RNS Number:9633I
Rotork PLC
20 March 2003
20 March 2003
Rotork p.l.c.
Preliminary Announcement
Rotork p.l.c., the international specialist engineering group, announces audited
results for the year ended 31 December 2002
Financial Highlights
* Total Group sales increased by 8% to #133.5m, 12% at constant currency
* Pre-goodwill profit increased 6% to #27.5m
* Operating margin for continuing operations increased from 20.7% to
21.4%
* Pre-goodwill earnings per share increased 7% to 21.6p
* Full year dividend of 13.9p, an increase of 7%
Operational Highlights
* Malaysian manufacturing plant started assembly of AWT non-hazardous
area actuators in December 2002
* Completion of final non-core business disposal, Rotork Control &
Safety, in November 2002
* Rotork Fluid System benefited from the restructuring exercise
increasing sales by 28% and profits by over 250%
Chief Executive Bill Whiteley, commenting on the results said:
"We are pleased to have increased earnings in what has turned out to be a
particularly challenging environment. Important steps were also made in this
period in developing our worldwide leadership position in all aspects of valve
automation."
"Our aim going forward is to extend our product offerings to customers through
organic product development and niche acquisition, and to identify new areas in
which to promote our actuator technology."
For further information, please contact:
Rotork p.l.c. Tel: 01225 733200
Bill Whiteley, Chief Executive
Bob Slater, Finance Director
Financial Dynamics Tel: 020 7269 7121
Peter Otero
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report another year of growth for Rotork during a period in
which a number of our markets experienced difficult trading conditions. Overall
sales grew by 8% to #133.5m, pre-tax, pre-goodwill profit increased by 6% to
#27.5m and pre-goodwill earnings per share advanced by 7%. The closing order
book was similar to that at the prior year-end when adjusted for acquisitions
and disposals.
Business Review
Our overall business is being structured around four major business areas -
electric actuators, fluid power actuators, valve gearboxes & ancillaries and
process control actuators. Jordan Controls, based in Milwaukee and acquired in
January 2002, has met our expectations for the year and enabled us to develop
further our process control activities. It will continue to participate in
joint product development initiatives and to benefit from access to Rotork's
international sales network.
New electric actuator product R&D was focused on the development of a new
specification quarter turn actuator, the IQT, and a new non-hazardous area
product, the AWT, the latter being produced in Malaysia. In addition to this,
further development of our actuator control system offerings took place. The
IQT will be launched in the second half of 2003, while the AWT was launched as
planned in the final quarter of 2002. Our new electric actuator facility in
Malaysia is now in production with first orders having shipped in December. The
product manufactured there is new and is receiving positive comment from our
sales force and customers alike. We are also increasing our sourcing of Far
East components for our UK and US assembled products. While the effect of this
is gradual, based on replacement cycles of product and new product introduction,
it does represent an inexorable movement towards lower production costs, better
cost effective support for customers, and protection of margins across our
product ranges.
The Fluid System business is now benefiting from the structural changes that we
put in place in 2000, and as a result, registered strong growth in the year
contributing 12% of Group turnover and 7% of profit. The Lucca operation moved
into its new larger premises in February 2003 and now has much greater capacity
and flexibility to respond to its markets. We have also introduced important
new products recently and further rationalised some of the existing ranges,
allowing us to offer complete solutions to our customers. We feel confident
that we can further build on the successes of the past two years both in terms
of sales growth and increased return on sales.
The result of the Gears operation, which performed well at its main Leeds
location, was held back by poor market conditions for Valvekits and some
operational issues in its Dutch subsidiary.
The sale of the Luton based Control and Safety business in November represents
the final disposal of non-core businesses and leaves the Group focused entirely
on Actuation products, which has been a long-term strategic objective. Our aim
now is to extend our product offerings to customers through organic product
development and niche acquisition, and to identify new areas in which to promote
our actuators. The development of our process control business is an important
part of this strategy.
Group performance overall in the second half saw an improvement on the first
with a better level of electric and, especially, fluid power product sales,
although the effect of this mix towards fluid power products dilutes margin
slightly. A modest reduction in underlying order book from the half year
reflects the higher shipments in the second half. Our markets were mixed with
excellent conditions in the US and Canada and some regional strong points in the
Far East and Europe. The UK and some other worldwide markets were slightly
weaker than expected. Venezuela was the most troublesome market which started
the year with a major devaluation and deteriorated from there.
