from the lower US corporate tax
rate is likely to generate an approximate 100 basis point reduction
in the 2018 adjusted effective tax rate.
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 local
legislation.
Cash generation
Our strong cash generation resulted in a reduction in net debt
of GBP42.4m to GBP12.6m at the end of the year. Our cash generation
KPI shows a conversion of 109.1% of adjusted operating profit into
cash. This allowed us to invest GBP12.5m in capital expenditure
although this was lower than anticipated as, having originally
expected to start redevelopment of the Bath factory site during
2017, we are now looking at options for further expansion of this
facility. We also realised GBP2.5m from the sale of assets
including vacated sites in Italy and the USA. Dividends of GBP45.2m
and tax payments of GBP28.2m were the two other major outflows.
Control of working capital as defined in the cash flow
statement, using average exchange rates and excluding acquisitions,
is key to achieving our cash generation KPI. The high levels of
revenue in the last quarter saw trade receivables grow GBP13.2m and
when measured as days sales outstanding increased from 61 to 63
days. Inventory also rose, by GBP7.4m, but trade payables grew by
GBP6.9m offsetting the other movements. In total, net working
capital in the balance sheet decreased to 29.3% of revenue compared
with 30.2% in December 2016 but was a GBP11.0m outflow in the cash
flow statement.
Retirement benefits
The Group accounts for post-retirement benefits in accordance
with IAS 19, Employee Benefits. The balance sheet reflects the net
deficit of these schemes at 31 December 2017 based on the market
value of the assets at that date, and the valuation of liabilities
using year end AA corporate bond yields. We have closed both the
main defined benefit pension schemes to new entrants; the UK scheme
in 2003 and the US one in 2009, in order to reduce the risk of
volatility of the Group's liabilities. During 2017 we completed a
consultation process with members of the UK scheme and will be
closing this scheme to future accrual of benefit from April 2018.
The active members of the scheme will be offered membership of the
UK defined contribution plan.
The most recent triennial valuation for the UK scheme took place
as at 31 March 2016 and showed an actuarial deficit of GBP32.5m and
a funding level of 82%. The update to this actuarial valuation at
31 March 2017 showed the deficit had grown to GBP44.4m and funding
level decreased to 79%. A continued reduction in gilt yields, which
is the key driver behind the value of the scheme's liabilities and
higher inflation expectations were the main changes since the 2016
valuation. A recovery plan was agreed with the Trustees following
the 2016 valuation resulting in required annual contributions from
the Company of GBP5.5m during 2016, 2017 and 2018, at which time
the next valuation will take place.
On an accounting basis the deficit on the schemes decreased from
GBP58.5m to GBP48.2m during the year and the funding level
increased from 75% to 80%. The Company paid total contributions of
GBP9.0m in the year and the scheme assets increased by roughly this
value whilst liabilities remained broadly unchanged over the
year.
The accounting deficit is higher than the actuarial deficit as
on an accounting basis we are required to use AA corporate bond
rates to value the liabilities. The actuarial valuation uses gilt
yields since this most closely matches the investment strategy
which is designed in part to hedge the interest rate and inflation
risks borne by the scheme. Cash contributions are driven by the
actuarial valuation.
Dividends
The Board is proposing a 6.3% increase in the final dividend to
3.35p per share (2016: 3.15p). When taken together with the 2.05p
interim dividend paid in September, the 5.40p represents a 5.9%
increase in dividends over the prior year. This gives dividend
cover of 1.2 times (2016: 1.5 times) using statutory earnings per
share or when using adjusted earnings per share 2.0 times (2016:
2.0 times). Our 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.
The final dividend will be payable on 23 May 2018 to shareholders
on the register on 6 April 2018.
Outlook
Our revenue forecasts for 2018 currently reflect improving order
momentum, pointing to mid to high single digit organic revenue
growth year on year. However reported results will be impacted by
currency movements. Based on current rates we can expect a 4-5%
headwind on both revenues and profits compared with last year.
We expect the cost environment to be generally more inflationary
with pressure on wages and commodities. The pricing environment
appears to have stabilised in most end markets albeit pockets of
intense competition exist in more commoditised product areas.
Together with significant value engineering activities and a more
integrated approach to procurement, we would expect to maintain the
status quo.
Adjusted operating margins are expected to be similar, with
contributions from higher volumes offset by increased investments
in new products, expansion of our service infrastructure, and
accelerated investment in our systems and IT capabilities. These
investments represent the first steps in our ambition to return the
business to higher levels of underlying growth, with priority areas
emanating from the strategic reviews undertaken to date.
One off costs associated with the ongoing strategic reviews, and
any initial rationalisation opportunities arising from those
reviews, are likely to be at similar levels in H1 to H2 last year.
We will update the market on likely costs for H2 in August
alongside more detail around our plans for growth acceleration and
business transformation.
We expect 2018 to be a busy year for Rotork, following the
appointment of our new Chief Executive, as we embark on our
ambition to return the Group to its former growth and margin
trajectory.
