TIDMROR
RNS Number : 9741H
Rotork PLC
06 August 2019
Rotork plc
2019 Half Year Results
OCC (3)
HY 2019 HY 2018 % change % change
---------- ---------- --------- ----------
Order intake(1) GBP362.5m GBP364.7m -0.6% -1.3%
Revenue GBP318.6m GBP331.0m -3.7% -4.3%
Adjusted(2) operating
profit GBP67.2m GBP65.4m +2.8% +1.7%
Adjusted(2) operating
margin 21.1% 19.8% +130bps +120bps
Profit before tax GBP52.2m GBP54.7m -4.5% -5.8%
Adjusted(2) profit before
tax GBP65.8m GBP64.3m +2.2% +1.1%
Basic earnings per share 4.6p 4.7p -2.9% -4.6%
Adjusted(2) basic earnings
per share 5.8p 5.6p +2.7% +1.5%
Interim dividend 2.30p 2.20p +4.5%
(1) Order intake represents the value of orders received during
the period.
(2) Adjusted(4) figures exclude the amortisation of acquired
intangible assets, restructuring costs and the exceptional pension
curtailment credit in H1 2018 (see note 4).
(3) OCC(4) is organic constant currency results excluding
discontinued businesses and restated at 2018 exchange rates.
(4) Adjusted and OCC figures are alternative performance
measures and are used consistently throughout these half year
results. They are defined in full and reconciled to the statutory
measures in note 2.
Summary
-- Margin improvement continued with H1 adjusted operating
margins 130bps higher, benefiting from Growth Acceleration
Programme savings and mix
-- Order intake in Q2 was ahead sequentially and year-on-year on
an OCC basis, continuing the gradual improvement in overall
activity levels seen in recent quarters
-- As expected, order intake and revenues were lower
year-on-year in H1 reflecting the strong comparative period which
included several large greenfield projects
-- Strong cash conversion (117%) with closing net cash of GBP43m
-- ROCE 29.7%, +250 bps compared with June 2018
Kevin Hostetler, Chief Executive, commenting on the results,
said:
"We are committed to delivering sustainable mid to high single
digit revenue growth and mid 20s adjusted operating margins over
time, and are pleased to report good progress in H1 despite sales,
as expected, reducing year-on-year.
Whilst macroeconomic uncertainty remains, with recent order
intake and the momentum of our Growth Acceleration Programme we now
expect to deliver flat sales on an OCC basis in 2019, with full
year adjusted operating margins showing clear progress
year-on-year."
Rotork plc Tel: +44 (0)1225 733 200
Kevin Hostetler, Chief Executive
Jonathan Davis, Finance Director
Andrew Carter, Investor Relations
Director
FTI Consulting Tel: + 44 (0)20 3727 1340
Nick Hasell / Susanne Yule
There will be a meeting for analysts and institutional investors
at 8.30 am BST today at the offices of FTI Consulting, 200
Aldersgate, Aldersgate Street, London EC1A 4HD. The presentation
will also be webcast (audio only). Please register for the webcast
at www.rotork.com.
Business review
Group order intake in the first half decreased 0.6%
year-on-year, or -1.3% on an OCC basis. Customers' spend on
maintenance and upgrades remained healthy although we are still
experiencing some delay in the placement of large project orders.
The pattern of order intake remains uneven and the market
environment uncertain. However, encouragingly, Q2 order intake was
ahead sequentially and year-on-year on an OCC basis, continuing the
gradual improvement in overall activity levels we have seen in
recent quarters.
The order book at 30 June 2019 was GBP225m, 25.5% (24.5% OCC)
higher than at 31 December 2018.
Group revenue decreased by 3.7% (4.3% OCC). Oil and gas sales
were down year-on-year, with growth in midstream more than offset
by sales declines in both upstream and downstream. The declines in
these markets largely reflected the strength of the prior year
period, which included several significant large projects and sales
to countries subsequently placed under sanction. We saw steady
growth across water and waste water markets, whilst power markets
were down as expected.
Overall, oil and gas accounted for 54.3% (H1 2018: 53.3%) of
Group revenue, with a significant increase in the percentage of
midstream sales as a proportion of revenue offsetting a small
reduction in the percentage contribution from upstream. In
upstream, which accounted for 15.6% (H1 2018: 16.6%) of revenue, we
saw lower sales in Eastern Europe, partly offset by growth in the
Far East and Western Europe. Midstream sales growth was driven by
the Far East, Eastern Europe and Latin America. Downstream sales
were lower overall despite encouraging growth in North America. In
total, downstream represented 28.1% (H1 2018: 27.7%) of
revenue.
In our other end markets, revenue from water and waste water was
up mid-single digits, reflecting increased activity in the Far East
and the temporary weakness seen in North America in early 2018.
Sales in our power market declined double digits, partly as a
result of the disposal of our nuclear actuator business last year.
Industrial process sales were flat.
Geographically, Far East sales declined low-single digits, with
growth in upstream and midstream oil and gas and industrial
processes offset by lower downstream and power sales. North
American sales were fractionally higher, with good growth in the
downstream and water and waste water markets. We remain well placed
to benefit from opportunities in all of our key geographies.
Rotork Site Services, our global service network, is a key
differentiator in our industry and continues to perform well as
customers look to manage their assets more efficiently and avoid
unplanned shutdowns. We continue to grow our Client Support
Programme (CSP) which offers maintenance contracts tailored to our
customers' specific needs, adding new CSP sales to the renewal of
existing agreements as customers see the benefits of this level of
support.
Adjusted operating profit was modestly ahead year-on-year. Early
Growth Acceleration Programme savings were partly offset by the
impact of lower revenues year-on-year as well as our investment in
people, IT and factories. Adjusted operating margins rose however,
benefiting from Growth Acceleration Programme savings and
favourable mix.
Strategic progress
As previously communicated, we are committed to delivering
sustainable mid to high single digit revenue growth and mid 20s
adjusted operating margins over time.
To deliver this commitment we developed our Growth Acceleration
Programme comprising of four pillars: Commercial Excellence;
Operational Excellence; Talent & Culture; and IT/core business
processes. This programme continues on track with progress across
all four pillars.
Commercial Excellence
We are focused on providing our customers with the products and
services they require whilst at the same time making it simple for
them to buy from Rotork wherever they are in the world. To improve
our commercial performance we are working on initiatives including
market re-alignment and new routes to market, innovation and new
product development and investment in Site Services.
One of the most significant Commercial Excellence initiatives
currently underway is market re-alignment; focusing our sales teams
more closely on end-market segments and customer needs. Most of our
key account managers are now in place. Our focus now is on the
re-alignment of our wider sales team and this is now under way
region by region. During Q2 we successfully completed the
transition of our China, Japan and South Korea sales organisations.
This work will continue in the second half with the remainder of
Asia Pacific, followed by EMEA and then the Americas. We expect to
complete this process in 2020.
As part of the Growth Acceleration Programme we put in place
robust processes supporting our innovation and new product
development initiatives. Our resources are now concentrated on the
most promising and profitable products and on accelerating their
commercialisation. We are also better able to monitor the
effectiveness of this investment. We launched seven new products in
the first half and target fifteen in the full year. In parallel
with our new product launches we continue to rationalise our
overall product offering.
Operational Excellence
Our Operational Excellence initiatives aim to improve
significantly our operational efficiency whilst maintaining our
reputation for high quality products and services. Initiatives
under way include lean/continuous improvement; footprint
optimisation; supply chain consolidation; and inventory
reduction.
