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REG - Rotork PLC - 2022 Half Year Results

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RNS Number : 5269U  Rotork PLC  02 August 2022

Tuesday 2(nd) August 2022

Rotork plc

2022 Half Year Results

Encouraging momentum, outlook confirmed

 

 Adjusted highlights                   H1 2022   H1 2021(5)  % change  OCC(3) % change
 Order intake(1)                       £340.1m   £298.2m     +14.0%    +12.1%
 Revenue                               £280.0m   £288.3m     -2.9%     -4.8%
 Adjusted(2) operating profit          £53.3m    £62.7m      -15.0%    -17.9%
 Adjusted(2) operating margin          19.0%     21.8%       -280bps   -300bps
 Adjusted(2) basic earnings per share  4.8p      5.5p        -12.7%    -15.9%
 Cash conversion(4)                    68%       94%         -         -
 Statutory highlights                  H1 2022   H1 2021(5)  % change
 Revenue                               £280.0m   £288.3m     -2.9%
 Operating profit                      £44.0m    £50.6m      -12.9%
 Operating margin                      15.7%     17.5%       -180bps
 Profit before tax                     £44.6m    £50.7m      -12.0%
 Basic earnings per share              3.9p      4.4p        -11.4%
 Interim dividend                      2.40p     2.35p       +2.1%

 

Summary

·    Orders were up double-digit year-on-year, reflecting an encouraging
performance from our Chemical, Process & Industrial and Oil & Gas
divisions and price increases which were successfully implemented in January
and May

·    Our supply chain improvement initiatives are taking effect and
deliveries picked up through the period. First half revenues were lower
year-on-year as expected due to supply chain challenges in the first quarter

·    Our Shanghai site resumed full operation in early June following the
COVID-19 lockdown and made good progress delivering delayed shipments to
customers

·    Adjusted operating profit margin remained resilient at 19.0% despite
lower volumes and the phasing of price benefit due to the record order book.
Statutory operating margin was 15.7%

·    Net cash of £90.4m (December 2021: £114.1m), lower in part due to
strategic inventory build

·    We reaffirmed our commitment to improving our ESG performance in our
Sustainability Report and highlighted how our products and services can enable
a sustainable future

·    Our continuing work on strategy confirms we are well placed to
deliver on our ambition of mid to high single-digit revenue growth and mid 20s
adjusted operating profit margins over time

Kiet Huynh, Chief Executive, commenting on the results, said:

"We enter the second half with encouraging momentum, a record order book, and
with our supply chain improvement actions taking effect. Whilst forecasting
remains challenging due to geopolitical and macroeconomic uncertainties we
continue to expect our full year results will have a greater than usual
weighting to the second half, which will be even more pronounced than our
previous expectations if recent sterling weakness continues.

 

Since presenting my first set of results in March I have spent time, together
with my senior team, determining how we will deliver on our growth ambition.
Our progress to date confirms that we are well positioned to deliver
profitable growth. To summarise our thinking on strategy, we will target the
segments which offer the greatest opportunities for profitable growth,
including those which form part of our eco-transition portfolio, whilst making
ourselves as easy to do business with as we can be. We will expand on these
themes at our Capital Markets Event in November."

 

 

(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 other adjustments (see note 4).

(3.)OCC(4) is organic constant currency results excluding discontinued
businesses and restated at 2021 exchange rates.

(4) Adjusted figures, organic constant currency ('OCC') figures, cash
conversion and ROCE are alternative performance measures and are used
consistently throughout these results. They are defined in full and reconciled
to the statutory measures in note 2.

(5) As a result of IFRIC agenda guidance in April 2021 on Software as a
Service (SaaS) and treatment under IAS38, 2021 has been restated to reflect
the updated treatment. The detail on this restatement can be found in note 1.

 

 Rotork plc                                  Tel:  +44 (0)1225 733 200
 Kiet Huynh, 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 8.30am BST
today in the Library at the offices of JPMorgan Cazenove, 60 Victoria
Embankment, London, EC4Y 0JP. The presentation will also be webcast, with
access via https://www.investis-live.com/rotork/62cec73f299ad30e007a93d2/eabwq
(https://www.investis-live.com/rotork/62cec73f299ad30e007a93d2/eabwq) . Please
join the meeting a few minutes before 8.30am to complete registration.

 

 

 

Summary

 

Purpose

Our purpose and sustainability vision are one and the same: keeping the world
flowing for future generations. We play an integral role in enabling the
transition to a low-carbon economy as well as helping preserve natural
resources such as fresh water through our intelligent products and services.

 

Operating responsibly

The wellbeing of our people and partners is the number one priority of
everyone at Rotork. We are proud of our 'safety first' culture and require our
employees to complete safety training each year. We launched our Net Zero
targets earlier this year and are working hard to achieve our emissions
reduction targets.

 

Business performance

Group order intake in the period increased 14.0% year-on-year, and 12.1% on an
OCC basis, to £340.1m. Orders were strongly ahead at both Chemical, Process
& Industrial ("CPI") and Oil & Gas. Water & Power orders were
modestly higher despite a tough prior year comparison.

 

During the period customers continued to spend on upgrade, refurbishment and
maintenance as well as automation, electrification and environmental projects.
Hydrocarbon prices rose to levels not experienced since 2012 reflecting
recovering demand, earlier underinvestment and geopolitical events which have
disrupted energy supplies. These events have necessitated a reconsideration of
energy security risks globally and there are clear signs of a recovery in
related project activity, particularly in the midstream sector. Higher energy
prices have contributed to inflation increasing to levels not seen in decades.
The resulting pressure on the consumer has caused economists to reduce their
forecasts for global growth materially.

 

The majority of Rotork's activity continues to be driven by customers'
operational rather than capital expenditure. We estimate that maintenance,
repair and small to mid-sized automation/upgrade projects (individual orders
less than £100k) generate 75% of Group orders by value in a typical year, and
that orders above £1m represent only 5% of Group order intake.

 

Our operational teams performed well in what continued to be a challenging
environment. As we reported on 29 April, our important Shanghai facility was
closed in accordance with local COVID-19 lockdown rules in mid-April. The
facility resumed full production in June and made good progress delivering
delayed shipments to customers. We thank our team for their efforts during
this difficult time.

 

The COVID-19 pandemic continues to pose significant challenges for global
supply chains. During the period we continued to see shortages of
semiconductors, electronics and other components, disrupted freight services
and elevated costs. Labour rates were higher and we also experienced an
increase in the cost of key commodities such as copper, aluminium and steel.

 

Our self-help initiatives - such as direct purchasing and forward buying of
semiconductor chips, the re-certification and re-engineering of products, the
securing of contracted logistics routes and tactical inventory build - have
started to offset supply chain challenges. Our Global Strategic Sourcing and
Global Distribution teams continue to focus on mitigating the impact of higher
costs through working with our materials and logistics suppliers. Our
Commercial teams remain in close contact with customers, so required price
increases are understood and do not come as a surprise. We completed two price
increases in the period, one on 1 January, and the other on 1 May, which will
deliver greater benefit to revenue in the second half of the year. The delay
in price increases impacting revenue due to the record order book also means
we saw a price/mix headwind in the first half.

 

Group revenue was 2.9% lower year-on-year (OCC: -4.8%) at £280.0m with higher
price realisation and favourable currency translation more than offset by
reduced volumes. The lower deliveries reflected component availability and
logistics challenges and the cessation of deliveries to Russia. CPI revenue
was ahead double digits, with all three sectors up year-on-year.  Oil &
Gas sales were down mid-single digits. Water & Power revenues were down
double-digits, particularly impacted by semiconductor shortages.

 

By geography, Asia Pacific revenues by destination were unchanged
year-on-year. Europe, Middle East & Africa ("EMEA") sales were lower, the
result of a significant reduction in activity at Oil & Gas. Americas
revenues were ahead, with higher Oil & Gas activity more than offsetting a
decline at Water & Power.

 

Rotork Site Services, our global service network and a key differentiator in
our industry, made good progress in the period. Sales were broadly unchanged
year-on-year despite disruption due to supply chain issues. Rotork Site
Services is managed as a separate unit within Rotork's divisions and continues
to contribute a significant proportion of Group sales (19% in the period).

 

Adjusted operating profit was 15.0% lower year-on-year (17.9% OCC) reflecting
lower volumes and higher materials and labour costs which more than offset
increased sales prices and Growth Acceleration Programme savings. Adjusted
operating margins were 280 basis points lower at 19.0%.

 

Return on capital employed was 27.0% (H1 2021: 32.9%), driven by lower
operating profit and higher capital employed. Cash conversion was 68% (H1
2021: 94%) reflecting the lower working capital position at the start of this
year, the investment in tactical inventory and the phasing of sales activity
within the second quarter.

 

Our balance sheet remains strong, with a net cash position of £90.4m at the
period end (December 31: £114.1m). This provides us with optionality in
uncertain times and the financial flexibility to implement our organic
investment plans, pay a progressive dividend and execute our targeted M&A
strategy. We regularly review our capital needs and in the event in the future
we determine we have surplus cash, we will look to return it to shareholders.

 

Dividend

We recognise the importance of a growing dividend to our shareholders and are
committed to a progressive dividend policy subject to satisfying cash
requirements, which can vary significantly from year to year. The Board is
declaring an interim dividend of 2.4p per share which is equivalent to 2.0
times cover based on adjusted earnings per share. The interim dividend will be
payable on 23 September 2022 to shareholders on the register on 19 August
2022.