Martin Lamb
Executive Chairman
5 March 2018
Consolidated income statement
For the year ended 31 December 2017
2017 2016
Notes GBP000 GBP000
-------------------------------------------------- ----- --------- ------------
Revenue 3 642,229 590,078
Cost of sales (358,090) (328,410)
-------------------------------------------------- ----- --------- ------------
Gross profit 284,139 261,668
Other income 10,651 629
Distribution costs (6,271) (5,138)
Administrative expenses (202,233) (163,165)
Other expenses (314) (217)
-------------------------------------------------- ----- --------- ------------
Adjusted operating profit 2 130,162 120,588
Adjustments
* Amortisation of acquired intangible assets 3 (27,183) (26,811)
* Other adjustments 4 (17,007) -
-------------------------------------------------- ----- --------- ------------
Operating profit 3 85,972 93,777
Finance income 5 1,381 1,744
Finance expense 5 (6,767) (4,451)
-------------------------------------------------- ----- --------- ------------
Profit before tax 80,586 91,070
Income tax expense 6 (24,973) (23,897)
-------------------------------------------------- ----- --------- ------------
Profit for the year 55,613 67,173
-------------------------------------------------- ----- --------- ------------
Basic earnings per share 12 6.4p 7.7p
Adjusted basic earnings per share 12 10.6p 10.0p
Diluted earnings per share 12 6.4p 7.7p
Adjusted diluted earnings per share 12 10.5p 10.0p
-------------------------------------------------- ----- --------- ----------
Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017 2016
GBP000 GBP000
--------------------------------------------- ------- --------
Profit for the year 55,613 67,173
Other comprehensive income
Items that may be subsequently reclassified
to the income statement:
Foreign exchange translation differences (376) 36,854
Effective portion of changes in fair value
of cash flow hedges net of tax 6,188 (6,414)
---------------------------------------------- ------- --------
5,812 30,440
Items that are not subsequently reclassified
to the income statement:
Actuarial gain / (loss) in pension scheme
net of tax 3,709 (30,732)
---------------------------------------------- ------- --------
Income and expenses recognised directly
in equity 9,521 (292)
Total comprehensive income for the year 65,134 66,881
---------------------------------------------- ------- --------
Consolidated balance sheet
At 31 December 2017
2017 2016
Notes GBP000 GBP000
-------------------------------------- ----- ------- -------
Non-current assets
Goodwill 7 228,028 251,407
Intangible assets 81,456 109,019
Property, plant and equipment 81,725 83,766
Deferred tax assets 21,218 25,259
Other receivables 9 142 146
-------------------------------------- ----- ------- -------
Total non-current assets 412,569 469,597
Current assets
Inventories 8 91,908 85,772
Trade receivables 9 145,529 131,891
Current tax 9 2,726 4,349
Derivative financial instruments 3,468 -
Other receivables 9 19,202 22,341
Cash and cash equivalents 10 63,192 61,423
-------------------------------------- ----- ------- -------
Total current assets 326,025 305,776
-------------------------------------- ----- ------- -------
Total assets 738,594 775,373
-------------------------------------- ----- ------- -------
Equity
Issued equity capital 11 4,352 4,350
Share premium 11,193 10,482
Reserves 32,263 26,451
Retained earnings 409,392 392,803
-------------------------------------- ----- ------- -------
Total equity 457,200 434,086
-------------------------------------- ----- ------- -------
Non-current liabilities
Interest bearing loans and borrowings 13 45,879 51,303
Employee benefits 14 52,293 62,593
Deferred tax liabilities 19,379 24,848
Derivative financial instruments 245 2,483
Provisions 15 1,929 11,947
Total non-current liabilities 119,725 153,174
Current liabilities
Interest bearing loans and borrowings 13 29,928 65,108
Trade payables 16 49,183 39,652
Employee benefits 14 21,464 14,256
Current tax 16 13,093 13,352
Derivative financial instruments 1,521 8,143
Other payables 16 42,165 41,999
Provisions 15 4,315 5,603
-------------------------------------- ----- ------- -------
Total current liabilities 161,669 188,113
-------------------------------------- ----- ------- -------
Total liabilities 281,394 341,287
-------------------------------------- ----- ------- -------
Total equity and liabilities 738,594 775,373
-------------------------------------- ----- ------- -------
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
2015 4,349 10,018 (4,712) 1,644 (921) 397,424 407,802
Profit for the year - - - - - 67,173 67,173
Other comprehensive income
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Foreign exchange translation
differences - - 36,854 - - - 36,854
Effective portion of
changes in fair value
of cash
flow hedges - - - - (7,822) - (7,822)
Actuarial loss on defined
benefit pension plans - - - - - (37,923) (37,923)
Tax on other comprehensive
income - - - - 1,408 7,191 8,599
Total other comprehensive
income - - 36,854 - (6,414) (30,732) (292)
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Total comprehensive income - - 36,854 - (6,414) 36,441 66,881
Transactions with owners,
recorded directly in
equity
Equity settled share-based
payments transactions - - - - - 1,55x7 1,557
Tax on equity settled
share-based payment transactions - - - - - 74 74
Share options exercised
by employees 1 464 - - - - 465
Own ordinary shares acquired - - - - - (1,019) (1,019)
Own ordinary shares awarded
under share schemes - - - - - 2,202 2,202
Dividends - - - - - (43,876) (43,876)
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Balance at 31 December
2016 4,350 10,482 32,142 1,644 (7,335) 392,803 434,086
Profit for the year - - - - - 55,613 55,613
Other comprehensive income
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Foreign exchange translation
differences - - (376) - - - (376)
Effective portion of
changes in fair value
of cash
flow hedges - - - - 7,546 - 7,546
Actuarial gain on defined
benefit pension plans - - - - - 5,849 5,849
Tax on other comprehensive
income - - - - (1,358) (2,140) (3,498)
Total other comprehensive
income - - (376) - 6,188 3,709 9,521
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Total comprehensive income - - (376) - 6,188 59,322 65,134
Transactions with owners,
recorded directly in
equity
Equity settled share-based
payments transactions - - - - - 1,089 1,089
Tax on equity settled
share-based payment transactions - - - - - 252 252
Share options exercised
by employees 2 711 - - - - 713
Own ordinary shares acquired - - - - - (1,157) (1,157)
Own ordinary shares awarded
under share schemes - - - - - 2,301 2,301
Dividends - - - - - (45,218) (45,218)
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Balance at 31 December
2017 4,352 11,193 31,766 1,644 (1,147) 409,392 457,200
---------------------------------- -------- -------- ----------- ----------- -------- --------- --------
Consolidated statement of cash flows
For the year ended 31 December 2017
2017 2017 2016 2016
Notes GBP000 GBP000 GBP000 GBP000
--------------------------------------- ----- -------- -------- -------- --------
Cash flows from operating activities
Profit for the year 55,613 67,173
Adjustments for:
Amortisation of intangibles 27,183 26,811
Other adjustments 4 17,007 -
Amortisation of development costs 2,699 2,226
Depreciation 12,232 11,759
Equity settled share-based payment
expense 3,390 3,759
Profit on sale of property, plant
and equipment (147) (254)
Finance income (1,381) (1,744)
Finance expense 6,767 4,451
Income tax expense 24,973 23,897
--------------------------------------- ----- -------- -------- -------- --------
148,336 138,078
(Increase) / decrease in inventories (7,390) 14,416
(Increase) / decrease in trade
and other receivables (13,172) 2,511
Increase in trade and other payables 6,926 1,309
Restructuring costs paid (2,775) -
Difference between pension charge
and cash contribution (4,782) (5,297)
Increase / (decrease) in provisions 147 (496)
Increase in employee benefits 7,158 1,047
--------------------------------------- ----- -------- -------- -------- --------
134,448 151,568
Income taxes paid (28,243) (32,876)
--------------------------------------- ----- -------- -------- -------- --------
Cash flows from operating activities 106,205 118,692
Investing activities
Purchase of property, plant and
equipment (12,457) (14,692)
Development costs capitalised (3,356) (2,957)
Sale of property, plant and equipment 2,450 648
Acquisition of businesses, net
of cash acquired - (16,109)
Contingent consideration paid (1,347) (257)
Settlement of hedging derivatives 662 (25,867)
Interest received 1,191 180
--------------------------------------- ----- -------- -------- -------- --------
Cash flows from investing activities (12,857) (59,054)
Financing activities
Issue of ordinary share capital 713 466
Own ordinary shares acquired (1,157) (1,019)
Interest paid (2,975) (2,649)
Decrease in bank loans (40,579) (3,619)
Repayment of finance lease liabilities (68) (253)
Dividends paid on ordinary shares (45,218) (43,876)
--------------------------------------- ----- -------- -------- -------- --------
Cash flows from financing activities (89,284) (50,950)
--------------------------------------- ----- -------- -------- -------- --------
Increase in cash and cash equivalents 4,064 8,688
Cash and cash equivalents at
1 January 61,423 48,968
Effect of exchange rate fluctuations
on cash held (2,295) 3,767
--------------------------------------- ----- -------- -------- -------- --------
Cash and cash equivalents at
31 December 10 63,192 61,423
--------------------------------------- ----- -------- -------- -------- --------
Notes to the Group Financial Statements
For the year ended 31 December 2017
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
2017 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
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2017:
-- Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)
-- Disclosure Initiative (Amendments to IAS 7)
-- Annual Improvements to IFRS Standards 2014-2016 Cycle - Amendments to IFRS 12
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.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2017 reporting
periods and have not been early adopted by the Group. An assessment
of the impact of these new standards and interpretations is set out
below.
i. IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments that replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
IFRS 9 brings together all three aspects of the accounting for
financial instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early
application permitted. Except for hedge accounting, retrospective
application is required but providing comparative information is
not compulsory. For hedge accounting, the requirements are
generally applied prospectively, with some limited exceptions.
The Group plans to adopt the new standard on the required
effective date and will not restate comparative information. The
directors do not anticipate that the adoption of this standard will
have a material impact on the Group's consolidated financial
statements.
ii. IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and amended in April 2016, and
establishes a five-step model to account for revenue arising from
contracts with customers. IFRS 15 is effective for annual periods
beginning on or after 1 January 2018. Under IFRS 15, revenue is
recognised at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring goods or
services to a customer. The new revenue standard will supersede all
current revenue recognition requirements under IFRS.
During 2017, the Group performed a detailed analysis of
significant revenue streams in 2016, communicated to key
stakeholders within the business the key aspects of the accounting
change and had specific targeted training for key finance
employees. In early 2018, further work targeted service revenue in
2017 to assess the impact of the change over the transition date.
This analysis has enabled management to assess the impact of the
new standard on the 2016 and 2017 balance sheets and the 2017
income statement. An explanation of the impact on the key revenue
streams is set out below.
Contracts for the sale of products are generally expected to
have only one performance obligation and adoption of IFRS 15 is not
expected to have any impact on the Group's revenue and profit or
loss. The Group expects the revenue recognition to occur at a point
in time when control of the asset is transferred to the customer,
generally on delivery of the goods.
The Group provides service and support through preventative
maintenance contracts, on-site and workshop service, retrofit
solutions and the Client Support Programme. The Group's current
accounting treatment under IAS 18 is that revenue on long- term
service contracts is recognised by reference to the stage of
completion. Under IFRS 15, management have concluded that the
long-term service contracts are satisfied over time given that the
customer simultaneously receives and consumes the benefits provided
by the Group. For other service work revenue will be recognised on
completion of the work and after all performance obligations have
been completed. Adoption of IFRS 15 is not expected to have a
material impact on service revenue in the income statement or the
balance sheet.
The Group has adopted IFRS 15 on 1 January 2018 and the impact
of the changes set out above are not expected to require any
restatement of the 2017 balance sheet and income statement.
iii. IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance
including IAS 17 Leases and the related interpretations when it
becomes effective for annual periods beginning on or after 1
January 2019.
IFRS 16 distinguishes leases and service contracts on the basis
of whether an identified asset is controlled by a customer.
Distinctions of operating leases (off balance sheet) and finance
leases (on balance sheet) are removed for lessee accounting, and
are replaced by a model where a right-of-use asset and a
corresponding liability have to be recognised for all leases by
lessees (i.e. all on balance sheet) except for short-term leases
and leases of low value assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payments that
are not paid at that date. Subsequently, the lease liability is
adjusted for interest and lease payments, as well as the impact of
lease modifications, amongst others. Furthermore, the
classification of cash flows will also be affected as operating
lease payments under IAS 17 are presented as operating cash flows;
whereas under the IFRS 16 model, the lease payments will be split
into a principal and an interest portion which will be presented as
financing and operating cash flows respectively. Extensive
disclosures are required by IFRS 16.
As at 31 December 2017, the Group has non-cancellable operating
lease commitments of GBP19,268,000. IAS 17 does not require the
recognition of any right-of-use asset or liability for future
payments for these leases; instead, certain information is
disclosed as operating lease commitments. A preliminary assessment
indicates that these arrangements will meet the definition of a
lease under IFRS 16, and hence the Group will recognise a
right-of-use asset and a corresponding liability in respect of all
these leases unless they qualify for low value or short-term leases
upon the application of IFRS 16. The new requirement to recognise a
right-of-use asset and a related lease liability is expected to
have an impact on the amounts recognised in the Group's
consolidated financial statements and management are currently
assessing its potential impact. It is not practicable to provide a
reasonable estimate of the financial effect until this review is
completed.
In contrast, for finance leases where the Group is a lessee, as
the Group has already recognised an asset and a related finance
lease liability for the lease arrangement, management do not
anticipate that the application of IFRS 16 will have an impact on
the amounts recognised in the Group's consolidated financial
statements.
Adjustments to profit
Adjustments to profit are items of income and expense which,
because of the nature, size and/or infrequency of the events giving
rise to them, merit separate presentation. These specific items are
presented on the face of the income statement to provide greater
clarity and a better understanding of the impact of these items on
the Group's financial performance. In doing so, it also facilitates
greater comparison of the Group's underlying results with prior
periods and assessment of trends in financial performance. This
split is consistent with how underlying business performance is
measured internally.