The Rotork mixed-model lean / continuous improvement programme
is now embedded in all of our major manufacturing sites and
subsidiaries and we are pleased with our first half progress,
particularly in the Far East. The space freed-up by our lean work
is an important enabler of our footprint optimisation initiative
and we are on track to close three manufacturing facilities this
year. Our supply chain procurement initiatives are on track to save
GBP5m in 2019. Wave 2, which focuses on certain significant
component categories including machined parts, castings and PCBAs,
is on schedule to complete this year after which Wave 3 follows. We
are balancing our purchasing efforts so as to manage down our
goods-in inventory. Our stock reduction programme drove a net
GBP7.0m reduction in the period or a GBP13.9m reduction compared
with June 2018.
Talent & Culture
Having the right team in place and suitably motivated is crucial
to achieving our aspirations. We continued to develop our existing
people and recruit world-class external talent during the period.
Our new Performance Management and Objective Setting approach has
bedded in well. In April we announced our new divisional structure
internally. This has been well received and will come into effect
in 2020. The majority of roles have now been filled, with some
internal and external recruitment remaining.
We recently launched our global purpose, in advance of the
launch of our values and behaviours in September. Our purpose is
"keeping the world flowing for future generations". Our new purpose
highlights not only what we do, but also our longevity and our
commitment as a responsible company.
IT/core business processes
The development of our new IT system continues on track. In
addition to core ERP, this system incorporates CRM, project
tracking and a global HR platform. This is a multi-year programme
and we look forward to all our sites operating on a common
platform. During the period, a significant number of solution
design workshops were completed and a suite of important business
information dashboards were rolled out.
Financial Key Performance Indicators (KPIs)
H1 2019 H1 2018 FY 2018
---------- -------- --------
Revenue growth -3.7% +10.4% +8.3%
Adjusted operating margin 21.1% 19.8% 21.0%
Cash conversion 117.4%(1) 100.0% 110.7%
Return on capital employed 29.7% 27.2% 29.2%
Adjusted EPS growth +2.7% +27.0% +18.9%
---------- -------- --------
(1) The adoption of IFRS16 'Leases' has been favourable to this
metric. Preparing in accordance with IAS17 'Leases', to enable
comparison with prior periods, would have resulted in the H1 KPI
being slightly lower at 113.6%.
The KPIs are defined below:
-- Revenue growth is defined as the increase in revenue divided by prior period revenue.
-- Adjusted operating margin is defined as adjusted operating
profit as a percentage of revenue (note 2a).
-- Cash conversion is defined as cash flow from operating
activities before tax outflows, payments of restructuring charges
and the pension charge to cash adjustment as a percentage of
adjusted operating profit (note 2a).
-- Return on capital employed is defined as adjusted operating
profit as a percentage of average capital employed. Capital
employed is defined as shareholders' funds less net cash held, with
the pension fund deficit net of related deferred tax asset added
back (note 2d).
-- Adjusted EPS growth is defined as the increase in adjusted
basic EPS (based on adjusted profit after tax) divided by the prior
year adjusted basic EPS (note 2c).
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, which
in 2019 comprise restructuring costs, including redundancy costs,
asset write downs relating to the merger of businesses and other
restructuring costs. The 2018 comparative comprises restructuring
costs, consultancy costs and the one-off actuarial credit arising
from the closure of the UK defined benefit pension scheme to future
accrual. The costs in the first half year were GBP4.6m, close to
the level anticipated. Restructuring costs are expected to be lower
in the second half.
Restructuring
Statutory costs (note Adjusted
GBPm results Amortisation 4) results
---------- ------------- -------------- ---------
Operating profit 53.7 9.0 4.6 67.3
Profit before tax 52.2 9.0 4.6 65.8
Tax (12.3) (2.1) (1.1) (15.5)
---------- ------------- -------------- ---------
Profit after tax 39.9 6.9 3.5 50.3
---------- ------------- -------------- ---------
Financial position
The balance sheet remains strong and we ended the period with
net cash of GBP43.0m.
The new leases standard IFRS 16 'Leases' has been adopted in the
period using the modified retrospective method. This resulted in a
right of use asset of GBP12.2m and a lease liability of GBP12.0m
being recognised on 1 January 2019. The transition method has not
required the balance sheet comparatives to be restated. The table
below sets out how net cash is affected after the increase in loans
and borrowings as a result of the adoption of IFRS16. It also shows
the calculation of net cash at 30 June 2019 which shows an increase
of GBP11.4m over the period.
On adoption
31 Dec of IFRS 16 30 June
2018 1 Jan 2019 2019
-------- ------------- ---------
Cash 104.5 104.5 75.9
Loans and borrowings (60.9) (72.9) (32.9)
Net cash 43.6 31.6 43.0
-------- ------------- ---------
Committed facilities totalled GBP60m, of which GBP20m were drawn
at the period end (Dec 2018: GBP120m committed facilities of which
GBP60m were drawn). The committed facilities expire in August
2020.
Net working capital at the period end was GBP182.6m, a decrease
of GBP10.4m since the year end.
The estimated average annual tax rate used for the year ending
31 December 2019 is 23.6% (2018: 24.0%) and the estimated adjusted
effective tax rate for the year ending 31 December 2019, based on
adjusted profit before tax, is 23.5% (2018: 23.7%). This small
reduction is driven by the geographic mix of profits plus tax rate
reductions in some specific markets.
Cash flow
Our focus on working capital management resulted in continued
strong cash generation and our KPI showed a conversion of 117.4% of
adjusted operating profit into operating cash. During the period we
repaid GBP39.9m of bank loans, paid dividends of GBP32.2m and
invested GBP8.1m in capital expenditure.
Following the adoption of IFRS 16, the principal portion of
lease payments is now classified within financing activities where
previously under IAS 17 they would have been included in cash flows
from operating activities. Under IAS 17 the H1 cash flows from
operating activities would have been GBP57.0m rather than the
GBP59.7m as reported under IFRS 16.
Retirement benefits
The Group operates two defined benefit pension schemes, the
larger of which is in the UK. Both the UK and US schemes are closed
to future accrual.
The pension scheme deficit increased from GBP27.3m at 31
December 2018 to GBP33.9m at 30 June 2019, principally due to a
reduction in the discount rate.
Currency
Overall, currency tailwinds increased revenue by GBP4.1m (1.3%)
compared with the first half of 2018. The average US dollar rate
was $1.29 (H1 2018: $1.38) and the average Euro rate was EUR1.15
(H1 2018: EUR1.14), whilst the rates at 30 June 2019 were $1.27 and
EUR1.12 (30 June 2018: $1.32 and EUR1.13).
Dividend
The Board has decided to increase the interim dividend by 4.5%
to 2.3p, reflecting confidence in progress for the full year. The
interim dividend of 2.3p per ordinary share will be paid on 27
September 2019 to shareholders on the register at the close of
business on 29 August 2019.
Board composition
As previously announced, following eight years as Chair of the
Remuneration Committee and nine years on the Rotork plc Board, Gary
Bullard retired on 26 April 2019. We thank Gary for his invaluable
contribution. Tim Cobbold, who joined the Board in 2018, has
assumed the role of Chair of the Remuneration Committee.
Operating review
Rotork Controls
OCC(3)
GBPm H1 2019 H1 2018 Change Change
Order intake 192.3 182.8 +5.2% +3.7%
Revenue 161.8 163.6 -1.1% -2.5%
Adjusted(2) operating
profit 48.0 45.2 +6.2% +4.6%
Adjusted(2) operating
margin 29.7% 27.6% +210bps +210bps
Controls faced a strong comparative period having won several
large downstream projects in the Far East in H1 2018. We were
therefore pleased to see a year-on-year increase in order intake of
5.2% (OCC: 3.7%). As expected, divisional revenues were modestly
down. Adjusted operating margins increased by 210 basis points to
29.7%. The improved margin reflected the absence of the two large
lower margin projects in the Far East, procurement savings,
productivity improvement and lower overheads. Some elements of the
overhead reduction are expected to unwind in the second half as we
invest to capitalise on growth in faster growing geographies.