Working capital management has been a focus of attention during the year. As
our product ranges have extended and our sourcing becomes more global we have
adjusted some of our processes to maintain an appropriate balance between
working capital level and operational requirements. Debtor days are down again
from 75 to 70 days and inventory fell slightly in a period of greater
throughput. The net cash balance reduced by #1.9m to #20.0m, notwithstanding
the #7.8m purchase of Jordan Controls in January 2002, reflecting strong cash
generation in the year.
This year we have extended the Chief Executive's Report to incorporate an
Operating and Financial Review.
Dividend
A final dividend of 8.9p is proposed which gives a 7% increase to 13.9p for the
year. Over the last five years our rate of dividend increase has been in excess
of earnings growth. Cover has been maintained at 1.5 times which the Directors
consider is appropriate at the present time.
Outlook
Our commitment to investment in product development and lower cost manufacturing
facilities will allow us to continue offering high quality, cost effective
solutions to our customer base around the world. We are planning for another
year of growth and for further strengthening of Rotork's position within its
chosen markets. There are, however, economic and political uncertainties in a
number of our markets which may impact the current year's results.
Roger Lockwood
Chairman
OPERATING AND FINANCIAL REVIEW
Overview
We were encouraged by a strong order intake at the start of the year and by a
healthy level of project work in our forecasts. This was not however sustained,
as an increased level of caution towards energy and infrastructure investment in
many of our markets became evident. Despite this background we are pleased to
report a robust performance illustrated by an increase in sales and profits.
Total Group sales, including a full year contribution from Jordan Controls and
Rotork Control & Safety (up to the point of disposal), increased by 8% to
#133.5m. Sales from continuing operations increased 2% to #122.2m. This
improvement would have been 7% had it not been for exchange rate fluctuations.
Operating profit before goodwill of #27.0m represents a 7% increase over 2001.
Operating profits from continuing operations increased 6% to #26.1m. The
operating profit margins of the continuing operations have increased from 20.7%
in 2001 to 21.4%. As in the prior year output was oriented toward the second
half with 51% of sales being in H2 (2001: 53%).
The highlights included the continued strong turnaround and development of
Rotork Fluid System, our fluid power actuator division, which increased sales by
28% and pre-tax profits from #0.5m to #1.8m. It also exceeded the targeted 10%
return on sales which had been set for this operation in 2002. In addition,
both the US and Canadian operations grew strongly despite a less than
encouraging economic background. We also had good results from a number of our
European and Far Eastern subsidiaries. Against these positive results we
recorded a loss at our Venezuelan subsidiary and two of our Gears operations
registered reduced profits. There were also a number of operations including
UK, Spain and Korea where project activity was less than originally anticipated.
Higher pension costs resulting partly from the funding rate increase in the UK
from April increased overheads by #1.1m.
Important steps were taken in developing our worldwide leadership position in
all aspects of valve automation. A Malaysian manufacturing plant has been set
up and has commenced assembling actuators for certain less demanding
applications in the water and power markets. This operation commenced
production in December but will not reach its initial intended capacity until
late 2003. During the year under review it therefore added overhead cost to the
Group without any appreciable sales contribution.
The important IQT, a quarter turn variant of the very successful IQII actuator,
will be introduced in the second half of 2003. This will also incorporate
Malaysian sourced components, although it will be assembled in the UK. A great
deal of work has been undertaken to successfully integrate Jordan Controls,
acquired in January 2002, into the Rotork worldwide network.
The Rotork Control & Safety business, the only remaining non-actuator related
activity, was disposed of in November.
The key drivers for the business are related to the investment in oil and gas,
water and waste water and power generation facilities around the world with
demand generated by new and expanded facilities, upgrades to existing facilities
and replacements. This is often linked to projects which are aimed at improving
the efficiency, safety and the environmental performance of plants. Valve
actuators are critical components and their long term reliability and
performance is of importance to users. They also act as an important interface
between plant control systems and related hardware. Rotork's reputation for
quality, worldwide support and technical innovation is crucial to its leadership
position in its field. The broad geographic spread of our operations and
applications means that we have a large number of repeat customers around the
world and no one customer accounts for more than 5% of our turnover in any year.