Adjustments to profit items may include but are not restricted
to: costs of significant business restructuring, significant
impairments of intangible or tangible assets, adjustments to the
fair value of acquisition related items such as contingent
consideration, acquired intangible asset amortisation and other
items due to their significance, size or nature, and the related
taxation.
Acquired intangible asset amortisation has been shown separately
to provide visibility over the ongoing impact on the Group's income
statement of prior and current year period investment
activities.
Further analysis of the adjustments to profit are provided in
note 4.
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 debt position.
Consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries for the year to 31
December 2017. 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 2017 or 2016. Statutory accounts
for 2016, which were prepared under International Financial
Reporting Standards as adopted by the EU, have been delivered to
the registrar of companies, and those for 2017 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 2017 will
shortly be posted to shareholders, and after adoption at the Annual
General Meeting on 27 April 2018 will be delivered to the
registrar.
2. Alternative performance measures
The Group uses adjusted figures as key performance measures in
addition to those reported under adopted IFRS, as management
believe these measures facilitate greater comparison of the Group's
underlying results with prior periods and assessment of trends in
financial performance.
The key alternative performance measures that the Group use
include adjusted profit measures and organic constant currency
(OCC). Explanations of how they are calculated and how they are
reconciled to IFRS statutory results are set out below.
a. Adjusted operating profit
Adjusted operating profit is the Group's operating profit
excluding the amortisation of acquired intangible assets and other
items that are considered to be significant and where treatment as
an adjusted item provides stakeholders with additional useful
information to assess the trading performance of the Group on a
consistent basis. In 2017 other items excluded are the release of
contingent consideration, impairment of goodwill and restructuring
costs to arrive at adjusted operating profit. Further details on
these adjustments are given in note 4.
b. Adjusted profit before tax
The adjustments in calculating adjusted profit before tax are
consistent with those in calculating adjusted operating profit
above.
2017 2016
------------------------------------------- -------- -------
Profit before tax 80,586 91,070
Adjustments:
Amortisation of acquired intangible assets 27,183 26,811
Impairment of goodwill 21,594 -
Release of contingent consideration (10,000) -
Restructuring costs 5,413 -
Adjusted profit before tax 124,776 117,881
------------------------------------------- -------- -------
c. Adjusted basic and diluted earnings per share
Adjusted basic earnings per share is calculated using the
adjusted net profit attributable to the ordinary shareholders and
dividing it by the weighted average ordinary shares in issue (see
note 12). Adjusted net profit attributable to ordinary shareholders
is calculated as follows:
2017 2016
------------------------------------------------- -------- -------
Net profit attributable to ordinary shareholders 55,613 67,173
Adjustments:
Amortisation of acquired intangible assets 27,183 26,811
Impairment of goodwill 21,594 -
Release of contingent consideration (10,000) -
Restructuring costs 5,413 -
Tax effect on adjusted items (7,879) (7,035)
Adjusted net profit attributable to ordinary
shareholders 91,924 86,949
------------------------------------------------- -------- -------
Diluted earnings per share is calculated by using the adjusted
net profit attributable to ordinary shareholders and dividing it by
the weighted average ordinary shares in issue adjusted to assume
conversion of all potentially dilutive ordinary shares (see note
12).
d. Organic constant currency (OCC)
OCC results exclude the incremental impact of acquisitions and
adjusted items and are restated at 2016 exchange rates. Key
headings in the income statement are reconciled to OCC as
follows:
Impact OCC
31 December Currency of 31 December
2017 adjustment acquisitions 2017
-------------------------- ----------- ----------- ------------- ------------
Revenue 642,229 (33,387) (5,438) 603,404
Cost of sales (358,090) 20,813 4,647 (332,630)
-------------------------- ----------- ----------- ------------- ------------
Gross margin 284,139 (12,574) (791) 270,774
Overheads (153,977) 5,989 779 (147,209)
----------- ----------- ------------- ------------
Adjusted operating profit 130,162 (6,585) (12) 123,565
Interest (5,386) 30 - (5,356)
-------------------------- ----------- ----------- ------------- ------------
Adjusted profit before
tax 124,776 (6,555) (12) 118,209
-------------------------- ----------- ----------- ------------- ------------
Taxation (32,852) 1,476 (31) (31,407)
-------------------------- ----------- ----------- ------------- ------------
Adjusted profit after
tax 91,924 (5,079) (43) 86,802
-------------------------- ----------- ----------- ------------- ------------
3. Operating segments
The Group has chosen to organise the management and financial
structure by the grouping of related products. The four
identifiable operating segments for which 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
2017 2017 2017 2017 2017 2017 2017
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Revenue from external
customers 325,174 150,117 72,814 94,124 - - 642,229
Inter segment revenue - - 11,086 6,498 (17,584) - -
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Total revenue 325,174 150,117 83,900 100,622 (17,584) - 642,229
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Adjusted operating profit* 92,903 9,019 15,724 20,457 - (7,941) 130,162
Amortisation of acquired
intangible assets (2,888) (1,409) (2,021) (20,865) - - (27,183)
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Segment result before
adjustments 90,015 7,610 13,703 (408) - (7,941) 102,979
Adjustments (17,007)
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Operating profit 85,972
Net finance expense (5,386)
Income tax expense (24,973)