Industrial processes and water and waste water revenues grew
steadily in the period. Industrial processes increased from 17% of
divisional revenues to 18%, with water and waste water increasing
from 15% to 17%. The Far East was the largest growth contributor to
industrial process. Water and waste water revenues were ahead low
double digits benefiting from weak comparatives in North America.
The oil and gas contribution to divisional revenue was little
changed at 50%.
Rotork Fluid Systems
OCC(3)
GBPm H1 2019 H1 2018 Change Change
Order intake 76.0 91.7 -17.1% -17.2%
Revenue 66.7 79.4 -16.0% -15.1%
Adjusted(2) operating
profit 3.9 5.9 -33.7% -31.3%
Adjusted(2) operating
margin 5.8% 7.4% -160bps -130bps
Fluid Systems order intake declined 17.1% (OCC: -17.2%) in H1
2019, relative to a very strong comparative period last year
(particularly Q1). Revenue fell 16.0% (OCC: -15.1%), due to lower
large project activity and the loss of sales to countries
subsequently placed under sanction. Initiatives to control costs
successfully helped to limit the impact of lower volumes on
operating profits. Fluid Systems remained the Rotork division with
the highest exposure to the oil and gas end market.
Midstream oil and gas revenues increased low double digits but
this growth was insufficient to offset declines elsewhere, notably
in upstream oil and gas markets which saw lower activity in most
geographies including particularly in Eastern Europe. Sales to
power and water and waste water markets also declined with the
change in power partly due to the sale of the nuclear actuator
business last year. The oil and gas contribution to divisional
revenue was modestly higher at 68%.
Rotork Gears
OCC(3)
GBPm H1 2019 H1 2018 Change Change
Order intake 43.6 46.1 -5.5% -4.8%
Revenue 42.8 41.7 +2.6% +3.2%
Adjusted(2) operating
profit 7.3 7.9 -7.4% -7.9%
Adjusted(2) operating
margin 17.1% 18.9% -180bps -210bps
Gears revenue increased by 2.6% (OCC: 3.2%), despite some modest
impact of our product rationalisation initiative, driven by
strength in oil and gas. The division's adjusted operating margin
was 17.1%. This represented a decrease of 180 basis points, the
largest part of which is due to US/China tariff costs. The latter
more than offset increased labour productivity and lower overheads,
and are expected to increased further in the second half.
Oil and gas sales grew strongly, driven by midstream in all
geographies and downstream in North America. The oil and gas market
overall increased from 48% of divisional sales last year to 60%.
Oil and gas growth was partly offset by water and waste water which
declined by low double digits. Geographically the revenue increase
was driven by North America and Middle East/Africa.
Rotork Instruments
OCC(3)
GBPm H1 2019 H1 2018 Change Change
Order intake 57.3 52.4 +9.3% +8.3%
Revenue 54.0 54.5 -1.0% -2.0%
Adjusted(2) operating
profit 13.4 11.7 +14.7% +13.2%
Adjusted(2) operating
margin 24.8% 21.4% +340bps +330bps
Instruments order intake was up an encouraging 9.3% year-on-year
(OCC: 8.3%) and benefited from a notable pickup in subsea orders
towards the end of the period. Revenues were down 1.0% year-on-year
(OCC: -2.0%) with the decline reflecting lower intra-group sales.
Adjusted operating profit was GBP13.4m, up 14.7%, benefiting from
productivity improvement and a reduction in overheads. The
division's adjusted operating margin of 24.8% was slightly ahead of
the 23.6% achieved in H2 2018.
Oil and gas sales declined low single digits, with weaker
downstream activity in the Far East and Western Europe more than
offsetting growth in upstream in the Middle East/Africa. All other
markets grew modestly, resulting in oil and gas contributing 46% of
Instruments revenues (47% in H1 2018). The Far East and Middle
East/Africa grew their shares of divisional sales.
Outlook
We are committed to delivering sustainable mid to high single
digit revenue growth and mid 20s adjusted operating margins over
time, and are pleased to report good progress in H1 despite sales,
as expected, reducing year-on-year.
Whilst macroeconomic uncertainty remains, with recent order
intake and the momentum of our Growth Acceleration Programme we now
expect to deliver flat sales on an OCC basis in 2019, with full
year adjusted operating margins showing clear progress
year-on-year.
Principal risks and uncertainties
The Group has an established risk management process as part of
the corporate governance framework set out in the 2018 Annual
Report & Accounts. The principal risks and uncertainties facing
our businesses are being monitored on an ongoing basis in line with
the Corporate Governance Code. The risk management process is
described in detail on pages 22 to 25 of the 2018 Annual Report
& Accounts. We have since reviewed our risk appetite framework
and enhanced the method of application of this framework. We have
also considered risk horizon scanning for longer term risks such as
climate change. We have reviewed the Group's principal risks and
concluded that they remain applicable to the second half of the
financial year.
The principal risks and uncertainties are: decline in government
and private sector confidence and spending; increased competition
on price or product offering; increasing social and political
instability including Brexit; failure of an acquisition to deliver
the growth or synergies anticipated; potential risks to the health
and safety of our employees and other stakeholders; failure of our
staff or third parties to comply with law or regulation or to
uphold our high ethical standards and values; major in-field
product failure; failure of a key supplier or a tooling failure at
a supplier; failure to provide, maintain and update the IT systems;
failure to protect Rotork operations, sensitive or commercial data
from cybercrime; and change projects lead to business disruption in
the short term.
The Group continues to monitor the implications of increased
geopolitical uncertainty, including the implications on the Group
of Brexit as well as the continuing political protectionism in
respect of trade tariffs. The Board remains confident that the
geographic spread of our businesses and diverse end markets in
which we operate substantially limits the risk associated with
instability in any given territory.
Statement of Directors' Responsibilities
The directors confirm that this condensed consolidated interim
financial information has been prepared in accordance with IAS 34
as adopted by the European Union and that the interim management
report includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- Material related-party transactions in the first six months, and any material changes in the related-party transactions described in the last annual report.
The directors of Rotork plc are listed in the Rotork plc Annual
Report & Accounts for 31 December 2018. A list of current
directors is maintained in the "About Us" section of the Rotork
website: www.rotork.com.