Electric Actuators
UK Operations
The majority of our UK business derives from the water companies. Most
suppliers were disappointed at the levels of business emanating from this sector
under the AMP3 guidelines in 2002. Although general levels of business were
disappointing, our UK retrofit department was busy and had a successful year.
The Bath plant, which is our main electric actuator assembly plant, coped well
with inconsistent order intake patterns and did not suffer from any of the
constraints which were present in 2001. We adhere to an assembly only
philosophy of manufacture where we rely on high quality vendors for all of our
components. One of the main initiatives is to develop more of our components
from overseas sources not only to achieve important cost reductions, but to
mitigate currency swings between our input costs and output revenues. Progress
was made in this area which enabled us to achieve further reductions in the
costs of our important IQ range of actuators. Ongoing activities should see
further progress on this front in the current year.
Europe
Our European subsidiaries on the whole traded successfully. France's results
were up 42% on the prior year due to a number of profitable contracts. Our
Dutch subsidiary suffered a fire in March and it subsequently moved to a new
facility nearer to its customer base in the Europoort area of Rotterdam -
insurance payments compensated for the resultant loss of property and business.
The results from our important Spanish operation were lower than anticipated due
to project deferrals in that country. Our German subsidiary continued its long
history of growth and our Italian subsidiary made progress in a very competitive
environment.
The Americas
Rotork Controls Inc., based in Rochester, NY, with the benefit of a strong
second half, recorded an excellent result with 21% growth over the prior year's
impressive result. Encouraged by the success of our Californian service and
support facility we have opened a similar operation in Houston, Texas, which
will allow us to expand our business in the important Gulf Coast market.
The Canadian company had an outstanding year across its operations increasing
sales by 34%. The West benefited from oil and gas projects while the East
experienced good general business levels.
After having had a successful year in 2001 our Venezuelan subsidiary suffered
from a deteriorating situation throughout the year which culminated in the PDVSA
strike at the end of the year. This created a very difficult trading
environment which, when combined with a fall in value of the Venezuelan bolivar,
resulted in the subsidiary recording a loss in the year. Compared with the
profit in 2001 this represented a reduction in profit to the Group of about
#1.3m. Although there is a substantial demand for our equipment in Venezuela
the near term future is very uncertain and we have put in place measures to
limit our exposure in this country until the situation improves.
In January 2002 we acquired Jordan Controls Inc., based in Milwaukee, to broaden
our product range and, in particular, to provide us with a comprehensive range
of positioning duty actuators for process control applications. The markets for
its products were subdued in the early part of the year but the second half saw
a much improved order intake with the company ending the year with a substantial
increase in orders. The sales of $11.4m and profits of $0.6m would have been
greater had not the PDVSA strike in Venezuela prevented shipments just prior to
the year-end. The main emphases of the business are to increase its
international sales through the Rotork outlets, continue the introduction of its
new modulating product line, and improve its internal operating performance. It
is our intention to invest in the expansion and updating of its product range.
The Far East and Rest of the World
The results for this region were generally good with excellent business levels
being achieved in China and Malaysia. Singapore, Thailand, Japan, Australia and
Africa all showed profit growth over 2001. Korea suffered from project
deferrals while our manufacturing operations in India suffered from the lack of
oil and gas business in the country.
The new actuator production facility in Malaysia started operations on target in
December. Small quantities of product will be shipped in the first quarter of
2003 but it will be some time before we achieve critical mass there. Total
investment in this business is in the order of #1m.
Rotork Fluid System
Rotork Fluid System design, manufacture and market fluid power valve actuators
which are powered either pneumatically or hydraulically. The investment and
restructuring exercise undertaken over the past two years began to pay off in
2002. Sales were up 28% and profits were up over 250% and exceeded the 10%
return on sales target we set for ourselves for the year. This division now
contributes 12% to the Group's turnover and has targets for further growth in
the coming year.