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Profit for the year 55,613
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
2016 2016 2016 2016 2016 2016 2016
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Revenue from external
customers 298,381 145,317 60,802 85,578 - - 590,078
Inter segment revenue - - 11,577 5,592 (17,169) - -
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Total revenue 298,381 145,317 72,379 91,170 (17,169) - 590,078
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Adjusted operating profit* 87,293 6,181 14,051 20,130 - (7,067) 120,588
Amortisation of acquired
intangible assets (3,860) (1,582) (1,698) (19,671) - - (26,811)
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Segment result before
adjustments 83,433 4,599 12,353 459 - (7,067) 93,777
Adjustments -
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Operating profit 93,777
Net finance expense (2,707)
Income tax expense (23,897)
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
Profit for the year 67,173
--------------------------- -------- -------- ------- ----------- ----------- ----------- --------
*Adjusted operating profit is operating profit before the
amortisation of acquired intangible assets and other adjustments,
comprising goodwill impairment, release of contingent consideration
and restructuring costs
Fluid
Controls Systems Gears Instruments Unallocated Group
2017 2017 2017 2017 2017 2017
------------------------------------ -------- -------- ----- ----------- ----------- --------
Depreciation 5,622 2,801 1,813 1,951 45 12,232
Amortisation:
* Acquired intangible assets 2,888 1,409 2,021 20,865 - 27,183
* Development costs 1,670 469 259 301 - 2,699
Impairment of goodwill - - 1,840 19,754 - 21,594
Release of contingent consideration - - - (10,000) - (10,000)
Non-cash items: equity settled
share-based payments 1,515 652 418 545 260 3,390
Net financing expense - - - - (5,386) (5,386)
Acquired as part of business
combinations:
* Goodwill - - - - - -
* Intangible assets - - - - - -
Capital expenditure 7,355 1,495 1,622 1,933 - 12,405
------------------------------------ -------- -------- ----- ----------- ----------- --------
Fluid
Controls Systems Gears Instruments Unallocated Group
2016 2016 2016 2016 2016 2016
------------------------------------ -------- -------- ----- ----------- ----------- -------
Depreciation 5,429 2,571 1,546 2,170 43 11,759
Amortisation:
* Acquired intangible assets 3,860 1,582 1,698 19,671 - 26,811
* Development costs 1,628 211 281 106 - 2,226
Impairment of goodwill - - - - - -
Release of contingent consideration - - - - - -
Non-cash items: equity settled
share-based payments 1,709 680 480 473 417 3,759
Net financing expense - - - - (2,707) (2,707)
Acquired as part of business
combinations:
* Goodwill - - 5,317 - - 5,317
* Intangible assets - - 6,816 - - 6,816
Capital expenditure 6,975 4,575 1,741 1,357 13 14,661
------------------------------------ -------- -------- ----- ----------- ----------- -------
Balance sheets are reviewed by subsidiary and operating segment
balance sheets are not prepared, therefore no further analysis of
operating segments assets and liabilities is presented.
Geographical analysis:
Revenue by location of subsidiary 2017 2016
---------------------------------- ------- -------
UK 76,281 74,144
Italy 82,165 63,040
Rest of Europe 113,822 112,759
USA 149,526 145,473
Other Americas 31,549 27,365
Rest of World 188,886 167,297
---------------------------------- ------- -------
642,229 590,078
---------------------------------- ------- -------
Rest
Other of
UK Europe USA Americas World Group
2017 2017 2017 2017 2017 2017
------------------------------------- ------ ------ ------ --------- ------ -------
Non-current assets:
* Goodwill 61,342 67,119 55,996 733 42,838 228,028
* Intangible assets 43,226 12,215 12,886 - 13,129 81,456
* Property, plant and equipment 26,441 29,054 8,612 767 16,851 81,725
------------------------------------- ------ ------ ------ --------- ------ -------
Rest
Other of
UK Europe USA Americas World Group
2016 2016 2016 2016 2016 2016
------------------------------------- ------ ------ ------ --------- ------ -------
Non-current assets:
* Goodwill 81,329 64,984 62,730 740 41,624 251,407
* Intangible assets 52,138 17,595 20,674 - 18,612 109,019
* Property, plant and equipment 26,099 29,812 10,348 527 16,980 83,766
------------------------------------- ------ ------ ------ --------- ------ -------
4. Adjustments to profit
Adjustments are those items that management consider to be
significant and where separate disclosure enables stakeholders to
assess the trading performance of the Group on a consistent
basis.
The adjustments to profit included in statutory profit are as
follows:
2017 2016
------------------------------------ -------- ----
Release of contingent consideration 10,000 -
Goodwill impairment (21,594) -
------------------------------------ -------- ----
(11,594) -
Restructuring costs (5,413) -
(17,007) -
------------------------------------ -------- ----
Bifold was acquired in 2015 and GBP10.0m of the consideration
was contingent on a 2017 EBITDA performance target. Given the
target has not been met the contingent consideration has been
released to the income statement.
As a result of the annual impairment review the goodwill
associated with the Bifold and Tulsa CGUs has been impaired by
GBP19,754,000 and GBP1,607,000 respectively. Bifold has been
impacted as a result of the downturn in its main oil and gas market
and trading not recovering as quickly as anticipated. The Tulsa CGU
has also been impacted by depressed activity in the markets it
serves. Further details of the annual impairment review and the key
assumptions is provided in note 7.
The restructuring costs include:
i. Consultancy costs associated with the strategic review.
ii. Redundancy costs which have arisen following the
reorganisation of operations in Italy and Germany.
iii. Executive termination and associated recruitment costs.
Within the income statement the goodwill impairment and
restructuring costs are included in administrative expenses and the
release of contingent consideration is included in other
income.
The goodwill impairment is not tax deductible and the release of
the contingent consideration is not taxable. The restructuring
costs are tax deductible in the country in which the expense is
incurred.
