REG - Rotork PLC - 2022 Half Year Results
02/08/2022 07:00
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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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