The manufacturing locations at Lucca in Italy and Rochester NY both exceeded
their budgets, with the Rochester operation recovering from a loss in 2001 and
first half of 2002. The main stocking and packaging centres in Leeds, Calgary,
Toronto, California and Singapore all performed well. A number of the other
Rotork sales subsidiaries are gearing up their efforts in this field to broaden
our marketing effort in 2003. In addition to these, new stocking and packaging
facilities are being set up in Aberdeen and Houston.
Following the rationalisation of the Italian and US product ranges the priority
was to design an effective new range of small quarter-turn pneumatic actuators.
The CP was launched in the latter part of the year and will enhance our product
offering. A gas over oil product range aimed at the gas transmission pipeline
market was also launched during the year, and has received initial orders. The
production capacity at the Lucca facility was reaching capacity and therefore a
lease on a much larger plant was taken on. Following refurbishment of this
plant the business was relocated in the first quarter of 2003 and has enhanced
our ability to take on larger and more complex projects with confidence.
Rotork Gears
By extending its range of products and its markets the main gearbox operation at
Leeds expanded both its sales and profits despite poor market conditions. The
division as a whole suffered from disappointing results from Gears BV in the
Netherlands and from Valvekits. Gears BV sales were similar to the prior year,
but material and overhead costs increased. A new management structure has been
introduced which will co-ordinate activities much more closely with those of
Leeds. Purchasing initiatives put in place in 2002 should also have a
beneficial effect on margins in the current year. Valvekits' business continued
to suffer from a depressed domestic market although considerable improvements in
its operations were achieved.
Readers who wish to have a more comprehensive view of our products and services
should visit our updated web site at www.rotork.com.
Research and Development
Rotork's growth strategy is dependent upon it continuing to be the technical
leader in its industry. Accordingly Rotork continues to undertake R&D to
introduce innovative ranges of products which it can competitively offer to its
customers. In the year under review R&D expenditure was #2.4m representing an
increase of 15%.
Electric actuator R&D expenditure in 2002 was primarily focused on the
technological development of the IQT and the AWT actuator ranges. Extensive R&D
will result in the new IQT range which will bring IQII features and technology
to quarter turn actuators. This range will be launched in the third quarter of
2003. The AWT is a new non-hazardous area actuator which is being built in our
new Malaysian facility. In addition to these two ranges considerable research
has advanced the breadth and capability of our remote actuator control system
offerings, solar powered applications, communication network interfaces and
safety enhancements. R&D expenditure also included the work within Rotork Fluid
System aimed at extending the range of pneumatic and hydraulic actuators.
Initiatives are in place to ensure that adequate time and resources continue to
be set aside for research into groundbreaking technologies and their application
to the field of valve actuation.
Rotork Control and Safety
This business was sold to a subsidiary of Serck Controls Ltd. in November 2002.
The sale excluded 'Pakscan' the actuator control system, production of which had
earlier in the year been transferred to Rotork's Bath plant. It was considered
that this mission critical control and safety systems division was no longer
core to Rotork's actuator business and would fit better in a group dedicated to
developing its systems capabilities.
The disposal gave Rotork a net cash inflow of #1.3m and a marginal gain on
disposal. The sale was of the trade and assets of the business excluding the
building that the company occupied in Luton which we anticipate disposing of
during 2003 at more than its carrying value. The results for the period prior to
disposal for 2002 taken into the Group accounts were sales and profits of #3.8m
and #0.5m respectively.
Pensions
As with many companies, the cost of providing a defined benefit promise to
employees has increased significantly in the last few years. The effects of
increased longevity, loss of ACT relief, LPI and of course the fall in equity
valuations recently, have led to us re-evaluating our present scheme offerings.
We have consequently decided not to offer membership of the defined benefit
scheme to new employees from January 2003, and will introduce a new occupational
contribution based scheme in addition to the stakeholder plan that has been in
place for some time.
Recent stock market volatility has led to a deterioration in the value of the UK
scheme's assets since the last annual report. The post tax pension scheme
deficit when assessed as required under FRS 17 has increased during the year
from #4.1m last year to #11.6m at 31 December 2002. This represents a relatively
small proportion of Rotork's current market capitalisation.