By order of the Board
Kevin G. Hostetler
Chief Executive
5 August 2019
Independent Review Report to Rotork plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2019 which comprises the consolidated
income statement, the consolidated balance sheet, the consolidated
statement of changes in equity, the consolidated cash flow
statement and related notes 1 to 17. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, UK
5 August 2019
Consolidated Income Statement
First half First half Full year
2019 2018 2018
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Revenue 3 318,634 331,039 695,713
Cost of sales (173,060) (183,070) (384,253)
---------- ---------- ---------
Gross profit 145,574 147,969 311,460
Other income 176 6,020 8,990
Distribution costs (3,111) (3,431) (7,260)
Administrative expenses (88,877) (94,689) (189,474)
Other expenses (70) (65) (798)
Adjusted operating profit
Adjustments 2 67,239 65,429 146,015
* Amortisation of acquired intangible assets (8,983) (9,916) (20,284)
* Other adjustments 4 (4,564) 291 (2,813)
-------------------------------------------------- ----- ---------- ---------- ---------
Operating profit 3 53,692 55,804 122,918
Finance income 5 1,071 983 2,278
Finance expense 6 (2,529) (2,069) (4,448)
Profit before tax 52,234 54,718 120,748
Income tax expense 7 (12,331) (13,522) (29,004)
Profit for the period 39,903 41,196 91,744
========== ========== =========
pence pence Pence
Basic earnings per share 9 4.6 4.7 10.5
Adjusted basic earnings per share 2 5.8 5.6 12.6
Diluted earnings per share 9 4.6 4.7 10.5
Adjusted diluted earnings per share 2 5.8 5.6 12.6
Consolidated Statement of Comprehensive Income and Expense
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit for the period 39,903 41,196 91,744
Other comprehensive income and expense
Items that may be subsequently reclassified
to the income statement:
Foreign currency translation differences (1,855) (1,312) 3,164
Effective portion of changes in fair value
of cash flow
hedges net of tax 124 (78) (6)
---------- ---------- ---------
(1,731) (1,390) 3,158
Items that are not subsequently reclassified
to the income statement:
Actuarial (loss)/gain in pension scheme net
of tax (9,258) 5,009 8,055
---------- ---------- ---------
Income and expenses recognised directly in
equity (10,989) 3,619 11,213
Total comprehensive income for the period 28,914 44,815 102,957
========== ========== =========
Consolidated Balance Sheet
30 June 30 June 31 Dec
2019 2018 2018
Notes GBP000 GBP000 GBP000
------- ------- -------
Goodwill 228,404 228,020 230,157
Intangible assets 52,196 71,815 61,517
Property, plant and equipment 91,175 79,018 79,338
Deferred tax assets 14,622 14,689 17,337
Other receivables 211 - 352
Total non-current assets 386,608 393,542 388,701
Inventories 11 87,724 101,609 94,739
Trade receivables 137,028 142,676 145,509
Current tax 1,650 1,979 1,429
Derivative financial instruments 17 1,265 339 308
Other receivables 26,971 26,065 23,161
Cash and cash equivalents 75,951 70,148 104,489
------- ------- -------
Total current assets 330,589 342,816 369,635
Total assets 717,197 736,358 758,336
======= ======= =======
Ordinary shares 13 4,360 4,353 4,358
Share premium 13,698 11,304 13,024
Reserves 33,690 30,873 35,421
Retained earnings 457,864 426,957 460,825
------- ------- -------
Total equity 509,612 473,487 513,628
------- ------- -------
Interest-bearing loans and borrowings 14 8,104 45,874 30,871
Employee benefits 33,660 32,787 31,274
Deferred tax liabilities 8,537 13,443 15,722
Derivative financial instruments 17 93 426 -
Provisions 2,119 2,098 2,149
------- ------- -------
Total non-current liabilities 52,513 94,628 80,016
Interest-bearing loans and borrowings 14 24,782 29,970 30,010
Trade payables 42,212 52,113 47,332
Employee benefits 19,763 19,005 26,489
Current tax 14,398 15,357 11,792
Derivative financial instruments 17 3,156 2,608 2,682
Other payables 43,733 44,535 40,150
Provisions 7,028 4,655 6,237
------- ------- -------
Total current liabilities 155,072 168,243 164,692
Total liabilities 207,585 262,871 244,708
Total equity and liabilities 717,197 736,358 758,336
======= ======= =======
Consolidated Statement of Changes in Equity
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 31 December
2018 4,358 13,024 34,930 1,644 (1,153) 460,825 513,628
Profit for the period - - - - - 39,903 39,903
Other comprehensive
income
--------- --------- ------------- ------------ ---------- ----------- ---------
Foreign currency translation
differences - - (1,855) - - - (1,855)
Effective portion of
changes in fair value
of cash flow hedges - - - - 153 - 153
Actuarial loss on defined
benefit
pension plans - - - - - (10,478) (10,478)
Tax in other comprehensive
income - - - - (29) 1,220 1,191
--------- --------- ------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - (1,855) - 124 (9,258) (10,989)
--------- --------- ------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - (1,855) - 124 30,645 28,914
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - (4,445) (4,445)
Tax on equity settled
share based payment
transactions - - - - - 844 844
Share options exercised
by employees 2 674 - - - - 676
Own ordinary shares
acquired - - - - - (3,787) (3,787)
Own ordinary shares
awarded under share
schemes - - - - - 6,030 6,030
Dividends - - - - - (32,248) (32,248)
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 30 June
2019 4,360 13,698 33,075 1,644 (1,029) 457,864 509,612
========= ========= ============= ============ ========== =========== =========
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 31 December
2017 4,352 11,193 31,766 1,644 (1,147) 409,392 457,200
Profit for the period - - - - - 41,196 41,196
Other comprehensive
income
--------- --------- ------------- ------------ ---------- ----------- ---------
Foreign currency translation
differences - - (1,312) - - - (1,312)
Effective portion of
changes in fair value
of cash flow hedges - - - - (113) - (113)
Actuarial gain on defined
benefit pension plans - - - - - 6,426 6,426
Tax in other comprehensive
income - - - - 35 (1,417) (1,382)
--------- --------- ------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - (1,312) - (78) 5,009 3,619
--------- --------- ------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - (1,312) - (78) 46,205 44,815
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - 549 549
Tax on equity settled
share based payment
transactions - - - - - (104) (104)
Share options exercised
by employees 1 111 - - - - 112
Own ordinary shares
acquired - - - - - (2,150) (2,150)
Own ordinary shares
awarded under share
schemes - - - - - 2,219 2,219
Dividends - - - - - (29,154) (29,154)
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 30 June
2018 4,353 11,304 30,454 1,644 (1,225) 426,957 473,487
========= ========= ============= ============ ========== =========== =========
Consolidated Statement of Changes in Equity
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 31 December
2017 4,352 11,193 31,766 1,644 (1,147) 409,392 457,200
Profit for the year - - - - - 91,744 91,744
Other comprehensive
income
--------- --------- ------------- ------------ ---------- ----------- ---------
Foreign currency translation
differences - - 3,164 - - - 3,164
Effective portion of
changes in fair value
of cash flow hedges - - - - (24) - (24)
Actuarial gain on defined
benefit pension plans - - - - - 9,501 9,501
Tax in other comprehensive
income - - - - 18 (1,446) (1,428)
--------- --------- ------------- ------------ ---------- ----------- ---------
Total other comprehensive
income - - 3,164 - (6) 8,055 11,213
--------- --------- ------------- ------------ ---------- ----------- ---------
Total comprehensive
income - - 3,164 - (6) 99,799 102,957
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - 2,457 2,457
Tax on equity settled
share based payment
transactions - - - - - 98 98
Share options exercised
by employees 6 1,831 - - - - 1,837
Own ordinary shares
acquired - - - - - (4,850) (4,850)
Own ordinary shares
awarded under share
schemes - - - - - 2,217 2,217
Dividends - - - - - (48,288) (48,288)
--------- --------- ------------- ------------ ---------- ----------- ---------
Balance at 31 December
2018 4,358 13,024 34,930 1,644 (1,153) 460,825 513,628
========= ========= ============= ============ ========== =========== =========
Consolidated Statement of Cash Flows
First half First half Full year
2019 2018 2018
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Profit for the period 39,903 41,196 91,744
Amortisation of acquired intangible
assets 8,983 9,916 20,284
Other adjustments 4 4,564 (291) 2,813
Amortisation of development costs 1,132 1,443 2,575
Depreciation 8,141 5,640 11,642
Equity settled share based payment expense 2,081 2,665 4,674
Net profit on sale of property, plant
and equipment (34) (90) (134)
Finance income (1,071) (963) (2,278)
Finance expense 2,528 2,049 4,448
Income tax expense 12,331 13,522 29,004
78,558 75,087 164,772
Decrease/(increase) in inventories 7,081 (9,648) (2,140)
Decrease/(increase) in trade and other
receivables 5,297 (2,891) (2,322)
(Decrease)/increase in trade and other
payables (858) 10,187 (5,761)
Restructuring costs paid (2,165) (4,604) (7,795)
Difference between pension charge and
cash contribution (4,035) (3,628) (5,809)
(Decrease)/increase in provisions (111) 478 2,333
(Decrease)/increase in employee benefits (11,031) (7,816) 4,690
---------- ---------- ---------
72,736 57,165 147,968
Income taxes paid (13,020) (11,261) (30,084)
---------- ---------- ---------
Net cash flows from operating activities 59,716 45,904 117,884
Purchase of property, plant and equipment (8,149) (4,575) (10,430)
Development costs capitalised (1,190) (1,803) (3,831)
Proceeds from sale of property, plant
and equipment 150 159 201
Disposal of businesses - - 4,340
Contingent consideration paid - - (10)
Settlement of hedging derivatives (2,098) 2,610 (815)
Interest received 802 578 1,309
---------- ---------- ---------
Net cash flows from investing activities (10,485) (3,031) (9,236)
Issue of ordinary share capital 676 112 1,837
Own ordinary shares acquired (3,787) (2,150) (4,850)
Interest paid (1,610) (1,171) (2,837)
Proceeds from issue of borrowings 20,000 15,000 15,000
Repayment of borrowings (59,916) (14,958) (29,934)
Repayment of lease liabilities (2,656) (1) (3)
Dividends paid on ordinary shares (32,248) (29,154) (48,288)
Net cash flows from financing activities (79,541) (32,322) (69,075)
Net (decrease)/increase in cash and
cash equivalents (30,310) 10,551 39,573
Cash and cash equivalents at 1 January 104,489 63,192 63,192
Effect of exchange rate fluctuations
on cash held 1,772 (3,595) 1,724
---------- ---------- ---------
Cash and cash equivalents at end of
period 75,951 70,148 104,489
========== ========== =========
Notes to the Half Year Report
1. Status of condensed consolidated interim statements,
accounting policies and basis of significant estimates
General information
Rotork plc is a company domiciled in England and Wales. The
Company has its premium listing on the London Stock Exchange.