 

Outlook

We enter the second half with good momentum, a record order book, and with our
supply chain improvement actions taking effect. Whilst forecasting remains
challenging due to geopolitical and macroeconomic uncertainties we continue to
expect our full year results will have a greater than usual weighting to the
second half, which will be even more pronounced than our previous expectations
if recent sterling weakness continues.

 

Strategy update

 

During my first six months as CEO of Rotork I have spent time together with my
senior team and the Board reviewing the Group's current shape and formulating
our future strategy. Thanks to our Growth Acceleration Programme ("GAP")
Rotork's current portfolio is well positioned for the future. GAP has enhanced
many aspects of the business: our culture; our commercial front end; our
product and services portfolio, our infrastructure and processes; our
operations and supply chain. We continue to deliver GAP initiatives including
supply chain consolidation, improving and standardising core business
processes and continuing our IT development.

 

Our ambition remains to deliver mid to high single-digit revenue growth
through a combination of organic growth and acquisitions and mid 20s adjusted
operating margins over time. In delivering our growth ambition, we benefit
from the industrial megatrends of automation, electrification and
digitalisation. We aim to play our part in helping our customers better their
own environmental performance, while at the same time working to improve our
own environmental and social performance as well as those of our end users and
our suppliers.

 

We look forward to sharing more detail on our strategy later in the year.
Importantly our work to date has confirmed that we are well placed to deliver
on our growth ambition. Our strategy will incorporate growth focused
initiatives such as the targeting of high potential sectors, including those
in our Eco-transition portfolio, greater customer value and the launching of
new innovative products and services.

 

1)   Target segments

Key to our thinking is the identification of segments within each of our
divisions where we have the right to play and that we believe offer
significant opportunities for profitable growth. The most important
megatrends are:

 

·    Opportunities in developing markets. Industry analysts forecast that
more than half of global flow control spend over the next five years will
occur in Asia Pacific.

·    Automation, energy efficiency and electrification. AE&E are the
three major megatrends of the industrial world and are forecast to
accelerate.

·    Digitalisation and the industrial internet. Digitalisation is
transforming industry and condition monitoring and remote diagnostics are
being embraced by more and more of our customers.

·    Infrastructure modernisation. Global infrastructure investment and
modernisation are forecast to grow significantly faster than GDP for decades.

·    Climate change aligned. It is imperative that our target segments are
aligned with our 'enabling a sustainable future' principle. We see significant
opportunities in climate change mitigation and adaptation.

 

2)   Customer value

Due to GAP's Commercial and Operational Excellence initiatives we have made
good progress in becoming easier to do business with. We can, however, go
further and put customer value front and centre of everything we do. We are
looking at areas that leverage many of GAP's commercial and operational
initiatives, such as:

 

·    Enhancing our go to market proposition. Strengthening our
relationships with end users and key EPCs, leveraging our earlier salesforce
alignment work.

·    Global supply chain improvement. Developing a supply chain programme
which will optimise our transportation network and provide an earlier warning
of parts shortages.

·    Customer experience improvement and reduced lead times. Further
streamlining our internal processes allowing us to quote more quickly and be
more responsive to customer needs.

·    Leveraging our global service offering. Identifying opportunities to
expand our service footprint and our partner programme.

 

3)   Innovative products and services

Innovation is the lifeblood of Rotork. Over the last several years we have
brought our teams together and streamlined how we deliver innovation and new
product development. Our teams are focused on projects aligned with our target
segments and our 'enabling a sustainable future' principle. Key innovation
drivers include electrification (electric alternatives to traditional
actuation products), connectivity (wired and wireless communications),
predictive analytics (and value-added services such as Lifetime Management)
and product efficiency (including both energy consumption and in use GHG
emissions). Our engineers remain focused on the affordability of our products
and their ease of manufacture. We will continue to innovate and develop new
products whilst always weighing 'make versus buy' arguments. Disciplined
M&A will be one of the drivers of our growth.

 

We will provide a further update on each area at our Capital Markets Event in
November.

 

Enabling a sustainable future

 

Managing Environmental, Social & Governance ("ESG") opportunities and
risks is integrated throughout Rotork's business. We have worked hard to
articulate our ambitions and underpin our approach, and in June we published
our second annual Sustainability Report. In it we reaffirm our full commitment
to improving our ESG performance in all areas and highlight the many ways
Rotork's products and services can enable a sustainable future. Sustainability
is core to our Purpose and a key part of our growth agenda.

 

·    We have a major role to play in the new energies and technologies
that will support the transition to a low-carbon economy. Our products and
services have applications in the production of low- and no- carbon fuels such
as hydrogen and in climate change mitigation technologies, such as carbon
capture and storage, and helping customers to tackle methane emissions from
their operations.

·    Rotork's products and services also have applications in processes
that help preserve natural resources such as fresh water, through leak
reduction, water recovery, recycling and treatment. Our products are widely
used elsewhere to manage water, including in flood protection and
desalination.

·    In addition, Rotork can support a broad spread of industries as they
make greater use of automation, electrification and digitalisation to reduce
the environmental impact of their operations, including through facilitating
the use of renewable energy.

Key highlights from the report include:

 

·    Our 'Eco-transition portfolio' of products and services, with
examples of projects that Rotork is supporting in each of the three
sub-portfolios: 'Methane emissions reduction', 'New energies &
technologies' and 'Water and wastewater'. Case studies cover our role in
global climate agreements, methane emission abatement, lithium production,
low-carbon chemical production, hydrogen market opportunities, energy
efficiency measures, and water management in desalination, water treatment and
purification.

·    Further progress in implementing the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD), including the outputs
of our work to quantify the potential impacts of climate risks and
opportunities.

·    Our net-zero roadmap and science-based targets for scopes 1 & 2
and scope 3, and how these are being integrated into corporate strategy, new
product development and our governance processes.

·    Expanded disclosures on environmental, social and governance topics
as part of our commitment to transparency and meeting the requirements of our
stakeholders.

·    Progress on our diversity and inclusion initiatives during the year,
including refreshed schemes to develop young talent and our new 'women@rotork'
initiative to support female talent.

·    Continued good progress in Rotork's own ESG performance, including a
reduction of 7% in carbon emissions and 17% in lost time injury rates, as well
as achieving high rankings in key external ESG ratings.

Our 2021 Sustainability Report has been prepared in accordance with the Global
Reporting Initiative (GRI) Standards: Core option. It also provides
disclosures against the SASB (Sustainability Accounting Standards Board)
framework. Alignment to these frameworks has been independently checked by
Corporate Citizenship.

 

 

Divisional review

 

Oil & Gas

 £m                         H1 2022  H1 2021  Change   OCC Change
 Revenue                    122.3    129.6    -5.6%    -7.4%
 Adjusted operating profit  23.6     26.9     -12.5%   -12.9%
 Adjusted operating margin  19.3%    20.8%    -150bps  -130bps

 

During the first half, Oil & Gas experienced a continuation of the
recovery in end markets which commenced in the second half of 2021. As
hydrocarbon demand recovered to pre-Covid levels, customers increased their
spending on upgrade, refurbishment and maintenance as well as automation,
electrification and environmental projects. The conflict in the Ukraine saw
hydrocarbon prices rise further to levels not experienced since 2008 and
triggered an acceleration of large project planning and a reconsideration of
global energy security risks. The outlook for oil & gas industry spending
is positive for all three segments (upstream, midstream and downstream), with
spend expected to grow over the medium term.

 

Divisional revenues fell 5.6% year-on-year (-7.4% OCC), reflecting supply
chain challenges and our withdrawal from Russia. All three segments (upstream,
midstream and downstream) reported lower sales. In EMEA, growth in Lifetime
Management revenue was insufficient to offset these headwinds and the region
reported the largest year-on-year decline in sales. Asia Pacific sales were
lower, with a significant increase in upstream activity insufficient to offset
a decrease in the downstream. Americas revenues were double digits ahead with
both the downstream and the midstream ahead. Sales of our electric products
into upstream wellhead applications grew.

 

Adjusted operating profits were £23.6m, 12.5% lower year-on-year (-12.9%
OCC). The decline in profits reflected reduced volumes and higher component
costs partly offset by efficiency savings. The benefit from increased selling
prices was reduced by the relative size of the orderbook entering the period.
Adjusted margins fell 150 basis points to 19.3%, reflecting the above factors
plus a positive product mix.

 

We consider the energy transition to be a significant opportunity where Oil
& Gas plays an important role. The production, distribution, and
utilisation of low and zero carbon fuels (including hydrogen and biofuels such
as HVO) is valve and actuator intensive. We have an important part to play in
climate change mitigation technologies such as methane emissions reduction and
carbon capture usage and storage. The focus on the oil & gas industry's
methane emissions is high on the climate policy agenda. We believe that
electrification has an important role to play in emissions reduction across
upstream, midstream and downstream processes, and that as the world leader in
electric actuation we are well placed to assist the industry on this journey.
Gasification / fuel switching in the power generation sector in the US and
Europe and in the residential and industrial sectors in Asia Pacific is
expected to benefit the midstream sector.

 

Chemical, Process & Industrial ("CPI")

 £m                         H1 2022  H1 2021  Change  OCC Change
 Revenue                    92.8     81.2     14.3%   12.4%
 Adjusted operating profit  22.7     20.6     10.2%   10.4%
 Adjusted operating margin  24.5%    25.4%    -90bps  -40bps

 

CPI delivered an encouraging performance in the first half. The division
serves a broad range of end markets and has a higher proportion of short-cycle
sales and a shorter order book than Rotork's other divisions. CPI is
benefiting from global growth as well as earlier GAP initiatives such as
focusing on new opportunities in new markets including mining, hydrogen,
semi-conductor, li-ion battery and data centres.