Working capital
Following the #7.8m acquisition of Jordan Controls, net cash funds have only
reduced by #1.9m during the year to #20.0m. Cash generated from operating
activities was #25.8m compared with #25.5m last year. Of this cash inflow, 44%
is spent on dividends and a further 35% on tax. The value of stock held has
reduced in the year despite our broadening product range. This year has also
seen a reduction in component stock both in absolute terms and as a proportion
of total stock. Trade debtors have reduced by #1.5m compared with the previous
year and debtor days have decreased by five to 70 days at the year-end.
Bill Whiteley
Chief Executive
Audited Consolidated Profit and Loss Account for the year ended 31 December 2002
2002 2001
#'000 #'000
Turnover
Continuing operations 122,173 119,322
Acquisitions 7,504 -
Discontinued operations 3,783 4,367
133,460 123,689
Cost of sales (71,875) (65,877)
_______ _______
Gross profit 61,585 57,812
Distribution costs (1,748) (2,077)
Administrative expenses (35,348) (31,185)
Other operating income / (expenses) 1,233 (270)
Operating profit
Continuing operations 25,109 23,706
Acquisitions 139 -
Discontinued operations 474 574
25,722 24,280
Continuing operations before amortisation of goodwill 26,136 24,733
Acquisitions before amortisation of goodwill 417 -
Discontinued operations 474 574
_____ _____
Operating profit before amortisation of goodwill 27,027 25,307
Amortisation of goodwill (1,305) (1,027)
_____ _____
Operating profit 25,722 24,280
Interest receivable and similar income 530 793
Interest payable and similar charges (90) (230)
_____ _____
Profit on ordinary activities before taxation 26,162 24,843
Tax on profit on ordinary activities (8,868) (8,539)
_____ _____
Profit for the financial year 17,294 16,304
Dividends - including non-equity (11,959) (11,147)
______ ______
Retained profit for the financial year 5,335 5,157
______ ______
pence pence
Basic earnings per share 20.1 18.9
Basic earnings per share before goodwill amortisation 21.6 20.1
Diluted earnings per share 20.0 18.9
Audited Group Balance Sheet at 31 December 2002
2002 2001
#'000 #'000
Fixed assets
Intangible assets 20,886 16,637
Tangible assets 14,816 14,095
Investments 958 578
______ ______
36,660 31,310
______ ______
Current assets
Stocks 17,687 18,048
Debtors due within one year 32,421 33,409
Debtors due after more than one year 409 317
Cash at bank and in hand 20,371 22,162
______ ______
70,888 73,936
______ ______
Creditors:
Amounts falling due within one year (33,603) (34,877)
______ ______
Net current assets 37,285 39,059
______ ______
Total assets less current liabilities 73,945 70,369
Creditors:
Amounts falling due after more than one year (197) (150)
Provisions for liabilities and charges (2,038) (2,322)
______ ______
Net assets 71,710 67,897
===== =====
Rotork shareholders' funds
Equity 71,658 67,844
Non-equity 52 53
_____ ______
Capital employed 71,710 67,897
===== =====
Note:
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2002 or 2001. The financial
information for 2001 is derived from the statutory accounts for 2001 which have
been delivered to the Registrar of Companies. The auditors have reported on the
2001 and 2002 accounts; their reports were unqualified and did not contain a
statement under section 237(2) or (3) of the Companies Act 1985. The statutory
accounts for 2001 will be delivered to the Registrar of Companies following the
Company's annual general meeting.
Audited Statement of Group Cash Flow for the year ended 31 December 2002
2002 2001
#'000 #'000
Operating profit 25,722 24,280
Depreciation and amortisation 3,495 3,039
(Profit) / loss on sale of fixed assets (557) 117
(Profit) on sale of business (11) -
Movement in working capital (2,878) (1,894)
_____ _____
Net cash inflow from operating activities 25,771 25,542
Returns on investments and servicing of finance 383 685
Taxation (8,990) (8,753)
Capital expenditure and financial investments (2,323) (833)
Acquisitions and disposals (6,196) (68)
Dividends paid on equity ordinary shares (11,423) (10,728)
Financing 169 (422)
______ ______
(Decrease) / increase in cash and term deposits in the (2,609) 5,423
year
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This information is provided by RNS
The company news service from the London Stock Exchange
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