The condensed consolidated interim financial statements for the
six months ended 30 June 2019 are unaudited and the auditor has
reported in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the
Entity'.
The information shown for the year ended 31 December 2018 does
not constitute statutory accounts within the meaning of Section 435
of the Companies Act 2006, statutory accounts for the year ended 31
December 2018 were approved by the Board on 4 March 2019 and
delivered to the Registrar of Companies. The auditor's report on
those financial statements was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under Section 498 (2) or (3) of the Companies Act 2006. The
consolidated financial statements of the Group for the year ended
31 December 2018 are available from the Company's registered office
or website; see note 19.
Basis of preparation
The condensed consolidated interim financial statements of the
Company for the six months ended 30 June 2019 comprise the Company
and its subsidiaries (together referred to as 'the Group'). These
condensed consolidated interim financial statements have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Services Authority and with International
Accounting Standard 34, 'Interim Financial Reporting' as adopted by
the European Union. They do not include all of the information
required for full annual financial statements and should be read in
conjunction with the consolidated financial statements of the Group
for the year ended 31 December 2018, which have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
Going concern
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
condensed consolidated interim financial information. In forming
this view, the directors have considered trading and cash flow
forecasts, financial commitments, the significant order book with
customers spread across different geographic areas and industries
and the significant net cash position.
Critical accounting estimates and judgements
The Group makes estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on
historical experience, and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
In the future, actual experience may deviate from these
estimates and assumptions. The estimates and assumptions that have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the current financial year
are discussed in the financial statements for the year ended 31
December 2018.
Accounting policies
The accounting policies applied and significant estimates used
by the Group in these condensed consolidated interim financial
statements are the same as those applied by the Group in its
consolidated financial statements for the year ended 31 December
2018, except for the adoption of new standards effective as of 1
January 2019. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
New accounting standards and interpretations
IFRS 16 'Leases'
IFRS 16 'Leases' replaces IAS 17 'Leases' along with three
Interpretations (IFRIC 4 'Determining whether an Arrangement
contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27
'Evaluating the Substance of Transactions Involving the Legal Form
of a Lease'). The new standard has been applied using the modified
retrospective approach, with the cumulative effect of adopting IFRS
16 being recognised in equity as an adjustment to the opening
balance of retained earnings for the current period. Prior periods
have not been restated.
For contracts in place at the date of transition, being 1
January 2019, the Group has elected to apply the definition of a
lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to
arrangements that were previously not identified as lease under IAS
17 and IFRIC 4.
The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in
existence at the date of transition. At this date, the Group has
also elected to measure the right-of-use assets at an amount equal
to the lease liability adjusted for any prepaid or accrued lease
payments that existed at the date of transition.
Instead of performing an impairment review on the right-of-use
assets at the date of transition, the Group has relied on its
historic assessment as to whether leases were onerous immediately
before the date of initial application of IFRS 16.
On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for
leases of low-value assets the Group has applied the optional
exemptions to not recognise right-of-use assets but to account for
the lease expense on a straight line basis over the remaining lease
term.
On transition to IFRS 16 the weighted average incremental
borrowing rate applied to lease liabilities recognised under IFRS
16 was 4.5%.
The following is a reconciliation of total operating lease
commitments at 31 December 2018 to the lease liabilities recognised
at 1 January 2019:
GBP000
--------
Total operating lease commitments disclosed at 31
December 2018 17,789
Recognition exemptions:
Leases of low value assets (324)
Leases with remaining lease term of less than 12
months (4,428)
--------
Operating lease liabilities before discounting 13,037
Discounted using incremental borrowing rate (993)
Total lease liabilities recognised under IFRS 16
at 1 January 2019 12,044
--------
Leases - Accounting policy applicable from 1 January 2019
The Group as a lessee
For any new contracts entered into on or after 1 January 2019,
the Group considers whether a contract is, or contains a lease. A
lease is defined as 'a contract, or part of a contract, that
conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration'. To apply this
definition the Group assesses whether the contract meets three key
evaluations which are whether:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Group;
-- the Group has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract; and
-- the Group has the right to direct the use of the identified
asset throughout the period of use. The Group assesses whether it
has the right to direct 'how and for what purpose' the asset is
used throughout the period of use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a
right-of-use asset and a lease liability on the balance sheet. The
right-of-use asset is measured at cost, which is made up of the
initial measurement of the lease liability, any initial direct
costs incurred by the Group, an estimate of any costs to dismantle
and remove the asset at the end of the lease, and any lease
payments made in advance of the lease commencement date (net of any
incentives received).
The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term. The Group also assesses the right-of-use asset for impairment
when such indicators exist.
At the commencement date, the Group measures the lease liability
at the present value of the lease payments unpaid at that date,
discounted using the interest rate implicit in the lease if that
rate is readily available or the Group's incremental borrowing
rate.
Lease payments included in the measurement of the lease
liability are made up of fixed payments, variable payments based on
an index or rate, amounts expected to be payable under a residual
value guarantee and payments arising from options reasonably
certain to be exercised.
Subsequent to initial measurement, the liability will be reduced
for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification, or if there are changes
in in-substance fixed payments.
When the lease liability is remeasured, the corresponding
adjustment is reflected in the right-of-use asset, or profit and
loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and
leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight-line basis over the lease term.
On the balance sheet, right-of-use assets have been included in
property, plant and equipment and lease liabilities have been
included in loans and borrowings.
Leases - Accounting policy applicable before 1 January 2019
The Group as a lessee
Where fixed assets are financed by leasing agreements, which
give rights approximating to ownership, the assets are treated as
if they had been purchased and the capital element of the leasing
commitments are shown as obligations under finance leases. Assets
acquired under finance leases are initially recognised at the
present value of the minimum lease payments. The rentals payable
are apportioned between interest, which is charged to the income
statement, and liability, which reduces the outstanding obligation
so as to give a constant rate of charge on the outstanding lease
obligations. Costs in respect of operating leases are charged on a
straight-line basis over the term of the lease in arriving at the
operating profit.