 

Revenues grew 12.4% year-on-year on an OCC basis demonstrating the benefits of
the division's strategic focus. Asia Pacific saw the strongest growth, with
all segments well ahead of the prior period and instruments particularly
strong. EMEA sales were ahead year-on-year with the chemical segment strong.
Americas revenues were unchanged despite good growth in the mining market.

 

The process sector represents a substantial proportion of CPI overall. Process
revenues were ahead in all geographic regions. EMEA saw particularly strong
growth in the UK. In Asia Pacific, we continued to see strong demand from
control valve OEMs in China. Americas process sales were slightly higher. Both
chemical and industrial sector revenues were higher year-on-year.

 

The division's adjusted operating profit was £22.7m, 10.2% up year-on-year.
The shorter lead time nature of many CPI sales ensured price increases had the
greatest benefit here and this was combined with volume growth. Despite
operational gearing and efficiency improvements, higher component costs and a
higher share of common costs as a result of the division's growth resulted in
a net decline in margins. Adjusted operating margins were 24.5%, 90bps lower
year-on-year.

 

The decarbonisation trend presents a key opportunity for CPI - through new
industrial processes such as hydrogen, carbon capture usage and storage and
plastic recycling, as well as the substitution of high maintenance and
inefficient pneumatic systems with electric actuators.

Water & Power

 £m                         H1 2022  H1 2021  Change   OCC Change
 Revenue                    64.9     77.5     -16.2%   -18.4%
 Adjusted operating profit  13.4     21.0     -36.2%   -37.4%
 Adjusted operating margin  20.7%    27.1%    -640bps  -630bps

 

Water & Power's products and services, and those of its customers, are
generally considered essential, and customer activity largely continued
without any significant disruption throughout the pandemic. The world's
governments have identified water infrastructure investment as a priority, not
only for population health and safety reasons but also for economic
development and the division is well placed to support these efforts.

 

The division has the highest proportion of electric actuator sales amongst
Rotork's divisions and was again the most impacted by electronics and
semiconductor shortages and cost increases in the period. Revenues decreased
16.2% year-on-year (18.4% OCC) with lower sales in all geographic regions on
an OCC basis reflecting component shortages and to a lesser extent the
non-repeat of power sector project business in Asia Pacific and the Americas.
Water and power segment sales were both lower in Asia Pacific. In the
Americas, both segments reported a decline with power sales down the most due
to a strong comparison. In EMEA, both segments saw sales reduce as a result of
component shortages and logistics challenges. For the division overall, water
sales were down mid-single digits year-on-year on an OCC basis.

 

The division's adjusted operating profits were £13.4m, 36.2% lower
year-on-year. The two major power projects in the first half of 2021 combined
with delays to deliveries of electric actuators have had a negative mix and
operational gearing impact. Adjusted margins were 20.7%, down from 27.1% the
prior year. The margin decline reflected the factors highlighted above
together with the higher component costs noted across all divisions in respect
of electric actuators.

 

We see significant growth opportunities in Water & Power driven by the
water sector's need to achieve higher water quality standards, lower
operational costs, reduce water leakage and increase the lifecycle of assets
above- and under- ground. In power, our teams are targeting environmental
opportunities such as waste-to-energy investments, flue-gas desulphurisation
retrofits and seeking refurbishment opportunities within our large installed
base.

 

 

 Financial Key Performance Indicators (KPIs)

              H1 2022  H1 2021         FY 2021

                    (Restated)(5)
 Revenue growth              -2.9%    1.8%            -5.9%
 Adjusted operating margin   19.0%    21.8%           22.5%
 Cash conversion             68.1%    94.0%           108.0%
 Return on capital employed  27.0%    32.9%           30.1%
 Adjusted EPS growth         -12.7%   1.9%            -9.6%

 

 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 surplus net of
 related deferred tax liability removed (note 2d).

 ·    Adjusted EPS growth is defined as the increase/(decrease) 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.   Other adjustments to profit items may
 include but are not restricted to: costs of significant business
 restructuring, significant impairments of intangible or tangible assets,
 software as a service configuration costs and other items due to their
 significance, size or nature. The costs of ceasing operations in Russia and
 the impairment of the gross assets of the Russian entity have been recognised
 in other adjustments during the first half of 2022.

£m                 Statutory results  Amortisation  Software as a Service  Russia market exit  Other Adjustments

                                                          Adjusted results

 Operating profit   44.0               3.1           3.5                    3.6                 (0.9)              53.3
 Profit before tax  44.6               3.1           3.5                    3.6                 (0.9)              53.9
 Tax                (10.9)             (0.8)         (1.3)                  -                   0.1                (12.9)
 Profit after tax   33.7               2.3           2.2                    3.6                 (0.8)              41.0

 

 Financial position

 The balance sheet remains strong and we ended the period with net cash of
 £90.4m (Dec 2021: £114.1m). Net cash comprises cash balances of £100.4m
 less loans and borrowings and leases of £10.0m.

 Net working capital has increased by £33.5m since the year end to £157.3m at
 the period end; this was largely driven by inventory and trade receivables.
 Inventory levels have increased following the tactical decision to hold higher
 levels of components to help mitigate the risk of supply chain disruption.
 Days sales outstanding has reduced by 5 days since December 2021 to 51 days.
 However, trade receivables have increased due to a greater weighting of sales
 being towards the end of the period in H1. In total, net working capital as a
 percentage of sales was 28.1% compared with 21.8% in December 2021 and 22.9%
 in June 2021.

 The increase in working capital has resulted in cash conversion of 68.1% of
 adjusted operating profit into operating cash, down from 94.0% in H1 2021.

 The estimated effective tax rate used for the year ending 31 December 2022 is
 24.4% (2021 actual rate: 24.2%) and the estimated adjusted effective tax rate
 for the year ending 31 December 2022, based on adjusted profit before tax, is
 23.9% (2021 actual: 23.8%).

 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 has moved from a deficit of £7.6m at 31 December 2021 to a
 surplus of £11.2m at 30 June 2022, principally due to an increase in the
 discount rate, used to determine the present value of future obligations.

 Currency

 Overall, currency tailwinds increased revenue by £5.5m (2.0%) compared with
 the first half of 2021. The average US dollar rate was $1.30 (H1 2021: $1.39)
 and the average Euro rate was €1.19 (H1 2021: €1.15), whilst the rates at
 30 June 2022 were $1.22 and €1.16 respectively (30 June 2021: $1.38 and
 €1.17).

 Dividend

 The Board has declared an interim dividend of 2.40p per ordinary share. The
 interim dividend will be paid on 23 September 2022 to shareholders on the
 register at the close of business on 19 August 2022.

 Ukraine conflict

 Deliveries to Russia ceased at the start of March. Rotork had no manufacturing
 presence in Russia and is suspending the activities of its sales and service
 operations in the country in an orderly manner, with a small number of
 employees retained to manage this process. The Russia, Ukraine and Belarus
 region contributed around 3% to group sales in 2021. The costs associated with
 exiting the Russian market and impairing the assets have been recognised in
 other adjustments in the period.

 Non-controlling interest

 The Group invested £4,059,000 for 75% of the share capital in a
 newly-established entity in Saudi Arabia during April 2022, with the remaining
 25% owned by a third party. Owing to this third party shareholding, a
 "Non-controlling interests" position is now reported in the financial
 statements.

 Principal risks and uncertainties

 The Group has an established risk management process as part of the corporate
 governance framework set out in the 2021 Annual Report and Accounts. The
 principal risks and uncertainties facing our businesses are monitored on an
 ongoing basis in line with the Corporate Governance Code. The risk management
 process is described in detail on pages 83 to 85 of the 2021 Annual Report and
 Accounts. The Group's principal risks and uncertainties have been reviewed by
 the Board and the Board have concluded that they remain applicable for the
 second half of the financial year. A more detailed description of the Group's
 principal risks and uncertainties is set out on pages 86 to 92 of the 2021
 Annual Report and Accounts.

 Risk update

 Whilst there has been no change in the principal risks and uncertainties under
 review by the business, the following risks have increased.

 ·    Geopolitical instability - we have seen an increase in geopolitical
 instability and continue to monitor potential impacts such as forecasting
 challenges or disruption to the business.

 ·    Supply chain disruption - we continue to see this risk as elevated
 due to component shortages and constraints driving uncertainty in supply.
 Management actions to improve the reliability of logistics and secure the
 supply of key components have mitigated potentially more severe outcomes
 including key initiatives such as the global transportation programme and the
 global shortages programme.

 Impacts of COVID-19 on Rotork's risk profile

 We continue to monitor the impact of COVID-19 across our principal risks and
 uncertainties. Many of the risks associated with COVID-19 are now part of our
 business as usual risk management practices.

 Climate risk

 We continue to monitor climate risk closely given its significance internally
 and externally. As we noted in our 2021 Sustainability Report, we have
 performed both a qualitative and quantitative analysis of our climate-related
 risks and opportunities and the results of our analysis provide detailed
 information about the magnitude of potential impacts of climate change on our
 business and operations. Understanding these impacts will enable us to
 strengthen the business case for investment in mitigation and adaptation
 measures and address those risks that have the largest potential impacts
 first.

 Emerging risks

 We continue to monitor and review emerging risks that may impact our business
 including people, market, environmental, climate and sustainability risks.