5. finance Income and EXPENSE
Recognised in the income statement
2017 2016
----------------------------------- ----- -----
Interest income 1,206 934
Foreign exchange gains 175 810
----------------------------------- ----- -----
Finance income 1,381 1,744
----------------------------------- ----- -----
2017 2016
---------------------------------------------- ------- -------
Interest expense (3,184) (2,970)
Interest charge on pension scheme liabilities (1,607) (767)
Foreign exchange losses (1,976) (714)
---------------------------------------------- ------- -------
Finance expense (6,767) (4,451)
---------------------------------------------- ------- -------
Recognised in equity
2017 2016
------------------------------------------- ------- -------
Effective portion of changes in fair value
of cash flow hedges (1,399) (8,772)
Fair value of cash flow hedges transferred
to income statement 8,945 950
Foreign currency translation differences
for foreign operations (376) 36,854
------------------------------------------- ------- -------
7,170 29,032
------------------------------------------- ------- -------
Recognised in:
Hedging reserve 7,546 (7,822)
Translation reserve (376) 36,854
------------------------------------------- ------- -------
7,170 29,032
------------------------------------------- ------- -------
6. Income tax expense
2017 2017 2016 2016
----------------------------------------- ------- ------- ------- --------
Current tax:
UK corporation tax on profits for
the year 3,407 3,671
Adjustment in respect of prior years (974) 4
----------------------------------------- ------- ------- ------- --------
2,433 3,675
Overseas tax on profits for the year 27,386 28,487
Adjustment in respect of prior years 343 (413)
----------------------------------------- ------- ------- ------- --------
27,729 28,074
----------------------------------------- ------- ------- ------- --------
Total current tax 30,162 31,749
----------------------------------------- ------- ------- ------- --------
Deferred tax:
Origination and reversal of other
temporary differences (6,711) (7,937)
Impact of rate change 1,162 (127)
Adjustment in respect of prior years 360 212
----------------------------------------- ------- ------- ------- --------
Total deferred tax (5,189) (7,852)
----------------------------------------- ------- ------- ------- --------
Total tax charge for year 24,973 23,897
----------------------------------------- ------- ------- ------- --------
Profit before tax 80,586 91,070
Profit before tax multiplied by the
blended standard rate of corporation
tax in
the UK of 19.25% (2016: 20.00%) 15,513 18,214
Effects of:
Different tax rates on overseas earnings 6,571 6,381
Permanent differences 138 301
Losses not recognised 768 224
Tax incentives (1,140) (899)
Impact of rate change 1,162 (127)
Non-taxable contingent consideration (1,925) -
Non-deductible goodwill written off 4,157 -
Adjustments to tax charge in respect
of prior years (271) (197)
----------------------------------------- ------- ------- ------- --------
Total tax charge for year 24,973 23,897
----------------------------------------- ------- ------- ------- --------
Effective tax rate 31.0% 26.2%
----------------------------------------- ------- ------- ------- --------
Adjusted profit before tax (note
2b) 124,776 117,881
Total tax charge for the year 24,973 23,897
Amortisation of acquired intangible
assets 6,664 7,035
Other adjustments - restructuring 1,215 -
------------------------------------- ------- -------
Adjusted total tax charge for the
year 32,852 30,932
------------------------------------- ------- -------
Adjusted effective tax rate 26.3% 26.2%
------------------------------------- ------- -------
A tax credit of GBP252,000 (2016: GBP74,000) in respect of
share-based payments has been recognised directly in equity in the
year.
The effective tax rate for the year is 31.0% (2016: 26.2%). The
adjusted effective tax rate is 26.3% (2016: 26.2%) and is lower
than the effective tax rate for the year principally because both
the goodwill adjustments and the release of the contingent
consideration are non-deductible for tax purposes.
The US Tax Cuts and Jobs Act, which was signed into law on 22
December 2017, has resulted in a one off charge to tax of
GBP1,162,000 arising on the revaluation of the Group's net US
deferred tax assets at 31 December 2017. Excluding the effect of
this charge, the 2017 adjusted effective tax rate would be
25.4%.
The movement on the adjusted effective tax rate arising from the
one off revaluation of the US net deferred tax asset has been
offset by the change in the geographic mix of where profits are
generated, resulting in a small increase in the adjusted effective
tax rate from 26.2% to 26.3% in 2017. The Group expects its
adjusted effective tax rate to further fall next year as a result
of the reduction in the US corporate tax rate, which comes into
effect from 1 January 2018. However, the adjusted effective tax
rate will still remain higher than the standard UK rate due to
higher rates of tax in 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
GBP305,277,000 (2016: GBP282,541,000).
7. Goodwill
2017 2016
------------------------------------------ ------- -------
Cost
At 1 January 251,407 222,086
Acquisition through business combinations - 5,317
Other movements 255 -
Exchange adjustments (2,040) 24,004
------------------------------------------ ------- -------
At 31 December 249,622 251,407
------------------------------------------ ------- -------
Provision for impairment
At 1 January - -
Impairment charge 21,594 -
At 31 December 21,594 -
------------------------------------------ ------- -------
Net book value 228,028 251,407
------------------------------------------ ------- -------
Cash generating units
Goodwill acquired through business combinations has been
allocated to the lowest level of cash generating unit (CGU). 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 businesses within a
division, the lowest level of CGU is considered to be at a
divisional sub-group level. During the year, following the merger
of businesses in Italy, the CGUs of Masso and GTA were consolidated
with the Rotork Fluid Systems CGU as this is the lowest level at
which the goodwill is monitored for internal management
purposes.
Cash generating unit Discount rate 2017 2016
---------------------- -------------- ------- -------
12.6% (2016:
Schischek 14.9%) 20,275 19,498
12.3% (2016:
Rotork Fluid Systems 14.4%) 15,604 7,792
11.5% (2016:
Rotork Sweden 13.5%) 6,527 6,440
10.2% (2016:
Rotork Controls Inc 13.6%) 11,464 12,218
10.2% (2016:
Tulsa 13.5%) 7,023 9,448
11.0% (2016:
Bifold 12.4%) 47,467 67,221
10.5% (2016:
Instruments sub-group 12.6%) 100,485 101,684
Other cash generating
units 19,183 27,106
Total Group 228,028 251,407
------------------------------------------ ------- -------
Impairment testing
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment.
The fall in oil price since 2015 has led to a sustained period
of lower investment in the traditional HP upstream supply market
which has had a substantial impact on the short to medium term
forecasts for Bifold. Given this uncertainty we have used an
expected cash flow approach to determine the value in use of Bifold
which has resulted in an impairment to Bifold's goodwill of
GBP19,754,000.
In addition to the Bifold impairment, a further impairment
charge of GBP1,607,000 has been recorded against the Tulsa CGU
which has also been adversely affected by depressed activity in the
oil and gas markets they serve.
The key assumptions used in the annual impairment review which
are common to all other CGUs are set out below:
i) Discount rates
The discount rates for the significant CGUs 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.
ii) Growth rates
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 two and three 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 Group annual budget and the three year plan are
reviewed and approved by the Board each year.
In the period after the three year plan growth rates are
forecast at 5% per annum for the next two years and at 2% for the
long term growth rate. The 5% rate reflects a realistic market
forecast for the flow control market up until 2022. 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.
Sensitivity analysis
At the balance sheet date, the estimated recoverable amount of
the Bifold CGU is equal to its carrying value following the
impairment charge noted above. The key assumptions underpinning the
estimate of the recoverable amount for the Bifold CGU are the
discount rate and the forecast revenue growth rate for the next
three years. Considering each assumption change in isolation, an
increase in the Bifold CGU discount rate by 1% would result in a
further impairment of GBP10,400,000 and a decrease in the discount
rate by 1% would result in a GBP13,600,000 lower impairment charge.