Other amendments
A number of amended standards became applicable for the current
reporting period. The application of these amendments has not had
any material impact on the disclosures, net assets or results of
the Group.
New standards and interpretations not yet adopted
Other amendments
Further narrow scope amendments have been issued which are
mandatory for periods commencing on or after 1 January 2020. The
application of these amendments will not have any material impact
on the disclosures, net assets or results of the Group.
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 used by the Group
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
adjustments 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. 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.
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit before tax 52,234 54,718 120,748
Adjustments:
Amortisation of acquired intangible assets 8,983 9,916 20,284
Closure of defined benefit pension schemes
to future accrual - (5,840) (8,575)
Guaranteed Minimum Pension equalisation
expense - - 920
Consultancy costs related to the Growth
Acceleration Programme - 3,309 4,052
Loss on disposal of businesses - - 658
Redundancy and executive change costs 1,807 389 2,896
Other restructuring costs 2,757 1,851 2,862
Adjusted profit before tax 65,781 64,343 143,845
---------- ---------- ---------
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.
Adjusted net profit attributable to ordinary shareholders is
calculated as follows:
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
---------- ---------- ---------
Net profit attributable to ordinary shareholders 39,903 41,196 91,744
Adjustments:
Amortisation of acquired intangible assets 8,983 9,916 20,284
Closure of defined benefit pension schemes
to future accrual - (5,840) (8,575)
Guaranteed Minimum Pension equalisation
expense - - 920
Consultancy costs related to the Growth
Acceleration Programme - 3,309 4,052
Loss on disposal of businesses - - 658
Redundancy and executive change costs 1,807 389 2,896
Other restructuring costs 2,757 1,851 2,862
Tax effect on adjusted items (3,126) (1,868) (5,025)
Adjusted net profit attributable to ordinary
shareholders 50,324 48,953 109,816
---------- ---------- ---------
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
9).
d. Return on capital employed
The return on capital employed ratio is used by management to
help ensure that capital is used efficiently.
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
---------- ---------- ----------
Adjusted operating profit
As reported - - 146,015
Rolling 12 months 147,825 141,161 -
Capital employed
Shareholders' funds 509,612 473,487 513,628
Cash and cash equivalents (75,951) (70,148) (104,489)
Interest bearing loans and borrowings 32,886 75,844 60,881
Pension deficit net of deferred tax 27,406 26,093 22,001
493,953 505,276 492,021
---------- ---------- ----------
Average capital employed 497,083(1) 518,190(1) 500,380(2)
---------- ---------- ----------
Return on capital employed 29.7%(3) 27.2% 29.2%
---------- ---------- ----------
(1) defined as the average of the capital employed at June 2018,
December 2018 and June 2019 (2018: June 2017, December 2017, and
June 2018).
(2) defined as the average of the capital employed at December
2017 and December 2018.
(3) The impact of the adoption of IFRS 16 from 1 January 2019
using a modified retrospective approach (see note 1) has not had a
material impact on this KPI
e. Organic constant currency (OCC)
OCC results remove the results of businesses acquired or
disposed of during the period that are not consistently presented
in both periods' results. The 2019 half year results are restated
at 2018 exchange rates.
For businesses acquired, the full results are removed from the
year of acquisition. In the following year, the results for the
number of months equivalent to the pre-acquisition period in the
prior year are removed. For disposals and closure of businesses,
the results are removed from the current and prior periods.
Key headings in the income statement are reconciled to OCC as
follows:
OCC
30 June Currency Impact of 30 June
2019 adjustment disposals 2019
---------- ------------- ----------- ----------
Revenue 318,634 (4,053) - 314,581
Cost of sales (173,060) 2,322 - (170,738)
---------- ------------- ----------- ----------
Gross margin 145,574 (1,731) - 143,843
Net overheads (78,335) 620 - (77,715)
---------- ------------- ----------- ----------
Adjusted operating profit 67,239 (1,111) - 66,128
---------- ------------- ----------- ----------
Adjusted operating margin 21.1% 21.0%
Adjusted profit before tax 65,781 (1,111) - 64,670
Adjusted basic earnings per
share 5.8p (0.1p) - 5.7p
---------- ------------- ----------- ----------
OCC
30 June Currency Impact of 30 June
2018 adjustment disposals 2018
---------- ------------- ----------- ----------
Revenue 331,039 - (2,486) 328,553
Cost of sales (183,070) - 1,441 (181,629)
---------- ------------- ----------- ----------
Gross margin 147,969 - (1,045) 146,924
Net overheads (82,540) - 651 (81,889)
---------- ------------- ----------- ----------
Adjusted operating profit 65,429 - (394) 65,035
---------- ------------- ----------- ----------
Adjusted operating margin 19.8% 19.8%
Adjusted profit before tax 64,343 - (397) 63,946
Adjusted basic earnings per
share 5.6p - - 5.6p
---------- ------------- ----------- ----------
3. Analysis by operating segment
The Group has chosen to organise the management and financial
structure by the grouping of related products. The four
identifiable operating segments where the financial and operating
performance is reviewed monthly by the chief operating decision
maker are as follows:
-- Controls - the design, manufacture and sale of electric actuators
-- Fluid Systems - the design, manufacture and sale of pneumatic and hydraulic actuators
-- Gears - the design, manufacture and sale of gearboxes,
adaption and ancillaries for the valve industry
-- Instruments - the manufacture of high precision pneumatic
controls and power transmission products for a wide range of
industries
Unallocated expenses comprise corporate expenses.
Half year to 30 June 2019
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------- --------- -------------- -------------- -------------- ---------
Revenue from
external customers 161,774 66,677 38,119 52,064 - - 318,634
Inter segment
revenue - - 4,703 1,887 (6,590) - -
----------- --------- --------- -------------- -------------- -------------- ---------
Total revenue 161,774 66,677 42,822 53,951 (6,590) - 318,634
----------- --------- --------- -------------- -------------- -------------- ---------
Adjusted operating
profit 48,045 3,879 7,310 13,391 - (5,386) 67,239
Amortisation
of acquired
intangibles
assets (719) (151) (1,208) (6,905) - - (8,983)
----------- --------- --------- -------------- -------------- -------------- ---------
Segment result
before other
adjustments 47,326 3,728 6,102 6,486 - (5,386) 58,256
Other adjustments (4,564)
----------- --------- --------- -------------- -------------- -------------- ---------
Operating profit 53,692
Net financing
expense (1,458)
Income tax expense (12,331)
---------
Profit for the
period 39,903
---------
Half year to 30 June 2018
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------- --------- -------------- -------------- -------------- ---------
Revenue from
external customers 163,586 79,402 36,525 51,526 - - 331,039
Inter segment
revenue - - 5,211 2,964 (8,175) - -
----------- --------- --------- -------------- -------------- -------------- ---------
Total revenue 163,586 79,402 41,736 54,490 (8,175) - 331,039
----------- --------- --------- -------------- -------------- -------------- ---------
Adjusted operating
profit 45,224 5,852 7,895 11,673 - (5,215) 65,429
Amortisation
of acquired
intangibles
assets (1,431) (381) (950) (7,154) - - (9,916)
----------- --------- --------- -------------- -------------- -------------- ---------
Segment result
before other
adjustments 43,793 5,471 6,945 4,519 - (5,215) 55,513
Other adjustments 291
----------- --------- --------- -------------- -------------- -------------- ---------
Operating profit 55,804
Net financing
expense (1,086)
Income tax expense (13,522)
---------
Profit for the
period 41,196
---------
Full year to 31 December 2018
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------- --------- -------------- -------------- -------------- ---------
Revenue from
external customers 351,858 166,328 76,260 101,267 - - 695,713
Inter segment
revenue - - 9,352 5,887 (15,239) - -
----------- --------- --------- -------------- -------------- -------------- ---------
Total revenue 351,858 166,328 85,612 107,154 (15,239 - 695,713
----------- --------- --------- -------------- -------------- -------------- ---------
Adjusted operating
profit 101,344 16,135 15,307 24,085 - (10,856) 146,015
Amortisation
of acquired
intangibles
assets (2,851) (779) (2,082) (14,572) - - (20,284)
----------- --------- --------- -------------- -------------- -------------- ---------
Segment result
before other
adjustments 98,493 15,356 13,225 9,513 - (10,856) 125,731
Other adjustments (2,813)
----------- --------- --------- -------------- -------------- -------------- ---------
Operating profit 122,918
Net financing
expense (2,170)
Income tax expense (29,004)
---------
Profit for the
year 91,744
---------
Revenue by location of subsidiary
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
----------- ----------- ----------
UK 35,101 36,418 71,458
Italy 35,585 41,059 80,772
Rest of Europe 57,060 60,238 127,960
USA 70,574 71,182 149,180
Other Americas 15,905 17,188 42,235
Rest of World 104,409 104,954 224,108
----------- ----------- ----------
318,634 331,039 695,713
----------- ----------- ----------
4. Other adjustments
The other adjustments are adjustments that management consider
to be significant and where separate disclosure enables
stakeholders to assess the underlying trading performance of the
Group on a consistent basis.