 Principal risks and uncertainties

 1. Decline in market confidence: A decline in government and private sector
 confidence and spending will lead to cancellations of expected projects or
 delays to existing expenditure commitments. This lower investment in Rotork's
 traditional market sectors would result in a smaller addressable market, which
 in turn could lead to a reduction in revenue from that sector.

2. Increased competition: Increased competition on price or product offering
 leading to a loss of sales globally or market share.

3. Geopolitical instability: Increasing social and political instability,
 including Brexit, results in disruption and increased protectionism in key
 geographic markets. Business disruption would impact our sales and might
 ultimately lead to loss of assets located in the affected region.

4. Failure of an acquisition to deliver value: Failure of an acquisition to
 deliver the growth or synergies anticipated, either due to unforeseen changes
 in market conditions or failure to integrate an acquisition effectively.
 Significant financial underperformance could lead to an impairment write down
 of the associated intangible assets.

5. Health, Safety and the Environment: The nature of Rotork's core business
 and geographical locations involves potential risks to the Health and Safety
 of our employees or other stakeholders. A failure of our products or internal
 processes could have an impact on the environment.

6. Compliance with laws and regulations: Failure of our staff or third parties
 who we do business with to comply with law or regulation or to uphold our high
 ethical standards and values.

7. Major in-field product failure: Major in-field failure of a new or existing
 Rotork product potentially leading to a product recall, major on-site warranty
 programme or the loss of an existing or potential customer.

8. Supply chain disruption: Supply chain disruption which may arise such as a
 lack of availability of key components, tooling failure at a key supplier,
 logistics issues or severe weather events impacting key suppliers which would
 cause disruption to manufacturing at a Rotork factory.

9. Critical IT system failure and cybersecurity: Failure to provide, maintain
 and update the systems and infrastructure required by the Rotork business.
 Failure to protect Rotork operations, sensitive or commercial data, technical
 specifications and financial information from cybercrime.

10. Growth Acceleration Programme: The Growth Acceleration Programme and other
 change projects lead to business disruption or have a negative effect on
 day-to-day operations.

 Statement of Directors' Responsibilities

 The directors confirm that, to the best of their knowledge, this condensed
 consolidated interim financial information has been prepared in accordance
 with IAS 34 as adopted by the United Kingdom, the interim financial statements
 give a true and fair view of the consolidated assets, liabilities, financial
 position and profit of the Company and its group companies taken as a whole;
 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.

 These interim financial statements and the interim management report are the
 responsibility of, and have been approved by, the directors. A list of the
 current directors can be found in the "About Us" section of the Rotork
 website: www.rotork.com (http://www.rotork.com) .

 By order of the Board

 Kiet Huynh

 Chief Executive

 1 August 2022

 Independent Review Report to Rotork plc

 Conclusion

 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 2022 which comprises the condensed consolidated income statement, the
 condensed consolidated statement of comprehensive income and expense, the
 condensed consolidated balance sheet, the condensed consolidated statement of
 changes in equity, the condensed consolidated statement of cash flows and
 related notes 1 to 16.

 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 2022 is not prepared, in all
 material respects, in accordance with United Kingdom adopted International
 Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
 the United Kingdom's Financial Conduct Authority.

 Basis for Conclusion

 We conducted our review in accordance with International Standard on Review
 Engagements (UK) 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.

 As disclosed in note 1, the annual financial statements of the group will be
 prepared in accordance with United Kingdom adopted international accounting
 standards. The condensed set of financial statements included in this
 half-yearly financial report has been prepared in accordance with United
 Kingdom adopted International Accounting Standard 34, "Interim Financial
 Reporting".

 Conclusion Relating to Going Concern

 Based on our review procedures, which are less extensive than those performed
 in an audit as described in the Basis for Conclusion section of this report,
 nothing has come to our attention to suggest that the directors have
 inappropriately adopted the going concern basis of accounting or that the
 directors have identified material uncertainties relating to going concern
 that are not appropriately disclosed.

 This conclusion is based on the review procedures performed in accordance with
 this ISRE (UK), however future events or conditions may cause the entity to
 cease to continue as a going concern.

 Responsibilities of 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.

 In preparing the half-yearly financial report, the directors are responsible
 for assessing the group's ability to continue as a going concern, disclosing
 as applicable, matters related to going concern and using the going concern
 basis of accounting unless the directors either intend to liquidate the
 company or to cease operations, or have no realistic alternative but to do so.

 Auditor's Responsibilities for the review of the financial information

 In reviewing the half-yearly financial report, we are responsible for
 expressing to the group a conclusion on the condensed set of financial
 statements in the half-yearly financial report. Our conclusion, including our
 Conclusions Relating to Going Concern, are based on procedures that are less
 extensive than audit procedures, as described in the Basis for Conclusion
 paragraph of this report.

 Use of our report

 This report is made solely to the company in accordance with International
 Standard on Review Engagements (UK) 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.

 Deloitte LLP

 Statutory Auditor

 London, United Kingdom

 1 August 2022

 

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 surplus net of
related deferred tax liability removed (note 2d).

·    Adjusted EPS growth is defined as the increase/(decrease) 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.   Other adjustments to profit items may
include but are not restricted to: costs of significant business
restructuring, significant impairments of intangible or tangible assets,
software as a service configuration costs and other items due to their
significance, size or nature. The costs of ceasing operations in Russia and
the impairment of the gross assets of the Russian entity have been recognised
in other adjustments during the first half of 2022.

 £m                 Statutory results  Amortisation  Software as a Service  Russia market exit  Other Adjustments

                                                                                                                   Adjusted results

 Operating profit   44.0               3.1           3.5                    3.6                 (0.9)              53.3
 Profit before tax  44.6               3.1           3.5                    3.6                 (0.9)              53.9
 Tax                (10.9)             (0.8)         (1.3)                  -                   0.1                (12.9)
 Profit after tax   33.7               2.3           2.2                    3.6                 (0.8)              41.0

 

Financial position

The balance sheet remains strong and we ended the period with net cash of
£90.4m (Dec 2021: £114.1m). Net cash comprises cash balances of £100.4m
less loans and borrowings and leases of £10.0m.

 

Net working capital has increased by £33.5m since the year end to £157.3m at
the period end; this was largely driven by inventory and trade receivables.
Inventory levels have increased following the tactical decision to hold higher
levels of components to help mitigate the risk of supply chain disruption.
Days sales outstanding has reduced by 5 days since December 2021 to 51 days.
However, trade receivables have increased due to a greater weighting of sales
being towards the end of the period in H1. In total, net working capital as a
percentage of sales was 28.1% compared with 21.8% in December 2021 and 22.9%
in June 2021.

The increase in working capital has resulted in cash conversion of 68.1% of
adjusted operating profit into operating cash, down from 94.0% in H1 2021.

 

The estimated effective tax rate used for the year ending 31 December 2022 is
24.4% (2021 actual rate: 24.2%) and the estimated adjusted effective tax rate
for the year ending 31 December 2022, based on adjusted profit before tax, is
23.9% (2021 actual: 23.8%).

 

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 has moved from a deficit of £7.6m at 31 December 2021 to a
surplus of £11.2m at 30 June 2022, principally due to an increase in the
discount rate, used to determine the present value of future obligations.

 

Currency

Overall, currency tailwinds increased revenue by £5.5m (2.0%) compared with
the first half of 2021. The average US dollar rate was $1.30 (H1 2021: $1.39)
and the average Euro rate was €1.19 (H1 2021: €1.15), whilst the rates at
30 June 2022 were $1.22 and €1.16 respectively (30 June 2021: $1.38 and
€1.17).

 

Dividend

The Board has declared an interim dividend of 2.40p per ordinary share. The
interim dividend will be paid on 23 September 2022 to shareholders on the
register at the close of business on 19 August 2022.

 

Ukraine conflict

Deliveries to Russia ceased at the start of March. Rotork had no manufacturing
presence in Russia and is suspending the activities of its sales and service
operations in the country in an orderly manner, with a small number of
employees retained to manage this process. The Russia, Ukraine and Belarus
region contributed around 3% to group sales in 2021. The costs associated with
exiting the Russian market and impairing the assets have been recognised in
other adjustments in the period.

 

Non-controlling interest

The Group invested £4,059,000 for 75% of the share capital in a
newly-established entity in Saudi Arabia during April 2022, with the remaining
25% owned by a third party. Owing to this third party shareholding, a
"Non-controlling interests" position is now reported in the financial
statements.

 

Principal risks and uncertainties

The Group has an established risk management process as part of the corporate
governance framework set out in the 2021 Annual Report and Accounts. The
principal risks and uncertainties facing our businesses are monitored on an
ongoing basis in line with the Corporate Governance Code. The risk management
process is described in detail on pages 83 to 85 of the 2021 Annual Report and
Accounts. The Group's principal risks and uncertainties have been reviewed by
the Board and the Board have concluded that they remain applicable for the
second half of the financial year. A more detailed description of the Group's
principal risks and uncertainties is set out on pages 86 to 92 of the 2021
Annual Report and Accounts.

 

Risk update

Whilst there has been no change in the principal risks and uncertainties under
review by the business, the following risks have increased.

·    Geopolitical instability - we have seen an increase in geopolitical
instability and continue to monitor potential impacts such as forecasting
challenges or disruption to the business.

·    Supply chain disruption - we continue to see this risk as elevated
due to component shortages and constraints driving uncertainty in supply.
Management actions to improve the reliability of logistics and secure the
supply of key components have mitigated potentially more severe outcomes
including key initiatives such as the global transportation programme and the
global shortages programme.