The weighted average revenue growth rate used in the Bifold
impairment review is 11%. If the forecast revenue growth in each of
years one, two and three was reduced to 6%, this would result in a
further impairment of GBP13,800,000. If the forecast revenue growth
in each of years one, two and three was increased to 16%, this
would result in a reduction in the impairment charge of
GBP15,100,000. Each of these sensitivities are considered to be a
reasonably possible change.
Sensitivity analysis has been undertaken for the remaining CGUs
to assess the impact of any reasonably possible change in
assumptions. Using the key assumptions above and applying
sensitivities to these assumptions, there is no reasonably possible
change that would cause the carrying amount of any other CGU
goodwill to exceed the recoverable amount.
8. Inventories
2017 2016
------------------------------ ------ ------
Raw materials and consumables 67,758 59,398
Work in progress 8,135 10,211
Finished goods 16,015 16,163
------------------------------ ------ ------
91,908 85,772
------------------------------ ------ ------
Included in cost of sales was GBP216,711,000 (2016:
GBP204,729,000) in respect of inventories consumed in the year.
9. Trade and other receivables
2017 2016
--------------------------------------------- ------- -------
Non-current assets:
Other non-trade receivables 142 146
--------------------------------------------- ------- -------
Other receivables 142 146
--------------------------------------------- ------- -------
Current assets:
Trade receivables 152,163 139,108
Less provision for impairment of receivables (6,634) (7,217)
--------------------------------------------- ------- -------
Trade receivables - net 145,529 131,891
--------------------------------------------- ------- -------
Corporation tax 2,726 4,349
--------------------------------------------- ------- -------
Current tax 2,726 4,349
--------------------------------------------- ------- -------
Other non-trade receivables 2,896 7,600
Other taxes and social security 9,039 7,333
Prepayments 7,267 7,408
--------------------------------------------- ------- -------
Other receivables 19,202 22,341
--------------------------------------------- ------- -------
Included within non-trade receivables is GBPnil (2016:
GBP2,334,000) which relate to collateral held by a third party in
respect of the Group's outstanding forward exchange contracts.
10. Cash and cash equivalents
2017 2016
---------------------------------------------- ------ ------
Bank balances 56,912 50,110
Cash in hand 60 65
Short term deposits 6,220 11,248
---------------------------------------------- ------ ------
Cash and cash equivalents 63,192 61,423
Bank overdraft - -
---------------------------------------------- ------ ------
Cash and cash equivalents in the consolidated
statement of cash flows 63,192 61,423
---------------------------------------------- ------ ------
11. Capital and reserves
0.5p 0.5p
Ordinary Ordinary
shares shares
issued GBP1 issued GBP1
and Non- and Non-
fully redeemable fully redeemable
paid preference paid preference
up shares up shares
2017 2017 2016 2016
------------------------------------ --------- ----------- --------- -----------
At 1 January 4,350 40 4,349 40
Issued under employee share schemes 2 - 1 -
------------------------------------ --------- ----------- --------- -----------
At 31 December 4,352 40 4,350 40
------------------------------------ --------- ----------- --------- -----------
Number of shares (000) 870,429 870,051
------------------------------------ --------- ----------- --------- -----------
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 GBP713,000 (2016: GBP465,000) in
respect of the 378,520 (2016: 312,540) ordinary shares issued
during the year: GBP2,000 (2016: GBP1,000) was credited to share
capital and GBP711,000 (2016: GBP464,000) 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 GBP1,594,000 (2016: GBP2,738,000)
and represents 566,000 (2015: 963,000) 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:
2017
Payment date 2017 2016
------------------------------------- -------------- ------ ------
3.15p final dividend (2016: 3.10p) 15 May 27,391 26,933
2.05p interim dividend (2016: 1.95p) 22 September 17,827 16,943
45,218 43,876
---------------------------------------------------- ------ ------
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.
2017 2016
----------------------------------------------- ------ ------
Final proposed dividend per qualifying ordinary
share
3.35p 29,159
----------------------------------------------- ------ ------
3.15p 27,407
----------------------------------------------- ------ ------
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 869.4m shares (2016: 868.7m shares) being the weighted
average number of ordinary shares in issue (net of own ordinary
shares held) for the year.
2017 2016
------------------------------------------------- ------- -------
Net profit attributable to ordinary shareholders 55,613 67,173
------------------------------------------------- ------- -------
Weighted average number of ordinary shares
Issued ordinary shares at 1 January 869,087 868,332
Effect of own shares held 252 273
Effect of shares issued under Sharesave plans 95 61
------------------------------------------------- ------- -------
Weighted average number of ordinary shares
during the year 869,434 868,666
------------------------------------------------- ------- -------
Basic earnings per share 6.4p 7.7p
------------------------------------------------- ------- -------
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
impact of the adjustments. The reconciliation showing how adjusted
net profit attributable to ordinary shareholders is derived is
shown in note 2.
2017 2016
--------------------------------------------- ------- -------
Adjusted net profit attributable to ordinary
shareholders 91,924 86,949
--------------------------------------------- ------- -------
Weighted average number of ordinary shares
during the year 869,434 868,666
--------------------------------------------- ------- -------
Adjusted basic earnings per share 10.6p 10.0p
--------------------------------------------- ------- -------
Diluted earnings per share
Diluted earnings per share is based on the profit for the year
attributable to the ordinary shareholders and 872.0m shares (2016:
872.0m shares). The number of shares is equal to the weighted
average number of ordinary shares in issue (net of own ordinary
shares held) adjusted to assume conversion of all potentially
dilutive ordinary shares. The Company has 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).