The other adjustments to profit included in statutory profit are
as follows:
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
----------- ----------- ----------
Closure of defined benefit pension schemes
to future accrual - 5,840 8,575
Guaranteed Minimum Pension equalisation
expense - - (920)
----------- ----------- ----------
- 5,840 7,655
----------- ----------- ----------
Consultancy costs related to the Growth
Acceleration Programme - (3,309) (4,052)
Loss on disposal of businesses - - (658)
Redundancy and executive change costs (1,807) (389) (2,896)
Other restructuring costs (2,757) (1,851) (2,862)
(4,564) (5,549) (10,468)
(4,564) 291 (2,813)
----------- ----------- ----------
The operations in Tulsa, USA ceased on 30 June 2019 and the
production transferred to other manufacturing plants in the USA.
The closure of the Tulsa facility has resulted in redundancy costs
of GBP415,000 and other restructuring costs of GBP1,916,000,
including asset write-downs of GBP1,654,000.
On 28 February 2019 it was announced that the Group's operations
in Taunton, UK would cease during the second half of 2019 and the
production would transfer to the Group's manufacturing plant in
Manchester, UK. The closure of the Taunton facility will result in
redundancy costs of GBP752,000 and other restructuring costs of
GBP841,000.
A further GBP640,000 (2018: GBP389,000) redundancy and executive
change costs have been incurred as a result of the progress made
with the Growth Acceleration Programme.
All 2019 adjustments are included in administrative expenses. In
2018 all adjustments were included in administrative expenses, with
the exception of the credit related to the closure of the defined
benefit pension scheme to future which was included in other
income. The adjustments are taxable or tax deductible in the
country in which the expense is incurred.
5. Finance income
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
----------- ----------- ----------
Interest income 874 708 1,618
Foreign exchange gains 197 275 660
1,071 983 2,278
----------- ----------- ----------
6. Finance expense
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
Interest expense 1,811 1,318 3,072
Interest charge on pension scheme liabilities 375 528 1,055
Foreign exchange losses 343 223 321
2,529 2,069 4,448
----------- ----------- ----------
Included in interest expense in 2019 is GBP222,000 lease
interest resulting from the adoption of IFRS 16 on 1 January 2019
(see note 1).
7. Income taxes
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year. The estimated average annual tax rate
used for the year ending 31 December 2019 is 23.6%. This is lower
than the effective tax rate for the year ended 31 December 2018 of
24.0%, reflecting the mix of taxable profits in group companies
worldwide.
The adjusted effective tax rate for the year ending 31 December
2019, based on the adjusted profit before tax, is 23.5%. This is
lower than the effective tax rate for the year ended 31 December
2018 of 23.7% due to small reductions in the statutory corporate
tax rates in certain countries in which Rotork operates.
The Group continues to operate in many jurisdictions where local
profits are taxed at their national statutory rates. As a result,
the Group income tax charge will be subject to fluctuation
depending on the actual profit mix. The Group continues to expect
its effective corporation tax rate to be higher than the standard
UK rate of 19% due to higher tax rates in the majority of overseas
subsidiaries.
8. Dividends
First half First half Full year
2019 2018 2018
GBP000 GBP000 GBP000
---------- ---------- ---------
The following dividends were paid in the
period per
qualifying ordinary share:
3.70p final dividend (2018: 3.35p) 32,248 29,154 29,154
2.20p interim dividend - - 19,134
32,248 29,154 48,288
---------- ---------- ---------
The following dividends per qualifying ordinary
share were
declared/proposed at the balance sheet date:
3.70p final dividend proposed - - 32,250
2.30p interim dividend declared (2018: 2.20p) 20,057 19,151 -
20,057 19,151 32,250
---------- ---------- ---------
The interim dividend of 2.30 pence will be payable to
shareholders on 27 September 2019 to those on the register on 29
August 2019.
9. Earnings per share
Earnings per share is calculated using the profit attributable
to the ordinary shareholders for the period and 870.8m shares (six
months to 30 June 2018: 870.0m; year to 31 December 2018: 869.9m)
being the weighted average ordinary shares in issue.
Diluted earnings per share is based on the profit for the year
attributable to the ordinary shareholders and 873.5m shares (six
months to 30 June 2018: 873.5m; year to 31 December 2018: 874.0m).
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.
10. Leases
The Group leases many assets including land and buildings,
vehicles, machinery and IT equipment. Information about leases for
which the Group is a lessee is presented below.
Right-of-use assets
Land and Plant and
buildings equipment Total
GBP000 GBP000 GBP000
----------- ----------- --------
Balance at 31 December 2018 - - -
Adjustment on transition to IFRS 16 8,942 3,227 12,169
----------- ----------- --------
Balance at 1 January 2019 after adoption
of IFRS 16 8,942 3,227 12,169
Additions 1,165 575 1,740
Depreciation charge (1,431) (702) (2,133)
Impairment (695) - (695)
Exchange differences 188 57 245
Balance at 30 June 2019 8,169 3,157 11,326
----------- ----------- --------
The right-of-use assets are disclosed as a non-current asset and
are part of the property, plant and equipment balance of
GBP91,175,000 at 30 June 2019.
Lease liabilities
Lease liabilities are presented in the balance sheet within
borrowings as follows:
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
-------- -------- --------
Lease liabilities (current) 4,713 3 2
Lease liabilities (non-current) 7,213 - -
11,926 3 2
-------- -------- --------
Maturity analysis - contractual undiscounted cash flows:
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
-------- -------- --------
Less than one year 5,078 3 2
One to two years 3,207 - -
Two to five years 3,940 - -
More than five years 433 - -
Total undiscounted lease liabilities 12,668 3 2
-------- -------- --------
Amounts recognised in profit or loss
The Group has elected not to recognise a lease liability for
short term leases (leases with an expected term of 12 months or
less) or for leases of low value assets. Payments made under such
leases are expensed on a straight-line basis. In addition, certain
variable lease payments are not permitted to be recognised as lease
liabilities and are expensed as incurred.