 

Impacts of COVID-19 on Rotork's risk profile

We continue to monitor the impact of COVID-19 across our principal risks and
uncertainties. Many of the risks associated with COVID-19 are now part of our
business as usual risk management practices.

 

Climate risk

We continue to monitor climate risk closely given its significance internally
and externally. As we noted in our 2021 Sustainability Report, we have
performed both a qualitative and quantitative analysis of our climate-related
risks and opportunities and the results of our analysis provide detailed
information about the magnitude of potential impacts of climate change on our
business and operations. Understanding these impacts will enable us to
strengthen the business case for investment in mitigation and adaptation
measures and address those risks that have the largest potential impacts
first.

 

Emerging risks

We continue to monitor and review emerging risks that may impact our business
including people, market, environmental, climate and sustainability risks.

 

Principal risks and uncertainties

1. Decline in market confidence: A decline in government and private sector
confidence and spending will lead to cancellations of expected projects or
delays to existing expenditure commitments. This lower investment in Rotork's
traditional market sectors would result in a smaller addressable market, which
in turn could lead to a reduction in revenue from that sector.

2. Increased competition: Increased competition on price or product offering
leading to a loss of sales globally or market share.

3. Geopolitical instability: Increasing social and political instability,
including Brexit, results in disruption and increased protectionism in key
geographic markets. Business disruption would impact our sales and might
ultimately lead to loss of assets located in the affected region.

4. Failure of an acquisition to deliver value: Failure of an acquisition to
deliver the growth or synergies anticipated, either due to unforeseen changes
in market conditions or failure to integrate an acquisition effectively.
Significant financial underperformance could lead to an impairment write down
of the associated intangible assets.

5. Health, Safety and the Environment: The nature of Rotork's core business
and geographical locations involves potential risks to the Health and Safety
of our employees or other stakeholders. A failure of our products or internal
processes could have an impact on the environment.

6. Compliance with laws and regulations: Failure of our staff or third parties
who we do business with to comply with law or regulation or to uphold our high
ethical standards and values.

7. Major in-field product failure: Major in-field failure of a new or existing
Rotork product potentially leading to a product recall, major on-site warranty
programme or the loss of an existing or potential customer.

8. Supply chain disruption: Supply chain disruption which may arise such as a
lack of availability of key components, tooling failure at a key supplier,
logistics issues or severe weather events impacting key suppliers which would
cause disruption to manufacturing at a Rotork factory.

9. Critical IT system failure and cybersecurity: Failure to provide, maintain
and update the systems and infrastructure required by the Rotork business.
Failure to protect Rotork operations, sensitive or commercial data, technical
specifications and financial information from cybercrime.

10. Growth Acceleration Programme: The Growth Acceleration Programme and other
change projects lead to business disruption or have a negative effect on
day-to-day operations.

 

Statement of Directors' Responsibilities

 

The directors confirm that, to the best of their knowledge, this condensed
consolidated interim financial information has been prepared in accordance
with IAS 34 as adopted by the United Kingdom, the interim financial statements
give a true and fair view of the consolidated assets, liabilities, financial
position and profit of the Company and its group companies taken as a whole;
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.

These interim financial statements and the interim management report are the
responsibility of, and have been approved by, the directors. A list of the
current directors can be found in the "About Us" section of the Rotork
website: www.rotork.com (http://www.rotork.com) .

 

By order of the Board

Kiet Huynh

Chief Executive

1 August 2022

 

 

 

 

Independent Review Report to Rotork plc

 

Conclusion

 

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 2022 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income and expense, the
condensed consolidated balance sheet, the condensed consolidated statement of
changes in equity, the condensed consolidated statement of cash flows and
related notes 1 to 16.

 

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 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.

 

Basis for Conclusion

 

We conducted our review in accordance with International Standard on Review
Engagements (UK) 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.

 

As disclosed in note 1, the annual financial statements of the group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".

 

Conclusion Relating to Going Concern

 

Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.

 

Responsibilities of 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.

 

In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's Responsibilities for the review of the financial information

 

In reviewing the half-yearly financial report, we are responsible for
expressing to the group a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.

 

Use of our report

 

This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 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.

Deloitte LLP

Statutory Auditor

London, United Kingdom

1 August 2022

 

 

 

 

Condensed consolidated Income Statement

 

                                                              First half  First half          Full year
                                                              2022        2021 (Restated)(1)  2021
                                                       Notes  £000        £000                £000

 Revenue                                               3      280,014     288,261             569,160
 Cost of sales                                                (155,222)   (155,081)           (306,394)
 Gross profit                                                 124,792     133,180             262,766
 Other income                                                 374         220                 587
 Distribution costs                                           (2,939)     (2,504)             (5,397)
 Administrative expenses                                      (78,160)    (80,311)            (152,064)
 Other expenses                                               (39)        (34)                (182)
 Operating profit                                      3      44,028      50,551              105,710
 Finance income                                        5      1,791       1,341               2,442
 Finance expense                                       6      (1,229)     (1,196)             (2,221)
 Profit before tax                                            44,590      50,696              105,931

 Income tax expense                                    7      (10,882)    (12,398)            (25,686)

 Profit for the period                                        33,708      38,298              80,245

 Attributable to:
 Owners of the parent                                         33,741      38,298              80,245
 Non-controlling interests                                    (33)        -                   -
                                                              33,708      38,298              80,245

 Basic earnings per share                              9      3.9p        4.4p                9.2p
 Diluted earnings per share                            9      3.9p        4.4p                9.2p

 Operating profit                                             44,028      50,551              105,710

 Adjustments:
 -     Amortisation of acquired intangible assets             3,096       4,655               9,001
 -     Other adjustments                               4      6,179       7,529               13,369
 Adjusted Operating profit                                    53,303      62,735              128,080

 Adjusted basic earnings per share                     2      4.8p        5.5p                11.3p
 Adjusted diluted earnings per share                   2      4.8p        5.5p                11.2p

    1    See note 1 for details of the prior period restatement

 

 

 

 Condensed consolidated Statement of Comprehensive Income and Expense

                                                                        First half  First half          Full year
                                                                        2022        2021 (Restated)(1)  2021
                                                                        £000        £000                £000

 Profit for the period                                                  33,708      38,298              80,245

 Other comprehensive income and expense
 Items that may be subsequently reclassified to the income statement:
 Foreign currency translation differences                               19,676      (8,559)             (8,899)
 Effective portion of changes in fair value of cash flow                (1,786)     342                 (88)

hedges net of tax
                                                                        17,890      (8,217)             (8,987)
 Items that are not subsequently reclassified to the income statement:
 Actuarial gain in pension scheme net of tax                            11,412      10,241              19,469
 Income and expenses recognised directly in equity                      29,302      2,024               10,482

 Total comprehensive income for the period                              63,010      40,322              90,727
 Attributable to:
 Owners of the parent                                                   64,043      40,322              90,727
 Non-controlling interests                                              (33)        -                   -
                                                                        63,010      40,322              90,727

    1    See note 1 for details of the prior period restatement

 

 

 

 Condensed consolidated Balance Sheet

                                                                        30 June  30 June         31 Dec
                                                                        2022     2021            2021

                                                                                 (Restated)(1)
                                                                 Notes  £000     £000            £000
 Goodwill                                                               224,575  218,283         216,778
 Intangible assets                                                      24,337   28,459          25,722
 Property, plant and equipment                                          79,507   80,593          77,798
 Deferred tax assets                                                    10,428   12,511          10,183
 Other receivables                                                      41       332             -
 Defined benefit scheme surplus                                  11     11,233   -               -
 Total non-current assets                                               350,121  340,178         330,481

 Inventories                                                     10     90,521   63,077          68,447
 Trade receivables                                                      108,117  104,104         94,189
 Current tax                                                            10,255   5,740           9,558
 Derivative financial instruments                                16     288      1,676           1,896
 Other receivables                                                      40,281   33,308          35,824
 Assets classified as held for sale                                     -        -               2,884
 Cash and cash equivalents                                              100,382  153,361         123,474
 Total current assets                                                   349,844  361,266         336,272

 Total assets                                                           699,965  701,444         666,753

 Issued equity capital                                           12     4,302    4,371           4,302
 Share premium                                                          19,266   17,153          18,828
 Other reserves                                                         29,909   12,717          12,019
 Retained earnings                                                      509,810  518,705         498,931
 Equity attributable to owners of the parent                            563,287  552,946         534,080
 Non-controlling interests                                              1,382    -               -
 Total equity                                                           564,669  552,946         534,080

 Interest bearing loans and borrowings                           13     6,454    5,051           5,464
 Employee benefits                                               11     4,064    22,042          11,336
 Deferred tax liabilities                                               2,696    1,906           1,580
 Derivative financial instruments                                16     403      40              106
 Other payables                                                         -        314             -
 Provisions                                                             1,524    1,707           1,559
 Total non-current liabilities                                          15,141   31,060          20,045

 Interest bearing loans and borrowings                           13     3,505    4,038           3,872
 Trade payables                                                         41,332   35,385          38,800
 Employee benefits                                                      10,771   19,006          14,440
 Current tax                                                            14,071   13,074          12,226
 Derivative financial instruments                                16     1,024    -               -
 Other payables                                                         45,902   38,316          37,986
 Provisions                                                             3,550    7,619           5,304
 Total current liabilities                                              120,155  117,438         112,628

 Total liabilities                                                      135,296  148,498         132,673

 Total equity and liabilities                                           699,965  701,444         666,753
 1    See note 1 for details of the prior period restatement

 

 

 