2017 2016
------------------------------------------------- ------- -------
Net profit attributable to ordinary shareholders 55,613 67,173
------------------------------------------------- ------- -------
Weighted average number of ordinary shares
(diluted)
Weighted average number of ordinary shares
for the year 869,434 868,666
Effect of Sharesave options 1,583 870
Effect of LTIP share awards 993 2,498
------------------------------------------------- ------- -------
Weighted average number of ordinary shares
(diluted) during the year 872,010 872,034
------------------------------------------------- ------- -------
Diluted earnings per share 6.4p 7.7p
------------------------------------------------- ------- -------
Adjusted diluted earnings per share
2017 2016
--------------------------------------------- ------- -------
Adjusted net profit attributable to ordinary
shareholders 91,924 86,949
--------------------------------------------- ------- -------
Weighted average number of ordinary shares
(diluted) during the year 872,010 872,034
--------------------------------------------- ------- -------
Adjusted diluted earnings per share 10.5p 10.0p
--------------------------------------------- ------- -------
13. Interest bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest bearing loans and borrowings.
2017 2016
------------------------------------- ------ ------
Non-current liabilities
Preference shares classified as debt 40 40
Bank loans 45,837 51,260
Finance lease liabilities 2 3
------------------------------------- ------ ------
45,879 51,303
------------------------------------- ------ ------
Current liabilities
Bank loans 29,925 65,039
Finance lease liabilities 3 69
------------------------------------- ------ ------
29,928 65,108
------------------------------------- ------ ------
Terms and debt repayment schedule
The terms and conditions of outstanding loans were as
follows:
Year
Interest of
Currency rates maturity 2017 2016
-------------------------- --------- ------------- --------- ------ -------
Non-redeemable preference
shares Sterling 9.5% - 40 40
Bank loans and overdrafts Sterling 1.32% - 1.34% 2018-19 74,746 115,180
Bank loans and overdrafts Euro 2.35% 2022 1,016 1,119
Finance lease liabilities Sterling 8.77% 2019 5 72
-------------------------- --------- ------------- --------- ------ -------
75,807 116,411
------------------------------------ ------------- --------- ------ -------
Repayment profile
Finance leases and bank loans are payable as follows:
Minimum Minimum
Principal Interest payments Principal Interest payments
2017 2017 2017 2016 2016 2016
------------------------- --------- -------- --------- --------- -------- ---------
Bank loans less than
one year 29,925 225 30,150 65,039 310 65,349
Bank loans more than
one and less than five
years 45,837 77 45,914 50,565 81 50,646
Bank loans more than
five years - - - 695 101 796
Finance leases less than
one year 3 - 3 69 2 71
Finance leases more than
one and less than five
years 2 - 2 3 - 3
------------------------- --------- -------- --------- --------- -------- ---------
75,767 302 76,069 116,371 494 116,865
------------------------- --------- -------- --------- --------- -------- ---------
14. Employee benefits
2017 2016
------------------------------------------- --------- ---------
Recognised liability for defined benefit
obligations:
* Present value of funded obligations 237,054 236,543
* Fair value of plan assets (188,844) (178,045)
------------------------------------------- --------- ---------
48,210 58,498
Other pension scheme liabilities 344 356
Employee bonuses 17,512 10,824
Long term incentive plan 331 216
Employee indemnity provision 2,823 3,359
Other employee benefits 4,537 3,596
73,757 76,849
------------------------------------------- --------- ---------
Non-current 52,293 62,593
Current 21,464 14,256
------------------------------------------- --------- ---------
73,757 76,849
------------------------------------------- --------- ---------
15. Provisions
Contingent Warranty
consideration provision Total
---------------------------------------------- -------------- ---------- -------
Balance at 1 January 2017 11,708 5,842 17,550
Exchange differences 36 (178) (142)
Increase as a result of business combinations - - -
Provisions utilised during the year (1,347) (1,804) (3,151)
(Credit) / charge to the income statement (10,000) 1,987 (8,013)
---------------------------------------------- -------------- ---------- -------
Balance at 31 December 2017 397 5,847 6,244
---------------------------------------------- -------------- ---------- -------
Maturity at 31 December 2017
Non-current - 1,929 1,929
Current 397 3,918 4,315
---------------------------------------------- -------------- ---------- -------
397 5,847 6,244
---------------------------------------------- -------------- ---------- -------
Maturity at 31 December 2016
Non-current 10,000 1,947 11,947
Current 1,708 3,895 5,603
---------------------------------------------- -------------- ---------- -------
11,708 5,842 17,550
---------------------------------------------- -------------- ---------- -------
The warranty provision is based on estimates made from
historical warranty data associated with similar products and
services. The provision relates mainly to products sold during the
last 12 months and the typical warranty period is 18 months.
Contingent consideration relating to the Bifold acquisition of
GBP10,000,000 was released to the income statement after an EBITDA
target was not met. Other contingent consideration relates to
amounts outstanding in respect of the GTA Group and Masso
acquisitions.
16. Trade and other payables
2017 2016
------------------------------------ ------ ------
Trade payables 49,183 39,652
------------------------------------ ------ ------
Corporation tax 13,093 13,352
------------------------------------ ------ ------
Current tax 13,093 13,352
------------------------------------ ------ ------
Other taxes and social security 11,281 10,806
Payments on account 6,667 7,053
Other payables and accrued expenses 24,217 24,140
------------------------------------ ------ ------
Other payables 42,165 41,999
------------------------------------ ------ ------
17. Related parties
The Group has a related party relationship with its subsidiaries
and with its directors and key management. Transactions between two
subsidiaries for the sale and purchase of products or the
subsidiary and parent Company for management charges are priced on
an arm's length basis.
Evoqua Water Technologies LLC is a related party of Rotork plc
by virtue of M Lamb's non-executive chairmanship. Sales to
subsidiaries and associates of Evoqua Water Technologies LLC
totalled GBP78,000 during the year and GBP8,000 was outstanding at
31 December 2017.
Key management emoluments
The emoluments of those members of the management team,
including directors, who are responsible for planning, directing
and controlling the activities of the Group were:
2017 2016
------------------------------------------- ----- -----
Emoluments including social security costs 3,401 3,370
Post employment benefits 45 229
Pension supplement 285 202
Share-based payments 418 848
------------------------------------------- ----- -----
4,149 4,649
------------------------------------------- ----- -----
18. Financial calendar
6 March 2018 Preliminary announcement of annual results for 2017
5 April 2018 Ex-dividend date for final proposed 2017 dividend
6 April 2018 Record date for final proposed 2017 dividend
27 April 2018 Announcement of trading update
27 April 2018 Annual General Meeting held at Rotork House,
Brassmill Lane, Bath, BA1 3JQ
7 August 2018 Announcement of interim financial results for 2018
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKPDKFBKDFNK
(END) Dow Jones Newswires
March 06, 2018 02:00 ET (07:00 GMT)
Rotork (LSE:ROR)
Gráfico Histórico do Ativo
De Set 2024 até Out 2024
Rotork (LSE:ROR)
Gráfico Histórico do Ativo
De Out 2023 até Out 2024