During the six months to 30 June 2019, in relation to leases
under IFRS 16 the Group recognised the following amounts in the
consolidated income statement:
30 June
2019
GBP000
--------
Depreciation charge 2,133
Impairment 695
Interest expense 222
Short-term lease expense 410
Low-value lease expense 497
--------
Total expense 3,957
--------
Amounts recognised in the statement of cash flows
30 June
2019
GBP000
--------
Interest paid 222
Short-term lease expense 410
Low-value lease expense 497
Repayment of lease liabilities 2,656
--------
Total cash outflow for leases 3,785
--------
11. Inventories
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
-------- -------- --------
Raw materials and consumables 65,948 75,141 70,866
Work in progress 6,061 8,393 6,897
Finished goods 15,715 18,075 16,976
-------- -------- --------
87,724 101,609 94,739
-------- -------- --------
12. Pension schemes - Defined benefit deficit
The defined benefit obligation at 30 June 2019 of GBP33,918,000
(30 June 2018: GBP32,780,000; 31 December 2018: GBP27,293,000) is
estimated based on the latest full actuarial valuations at 31 March
2016 for UK and US plans. The valuation of the most significant
plan, namely the Rotork Pension and Life Assurance Scheme in the
UK, has been updated at 30 June 2019 by independent actuaries to
reflect updated assumptions regarding discount rates, inflation
rates and asset values.
30 June 30 June
31 Dec
2019 2018 2018
% % %
-------- -------- -------
Discount rate 2.3 2.6 2.8
Rate of inflation 3.2 3.1 3.2
-------- -------- -------
In addition, the defined benefit plan assets and liabilities
have been updated to reflect the regular payments, the GBP1.9
million payment made in respect of past service and the benefits
earned during the period to 30 June 2019.
13. Share capital and reserves
The number of ordinary 0.5p shares in issue at 30 June 2019 was
872,063,000 (30 June 2018: 870,489,000; 31 December 2018:
871,625,000). All issued shares are fully paid.
The Group acquired 1,297,000 of its own shares through purchases
on the London Stock Exchange during the period (30 June 2018:
705,000; 31 December 2018: 1,601,000). The total amount paid to
acquire the shares was GBP3,787,000 (30 June 2018: GBP2,150,000; 31
December 2018: GBP4,850,000), and this has been deducted from
shareholders' equity. At 30 June 2019 the number of shares held in
trust for the benefit of directors and employees for future
payments under the Share Incentive Plan and Long-term incentive
plan was 664,000 (30 June 2018: 490,000; 31 December 2018:
1,387,000). In the period 955,000 shares were transferred from the
trust to employees in respect of the share investment plan and the
overseas profit linked share plan.
In respect of the SAYE scheme, options exercised during the
period to 30 June 2019 resulted in 438,000 ordinary 0.5p shares
being issued (30 June 2018: 60,000 shares), with exercise proceeds
of GBP676,000 (30 June 2018: GBP112,000). The weighted average
market share price at the time of exercise was GBP2.83 (30 June
2018: GBP3.14) per share.
The share based payment charge for the period was GBP2,081,000
(30 June 2018: GBP2,665,000; 31 December 2018: GBP4,674,000).
14. Loans and borrowings
The following loans and borrowings were issued and repaid during
the six months ended 30 June 2019:
Preference
Lease liabilities Bank loans shares Total
GBP000 GBP000 GBP000 GBP000
------------------ ----------- ----------- ---------
Balance at 31 December 2018 2 60,839 40 60,881
Adjustment on transition to IFRS
16 12,044 - - 12,044
------------------ ----------- ----------- ---------
Balance at 1 January 2019 after
adoption of IFRS 16 12,046 60,839 40 72,925
Additions/drawdowns 2,277 20,000 - 22,277
Repayment (2,656) (59,916) - (62,572)
Exchange differences 259 (3) - 256
Balance at 30 June 2019 11,926 20,920 40 32,886
------------------ ----------- ----------- ---------
Lease Preference
liabilities Bank loans shares Total
GBP000 GBP000 GBP000 GBP000
------------- ----------- ----------- --------
Current 4,713 20,069 - 24,782
Non-current 7,213 851 40 8,104
Balance at 30 June 2019 11,926 20,920 40 32,886
------------- ----------- ----------- --------
The Group has committed loan facilities of GBP60,000,000 (First
half 2018: GBP120,000,000; Full year 2018: GBP120,000,000), of
which GBP20,000,000 (30 June 2018: GBP75,000,000; 31 December 2018:
GBP60,000,000) was drawn down at the balance sheet date. The
outstanding amount attracts a blended interest rate of LIBOR plus
0.85%.
The maturity profile of the non-current loans and borrowings is
as follows:
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
-------- -------- --------
One to two years 3,077 44,993 30,030
Two to five years 4,554 206 801
More than five years 473 675 40
-------- -------- --------
8,104 45,874 30,871
-------- -------- --------
15. Share-based payments
A grant of share options was made on 16 May 2019 to selected
members of senior management at the discretion of the Remuneration
Committee. The key information and assumptions from this grant
were:
Equity Settled Equity Settled Equity Settled
TSR condition EPS condition ROIC condition
--------------- --------------- ----------------
Grant date 16 May 2019 16 May 2019 16 May 2019
Share price at grant date GBP2.92 GBP2.92 GBP2.92
Shares awarded under scheme 451,557 451,557 451,557
Vesting period 3 years 3 years 3 years
Expected volatility 27.3% 27.3% 27.3%
Risk free rate 0.7% 0.7% 0.7%
Expected dividends expressed
as a dividend yield 2.0% 2.0% 2.0%
Probability of ceasing employment
before vesting 5% p.a. 5% p.a. 5% p.a.
Fair value GBP1.42 GBP2.74 GBP2.74
--------------- --------------- ----------------
The basis of measuring fair value is consistent with that
disclosed in the 2018 Annual Report & Accounts.
16. Related parties
The Group has a related party relationship with its subsidiaries
and with its directors and key management. A list of subsidiaries
is shown in the 2018 Annual Report & Accounts. Transactions
between key subsidiaries for the sale and purchase of products or
between the subsidiary and parent for management charges are priced
on an arm's length basis.
There were no significant changes in the nature and size of
related party transactions for the period to those reported in the
2018 Annual Report and Accounts.
17. Financial instruments fair value disclosure
The Group held forward currency contracts designated as hedge
instruments in a cash flow hedging relationship. At 30 June 2019
the fair value of these contracts was a net liability of
GBP1,984,000 (30 June 2018: a net liability of GBP2,695,000; 31
December 2018: a net liability of GBP2,375,000). The fair value was
estimated using period end spot rates adjusted for the forward
points to the appropriate value dates, and gains and losses are
taken to equity estimated using market foreign exchange rates at
the balance sheet date. All derivative financial instruments are
categorised at Level 2 of the fair value hierarchy. There was no
ineffectiveness to be recorded from the use of foreign exchange
contracts.
The other financial instruments, comprising trade and other
receivables/payables and contingent consideration, are classified
as Level 3 in the fair value hierarchy and their carrying amount is
deemed to reflect the fair value. The Group had no derivative
financial instruments in the current or previous year with fair
values that would be classified as Level 3 in the fair value
hierarchy.
18. Shareholder information
The interim report and half year results presentation is
available on the Rotork website at www.rotork.com.
General shareholder contact numbers:
Shareholder General Enquiry Number (UK): 0371 384 2280
International Shareholders - General Enquiries: (00) 44 121 415 7047
For enquires regarding the Dividend Reinvestment Plan (DRIP)
contact:
The Share Dividend Team
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0371 384 2280
19. Group information
Secretary and registered office:
Helen Barrett-Hague
Rotork plc
Rotork House
Brassmill Lane
Bath
BA1 3JQ
Company website:
www.rotork.com
Investors section:
http://www.rotork.com/en/investors/
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKPDBCBKDAFK
(END) Dow Jones Newswires
August 06, 2019 02:00 ET (06:00 GMT)
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