Condensed consolidated Statement of Changes in Equity

 

                                                                 Issued equity  Share     Translation  Capital                                            Attributable to owners of the parent  Non-controlling interest  Total

                                                                 capital        premium   reserve      redemption   Hedging reserve   Retained earnings   £000                                  £000                      £000

                                                                 £000           £000      £000         reserve      £000              £000

                                                                                                       £000
 Balance at 31 December 2021                                     4,302          18,828    9,475        1,716        828               498,931             534,080                               -                         534,080
 Profit for the period                                           -              -         -            -            -                 33,741              33,741                                (33)                      33,708
 Other comprehensive (expense)/income
 Foreign currency translation differences                        -              -         19,676       -            -                 -                   19,676                                -                         19,676
 Effective portion of changes in fair value of cash flow hedges  -              -         -            -            (2,205)           -                   (2,205)                               -                         (2,205)
 Actuarial gain on defined benefit                               -              -         -            -            -                 15,500              15,500                                -                         15,500

pension plans
 Tax in other comprehensive (expense)/income                     -              -         -            -            419               (4,088)             (3,669)                               -                         (3,669)
 Total other comprehensive (expense)/income                      -              -         19,676       -            (1,786)           11,412              29,302                                -                         29,302
 Total comprehensive income                                      -              -         19,676       -            (1,786)           45,153              63,043                                (33)                      63,010
 Non-controlling interest on newly-established subsidiary        -              -         -            -            -                 -                   -                                     1,415                     1,415
 Transactions with owners, recorded directly in equity
 Equity settled share based payment transactions                 -              -         -            -            -                 (869)               (869)                                 -                         (869)
 Tax on equity settled share based payment transactions          -              -         -            -            -                 164                 164                                   -                         164
 Shares issued to satisfy employee awards                        -              438       -            -            -                 -                   438                                   -                         438
 Own ordinary shares acquired                                    -              -         -            -            -                 (1,600)             (1,600)                               -                         (1,600)
 Own ordinary shares awarded under share schemes                 -              -         -            -            -                 2,818               2,818                                 -                         2,818
 Dividends                                                       -              -         -            -            -                 (34,787)            (34,787)                              -                         (34,787)
 Balance at 30 June 2022                                         4,302          19,266    29,151       1,716        (958)             509,810             563,287                               1,382                     564,669

 

 

 

Condensed consolidated Statement of Changes in Equity (continued)

                                                                 Issued equity  Share     Translation  Capital                                            Attributable to owners of the parent  Non-controlling interest  Total

 

                                                               capital        premium   reserve      redemption   Hedging reserve   Retained earnings   £000                                  £000                      £000

                                                               £000           £000      £000         reserve      £000              £000

                                                                                                       £000
 Balance at 31 December 2020 (Restated) (1)                      4,370          16,826    18,374       1,644        916               528,624             570,754                               -                         570,754
 Profit for the period                                           -              -         -            -            -                 38,298              38,298                                -                         38,298
 Other comprehensive (expense)/income
 Foreign currency translation differences                        -              -         (8,559)      -            -                 -                   (8,559)                               -                         (8,559)
 Effective portion of changes in fair value of cash flow hedges  -              -         -            -            422               -                   422                                   -                         422
 Actuarial gain on defined benefit                               -              -         -            -            -                 12,837              12,837                                -                         12,837

pension plans
 Tax in other comprehensive (expense)/income                     -              -         -            -            (80)              (2,596)             (2,676)                               -                         (2,676)
 Total other comprehensive (expense)/income                      -              -         (8,559)      -            342               10,241              2,024                                 -                         2,024
 Total comprehensive income                                      -              -         (8,559)      -            342               48,539              40,322                                -                         40,322
 Transactions with owners, recorded directly in equity
 Equity settled share based payment transactions                 -              -         -            -            -                 (4,325)             (4,325)                               -                         (4,325)
 Tax on equity settled share based payment transactions          -              -         -            -            -                 817                 817                                   -                         817
 Shares issued to satisfy employee awards                        1              327       -            -            -                 -                   328                                   -                         328
 Own ordinary shares acquired                                    -              -         -            -            -                 (5,409)             (5,409)                               -                         (5,409)
 Own ordinary shares awarded under share schemes                 -              -         -            -            -                 5,455               5,455                                 -                         5,455
 Dividends                                                       -              -         -            -            -                 (54,996)            (54,996)                              -                         (54,996)
 Balance at 30 June 2021 (Restated) (1)                          4,371          17,153    9,815        1,644        1,258             518,705             552,946                               -                         552,946

  1    See note 1 for details of the prior period restatement

Condensed consolidated Statement of Cash Flows

 

                                                                 First half  First half          Full year
                                                                             2021 (Restated)(1)  2021

                                                                 2022
                                                          Notes  £000        £000                £000
 Cash flows from operating activities
 Profit for the period                                           33,708      38,298              80,245
 Adjustments for:                                                            4,655               9,001

 Amortisation of acquired intangible assets                      3,104
 Other adjustments                                        4      6,179       7,529               13,369
 Amortisation and impairment of development costs                741         978                 1,657
 Depreciation                                                    7,426       7,905               15,673
 Equity settled share-based payment expense                      2,118       1,951               3,333
 Net profit on sale of property, plant and equipment             (60)        (27)                -
 Finance income                                                  (1,791)     (1,341)             (2,442)
 Finance expense                                                 1,229       1,196               2,221
 Income tax expense                                              10,882      12,398              25,686
                                                                 63,536      73,542              148,743
 (Increase) in inventories                                       (16,852)    (3,070)             (8,330)
 (Increase)/decrease in trade and other receivables              (9,439)     (1,070)             5,944
 Increase/(decrease) in trade and other payables                 2,514       (1,667)             2,583
 Cash impact of other adjustments                                (5,030)     (5,320)             (13,346)
 Difference between pension charge and cash contribution         (3,474)     (3,733)             (7,562)
 Increase/(decrease) in provisions                               341         (162)               (937)
 (Decrease) in employee benefits                                 (3,823)     (8,615)             (9,632)
                                                                 27,773      49,905              117,463
 Income taxes paid                                               (12,053)    (15,245)            (32,021)
 Net cash flows from operating activities                        15,720      34,660              85,442

 Investing activities
 Purchase of property, plant and equipment                       (3,887)     (7,541)             (13,170)
 Purchase of intangible assets                                   (1,041)     (2,507)             (5,174)
 Development costs capitalised                                   (1,327)     (815)               (1,806)
 Sale of property, plant and equipment                           4,097       3,028               3,808
 Settlement of hedging derivatives                               (474)       205                 4,102
 Interest received                                               499         540                 857
 Net cash flows from investing activities                        (2,133)     (7,090)             (11,383)

 Financing activities
 Issue of ordinary share capital                                 438         328                 2,006
 Own ordinary shares acquired                                    (1,600)     (5,409)             (7,809)
 Share buyback programme                                         -           -                   (50,324)
 Interest paid                                                   (440)       (458)               (881)
 Decrease in bank loans                                          (686)       (34)                (67)
 Repayment of lease liabilities                                  (2,536)     (2,380)             (4,904)
 Dividends paid on ordinary shares                               (34,787)    (54,996)            (75,515)
 Receipt for non-controlling interest                            1,415       -                   -
 Net cash flows from financing activities                        (38,196)    (62,949)            (137,494)

 Net decrease in cash and cash equivalents                       (24,609)    (35,379)            (63,435)

 Cash and cash equivalents at 1 January                          123,474     187,204             187,204
 Effect of exchange rate fluctuations on cash held               1,518       1,536               (295)
 Cash and cash equivalents at end of period                      100,383     153,361             123,474

 1    See note 1 for details of the prior period restatement

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 2022 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 2021 does not constitute
statutory accounts within the meaning of Section 435 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2021 were approved by
the Board on 28 February 2022 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 2021 are
available from the Company's registered office or website.

 

Basis of preparation

 

The condensed consolidated interim financial statements of the Company for the
six months ended 30 June 2022 comprise the results for 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 United Kingdom. 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 2021, which have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards (IFRSs)
adopted by the United Kingdom.

 

Going concern

 

The directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, we continue to adopt the
going concern basis in preparing the condensed consolidated interim financial
information.

 

In forming this view, the ongoing impact of COVID-19, supply chain disruption
and geo-political instability on the Group has been considered. The directors
have reviewed: the current financial position of the Group, which has net cash
of £90m and unused overdraft facilities of £32m as at the period end; the
significant order book, which contains customers spread across different
geographic areas and industries; and the trading and cash flow forecasts for
the Group. The directors are satisfied that any downside scenarios are
considered remote and that the Group would continue to have headroom within
current cash balance and overdraft facilities. The Group also has a number of
mitigating actions that it can take at short notice to preserve cash, for
example reduction in capital programmes, dividend deferral and other
reductions in discretionary spend.

 

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 2021.

 

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 2021, except for the adoption of new standards
effective as of 1 January 2022. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is not yet
effective.

 

Non-controlling interests

 

Non-controlling interests in subsidiaries are identified separately from the
Group's equity therein. The interest of non-controlling shareholders is
initially measured at the non-controlling interests' proportion of the share
of the fair value of the acquiree's identifiable net assets. Subsequent to
acquisition, the carrying amount of non-controlling interests is the amount of
those interests at initial recognition plus the non-controlling interests'
share of subsequent changes in equity. Total comprehensive income is
attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.

 

New accounting standards and interpretations

 

Change in accounting policy - Software as a Service ('SaaS') arrangements

As noted and restated within the Annual Report for the year ended 31 December
2021, the Group has changed its accounting policy related to the
capitalisation of certain software costs. This change follows the IFRIC
Interpretation Committee's agenda decision published in April 2021, which
clarifies the accounting treatment of the costs of configuring or customising
application software under Software as a Service arrangements.

 

The Group's accounting policy has historically been to capitalise costs
directly attributable to the configuration and customisation of SaaS
arrangements as assets in the Balance Sheet. Following the adoption of the
above IFRIC agenda guidance, current SaaS arrangements, principally relating
to the Group's ongoing transformation programme, were identified and assessed
to determine if the Group has control of the software and associated
configured and customised elements. For those arrangements where the Group
does not have control of the developed software, the Group derecognised the
asset previously capitalised.

 

This change in accounting policy led to adjustments in the 30 June 2021
reported financial results.   Accordingly, the prior period Balance Sheet at
30 June 2021 has been restated in accordance with IAS 8, together with related
notes. The tables on the following page show the impact of the change in
accounting policy on previously reported financial results.

 

Impact on the consolidated balance sheet

                                   (As previously reported)                          (Restated)

                                   First half 2021           Impact of restatement   First half 2021

                                   £000                      £000                    £000
 Intangible assets                 46,450                    (17,991)                28,459
 Deferred tax assets               8,036                     4,475                   12,511
 Other assets                      660,474                   ---                     660,474
 Total assets                      714,960                   (13,516)                701,444
 Retained earnings                 533,067                   (14,362)                518,705
 Deferred tax liabilities          1,060                     846                     1,906
 Other equity and liabilities      180,833                   -                       180,833
 Total equity and liabilities      714,960                   (13,516)                701,444

 

Impact on the consolidated income statement and statement of comprehensive
income

                                                   (As previously reported)                          (Restated)

                                                   First half 2021           Impact of restatement   First half 2021

                                                   £000                      £000                    £000
 Adjusted operating profit                         62,735                    ---                     62,735
 Adjustments
 - Amortisation of acquired intangible assets      (4,655)                   ---                     (4,655)
 - Other adjustments                               (4,076)                   (3,453)                 (7,529)
 Operating profit                                  54,004                    (3,453)                 50,551
 Profit before tax                                 54,149                    (3,453)                 50,696
 Income tax expense                                (13,265)                  867                     (12,398)
 Profit for the year                               40,884                    (2,586)                 38,298
 Estimated effective tax rate                      24.5%                     -                       24.5%
 Total comprehensive income for the year           42,908                    (2,586)                 40,322

 

Impact on basic and diluted earnings per share

                                          (As previously reported)                          (Restated)

                                          First half 2021           Impact of restatement   First half 2021
 Basic earnings per share                 4.7p                      (0.3)p                  4.4p
 Adjusted basic earnings per share        5.5p                      ---                     5.5p
 Diluted earnings per share               4.7p                      (0.3)p                  4.4p
 Adjusted diluted earnings per share      5.5p                      ---                     5.5p

 

Impact on the consolidated statement of cash flows

                                               (As previously reported)                          (Restated)

                                               2021                      Impact of restatement   First half 2021

                                               £000                      £000                    £000
 Net cash flows from operating activities      38,317                    (3,657)                 34,660
 Net cash flows from investing activities      (10,747)                  3,657                   (7,090)
 Net cash flows from financing activities      (62,949)                  -                       (62,949)
 Cash and cash equivalents at 30 June          153,361                   -                       153,361

 

No impact on the overall increase in cash and cash equivalents for the year.

 

Other amendments

A number of other 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

Further narrow scope amendments have been issued which are mandatory for
periods commencing on or after 1 January 2022. 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
                                                         2021 (Restated)  2021

                                             2022
                                             £000        £000             £000
 Profit before tax                           44,590      50,696           105,931
 Adjustments:
 Amortisation of acquired intangible assets  3,096       4,655            9,001
 Gain on disposal of property                (1,209)     (1,569)          (1,569)
 Software as a Service configuration costs   3,549       3,453            8,493
 Redundancy costs                            254         2,863            3,871
 Other restructuring costs                   29          2,782            2,574
 Russia market exit                          3,555       -                -
 Adjusted profit before tax                  53,864      62,880           128,301

 

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
                                                                        2021 (Restated)  2021

                                                            2022
                                                            £000        £000             £000

 Net profit attributable to ordinary shareholders           33,708      38,298           80,245
 Adjustments:
 Amortisation of acquired intangible assets                 3,096       4,655            9,001
 Gain on disposal of property                               (1,209)     (1,569)          (1,569)
 Software as a Service configuration costs                  3,549       3,453            8,493
 Redundancy costs                                           254         2,863            3,871
 Other restructuring costs                                  29          2,782            2,574
 Russia market exit                                         3,555       -                -
 Tax effect on adjusted items                               (2,000)     (2,595)          (4,785)
 Adjusted net profit attributable to ordinary shareholders  40,982      47,887           97,830

 

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
                                                2022        2021 (Restated)  2021
                                                £000        £000             £000
 Adjusted operating profit
 As reported                                    -           -                128,080
 Rolling 12 months                              118,648     144,041          -

 Capital employed
 Shareholders' funds                            564,669     552,946          534,080
 Cash and cash equivalents                      (100,382)   (153,361)        (123,474)
 Interest bearing loans and borrowings          9,959       9,089            9,336
 Pension (surplus)/deficit net of deferred tax  (8,747)     17,228           6,023
 Capital Employed                               465,499     425,902          425,965
 Average capital employed                       439,122(1)  438,348(1)       424,815(2)
 Return on capital employed                     27.0%       32.9%            30.1%

(1) defined as the average of the capital employed at June 2021, December 2021
and June 2022 (2021: June 2020, December 2020, and June 2021).

(2) defined as the average of the capital employed at December 2020 and
December 2021.

 

e.    Working capital as a percentage of revenue

Working capital as a percentage of revenue is monitored as control of working
capital is key to achieving our cash generation targets. It is calculated as
inventory plus trade receivables, less trade payables, divided by revenue.

 

f.     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
2022 half year results are restated using the average exchange rates applied
for the 2021 comparative period.

 

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.

 

There are no acquisitions or disposals in the current and prior periods.

 

Key headings in the income statement are reconciled to OCC as follows:

                                    First half                        OCC          First half

                                    2022        Currency adjustment   First half   2021

                                                                      2022         (Restated)

 Revenue                            280,014     (5,549)               274,465      288,261
 Cost of sales                      (155,222)   3,208                 (152,014)    (155,081)
 Gross margin                       124,792     (2,341)               122,451      133,180
 Net overheads                      (71,489)    563                   (70,926)     (70,445)
 Adjusted operating profit          53,303      (1,778)               51,525       62,735
 Adjusted operating margin          19.0%                             18.8%        21.8%

 Adjusted profit before tax         53,865      (1,816)               52,049       62,880
 Adjusted basic earnings per share  4.8p        -                     4.8p         5.5p

 

 

3.         Analysis by operating segment

 

The Group has chosen to organise the management and financial structure by the
grouping of end markets. The three identifiable operating segments where the
financial and operating performance is reviewed monthly by the chief operating
decision maker are as follows:

 

·   Oil & Gas

·   Chemical, Process & Industrial

·   Water & Power

Unallocated expenses comprise corporate expenses.

 

Half year to 30 June 2022

                                                                              Chemical, Process & Industrial      Water & Power

£000

                                                              Oil & Gas                                           £000                             Group

                                                                                                                                     Unallocated   £000

                                                              £000

                                                                                                                                     £000
 Revenue                                                      122,287         92,813                              64,914             -             280,014

 Adjusted operating profit                                    23,560          22,730                              13,405             (6,392)       53,303
 Amortisation of acquired intangibles assets                  (2,195)         (613)                               (288)              -             (3,096)
 Segment result before other adjustments                      21,365          22,117                              13,117             (6,392)       50,207
 Other adjustments                                                                                                                                 (6,179)
 Operating profit                                                                                                                                  44,028
 Net financing income                                                                                                                              562
 Income tax expense                                                                                                                                (10,882)
 Profit for the period                                                                                                                             33,708

 

Half year to 30 June 2021 (Restated)

                                                                              Chemical, Process & Industrial

£000

                                                              Oil & Gas                                           Water & Power       Unallocated   Group

£000

                                                                                                                                                    £000

                                                              £000                                                                    £000
 Revenue                                                      129,562         81,203                              77,496              -             288,261

 Adjusted operating profit                                    26,924          20,627                              21,019              (5,835)       62,735
 Amortisation of acquired intangibles assets                  (3,300)         (922)                               (433)               -             (4,655)
 Segment result before other adjustments                      23,624          19,705                              20,586              (5,835)       58,080
 Other adjustments                                                                                                                                  (7,529)
 Operating profit                                                                                                                                   50,551
 Net financing expense                                                                                                                              145
 Income tax expense                                                                                                                                 (12,398)
 Profit for the period                                                                                                                              38,298

 

Full year to 31 December 2021

                                                                              Chemical, Process & Industrial

                                                              Oil & Gas       £000                                Water & Power       Unallocated   Group

£000

                                                                                                                                                    £000

                                                              £000                                                                    £000
 Revenue                                                      260,153         160,454                             148,553             -             569,160

 Adjusted operating profit                                    56,342          42,775                              40,430              (11,467)      128,080
 Amortisation of acquired intangibles assets                  (6,381)         (1,782)                             (838)               -             (9,001)
 Segment result                                               49,961          40,993                              39,592              (11,467)      119,079
 Other adjustments                                                                                                                                  (13,369)
 Operating profit                                                                                                                                   105,710
 Net financing income                                                                                                                               221
 Income tax expense                                                                                                                                 (25,686)
 Profit for the year                                                                                                                                80,245

 

Revenue by location of subsidiary

                 First half  First half  Full year
                 2022        2021        2021
                 £000        £000        £000

 UK              25,120      29,569      55,971
 Italy           23,855      27,440      49,150
 Rest of Europe  44,750      51,860      102,501
 USA             54,861      51,619      96,565
 Other Americas  17,890      19,560      40,152
 China           54,527      46,109      98,011
 Rest of World   59,011      62,104      126,810
                 280,014     288,261     569,160

 

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
                                            2022        2021 (Restated)  2021
                                            £000        £000             £000

 Gain on disposal of properties             1,209       1,569            1,569
 Redundancy costs                           (255)       (2,863)          (3,871)
 Other restructuring costs                  (29)        (2,782)          (2,574)
 Russia market exit                         (3,555)     -                -
 Software as a Service configuration costs  (3,549)     (3,453)          (8,493)
                                            (6,179)     (7,529)          (13,369)

 

The £1,209,000 (2021: £1,569,000) gain on disposal of properties relates to
the sale of one property in the period.

 

The Russia market exit costs are in relation to the ceasing of operations in
Russia and the impairment of the gross assets of the Russian entity.

 

During the period, £3,549,000 of Software as a Service configuration costs
were expensed as part of the multi-year IT transformation programme. This
brings the total amount expensed through the income statement as part of this
programme to £26,504,000. These costs were expensed as they do not meet the
capitalisation criteria under IAS 38.

 

All adjustments are included in administrative expenses. 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
                         2022        2021        2021
                         £000        £000        £000

 Interest income         592         697         1,123
 Foreign exchange gains  1,199       644         1,319
 Finance Income          1,791       1,341       2,442

 

6.         Finance expense

                                                First half  First half  Full year
                                                2022        2021        2021
                                                £000        £000        £000

 Interest expense                               370         376         818
 Interest expense on lease liabilities          197         206         404
 Interest charge on pension scheme liabilities  17          275         522
 Foreign exchange losses                        645         339         477
 Finance Expense                                1,229       1,196       2,221

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 effective tax rate used for the year ending 31 December 2022 is
24.4%. This is higher than the effective tax rate for the year ended 31
December 2021 of 24.2%, reflecting the mix of taxable profits in group
companies worldwide.

 

The estimated adjusted effective tax rate for the year ending 31 December
2022, based on the adjusted profit before tax, is 23.9% (2021 actual: 23.8%).

 

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 tax rate to be higher than the
standard UK corporation tax rate of 19% due to higher tax rates in the
majority of overseas subsidiaries.

 

8.         Dividends

 

                                                             First half  First half  Full year
                                                             2022        2021        2021
                                                             £000        £000        £000
 The following dividends were paid in the period per

 qualifying ordinary share:

 4.05p final dividend (2021: 6.30p)                          34,787      54,996      54,996
 2.40p interim dividend (2021: 2.35p)                        -           -           20,519
                                                             34,787      54,996      75,515

 The following dividends per qualifying ordinary share were

 declared/proposed at the balance sheet date:

 4.05p final dividend proposed                               -           -           34,780
 2.40p interim dividend declared (2021: 2.35p)               20,613      20,523      -
                                                             20,613      20,523      34,780

 

In 2020 in response to the COVID-19 pandemic the recommendation to pay a 3.90
pence per share final dividend in respect of 2019 was withdrawn and no
dividend was paid in the period to 30 June 2020. An interim dividend of 3.90
pence was declared in the second half of 2020, which was equivalent to the
previously deferred 2019 final dividend. In March 2021 a dividend, reflecting
the combined interim and final dividends, was proposed in respect of the year
to 31 December 2020 and this was paid in May 2021. In 2021 we returned to the
regular schedule of dividend payments.

 

9.         Earnings per share

 

Earnings per share is calculated using the profit attributable to the ordinary
shareholders for the period and 858.9m shares (six months to 30 June 2021:
873.1m; year to 31 December 2021: 869.5m) 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 859.7m shares (six months to 30 June 2021:
874.2m; year to 31 December 2021: 870.5m). 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.       Inventories

 

                                30 June  30 June  31 Dec 2021

                                2022     2021     £000

                                £000     £000

 Raw materials and consumables  69,810   49,461   52,083
 Work in progress               5,551    3,755    3,871
 Finished goods                 15,160   9,861    12,493
                                90,521   63,077   68,447

 

11.       Defined benefit pension schemes

 

The defined benefit asset at 30 June 2022 of £11,233,000 (30 June 2021:
liability of £22,184,000 included within employee benefits; 31 December 2021:
liability of £7,625,000 included within employee benefits) is estimated based
on the latest full actuarial valuations at 31 March 2019 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 2022 by independent
actuaries to reflect updated assumptions regarding discount rates, inflation
rates and asset values. The full actuarial valuation updated to 31 March 2022
is currently in progress.

 

                    30 June  30 June  31 Dec 2021

                    2022     2021     %

                    %        %

 Discount rate      3.8      1.8      1.9
 Rate of inflation  3.0      3.2      3.3

 

In addition, the defined benefit plan assets and liabilities have been updated
to reflect the regular payments and the £3.4 million payment made in respect
of past service.

 

12.       Share capital and reserves

 

The number of ordinary 0.5p shares in issue at 30 June 2022 was 860,467,000
(30 June 2021: 874,147,000; 31 December 2021: 860,276,000). All issued shares
are fully paid.

 

The Group acquired 482,000 of its own shares through purchases on the London
Stock Exchange during the period (30 June 2021: 1,468,000; 31 December 2021:
2,154,000). The total amount paid to acquire the shares was £1,600,000 (30
June 2021: £5,409,000; 31 December 2021: £7,809,000), and this has been
deducted from shareholders' equity. At 30 June 2022 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 1,177,000 (30 June
2021: 814,000; 31 December 2021: 1,500,000). In the period 488,000 shares were
transferred from the trust to employees in respect of the share investment
plan and the overseas profit linked share plan.

 

During the second half of 2021, the Group bought back a total of 14,404,000
Ordinary shares of 0.5p each for a total value of £50,324,000 including costs
of £324,000. These repurchased shares were then cancelled in the same period.

 

In respect of the SAYE scheme, options exercised during the period to 30 June
2022 resulted in 190,486 ordinary 0.5p shares being issued (30 June 2021:
193,000 shares), with exercise proceeds of £438,000 (30 June 2021:
£328,000). The weighted average market share price at the time of exercise
was £3.13 (30 June 2021: £3.46) per share.

 

The share based payment charge for the period was £2,178,000 (30 June 2021:
£1,951,000; 31 December 2021: £3,333,000).

13.       Loans and borrowings

 

The following loans and borrowings were issued and repaid during the six
months ended 30 June 2022:

 

                              Lease liabilities  Bank loans  Preference shares  Total

                              £000               £000        £000               £000

 Balance at 31 December 2021  8,611              685         40                 9,336
 Additions/drawdowns          3,430              -           -                  3,430
 Repayment                    (2,536)            (686)       -                  (3,222)
 Disposals                    (145)              -           -                  (145)
 Exchange differences         559                1           -                  560
 Balance at 30 June 2022      9,919              -           40                 9,959

                          Lease liabilities  Bank loans  Preference shares  Total

                          £000               £000        £000               £000

 Current                  3,505              -           -                  3,505
 Non-current              6,414              -           40                 6,454
 Balance at 30 June 2022  9,919              -           40                 9,959

 

The £60,000,000 committed loan facility in place on 30 June 2021 (31
December: £60,000,000) expired on the 25 June 2022 and the Group decided not
to renew the facility past this date given the strong cash position. Of the
£60,000,000 loan facility £nil was drawn down at 30 June 2021 and 31
December 2021.

 

14.       Share-based payments

 

A grant of share options was made on 24 March 2022 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                                        24 March 2022   24 March 2022   24 March 2022
 Share price at grant date                         £3.33           £3.33           £3.33
 Shares awarded under scheme                       438,831         438,831         438,831
 Vesting period                                    3 years         3 years         3 years
 Expected volatility                               33.5%           N/A             N/A
 Risk free rate                                    1.4%            N/A             N/A
 Expected dividends expressed as a dividend yield  nil             nil             nil
 Probability of ceasing employment before vesting  5% p.a.         5% p.a.         5% p.a.
 Fair value                                        £1.49           £2.41           £2.41

 

The basis of measuring fair value is consistent with that disclosed in the
2021 Annual Report & Accounts.

 

15.       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 2021
Annual Report and 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 2021 Annual Report and
Accounts.

 

16.       Financial instruments fair value disclosure

 

The Group held forward currency contracts designated as hedge instruments in a
cash flow hedging relationship. At 30 June 2022 the fair value of these
contracts was a net liability of £1,139,000 (30 June 2021: a net asset of
£1,636,000; 31 December 2021: a net asset of £1,790,000). 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.

 

Shareholder information

 

The interim report and half year results presentation is available on the
Rotork website at www.rotork.com (http://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

 

 

Group information

 

Secretary and registered office:

Stuart Pain

Rotork plc

Rotork House

Brassmill Lane

Bath

BA1 3JQ

 

Company website:

www.rotork.com (http://www.rotork.com)

 

Investors section:

http://www.rotork.com/en/investors/ (http://www.rotork.com/en/investors/)

 

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