TIDMROR
RNS Number : 3234H
Rotork PLC
03 August 2021
Tuesday 3(rd) August 2021
Rotork plc
2021 Interim Results
Good progress in H1 and a return to growth
OCC(3)
Adjusted highlights H1 2021 H1 2020 % change % change
----------------------------- ---------- ---------- --------- ----------
Order intake(1) GBP298.2m GBP300.5m -0.8% +3.2%
Revenue GBP288.3m GBP283.2m +1.8% +5.7%
Adjusted (2) operating
profit GBP62.7m GBP61.2m +2.4% +6.5%
Adjusted (2) operating
margin 21.8% 21.6% +20bps +20bps
Adjusted (2) basic earnings
per share 5.5p 5.4p +1.9% +6.4%
Cash conversion (4) 94% 116% -22% -
--------- ----------
Statutory highlights H1 2021 H1 2020 % change
----------------------------- ---------- ---------- ---------
Revenue GBP288.3m GBP283.2m +1.8%
Operating profit GBP54.0m GBP50.2m +7.5%
Operating margin 18.7% 17.7% +100bps
Profit before tax GBP54.1m GBP50.0m +8.4%
Basic earnings per share 4.7p 4.4p +6.8%
Interim dividend (5) 2.35p -
----------------------------- ---------- ---------- ---------
Summary
-- Orders and revenues were higher year-on-year on an OCC(4)
basis driven by encouraging performances from our Water & Power
and Chemical, Process & Industrial Divisions
-- Oil & Gas revenues were lower, with reduced spending by
upstream customers. Sales to the less cyclical midstream /
downstream sectors were ahead year-on-year (OCC basis)
-- Adjusted operating margins were 20bps ahead at 21.8%,
reflecting the increase in sales and Growth Acceleration Programme
savings which were partly offset by higher supply chain costs
-- Revenue opportunities linked to our purpose, keeping the
world flowing for future generations, were identified and
commitments made in our inaugural Sustainability Report
-- Closing net cash GBP144.3m (June 2020: GBP143.6m)
-- ROCE(4) increased to 32.2%, up 150bps
-- Full year guidance resumed and half year interim dividend reinstated
Kevin Hostetler, Chief Executive, commenting on the results,
said:
"I'm pleased to report that Rotork returned to underlying growth
in the first half. Our strategy of focusing our sales teams on
specific end markets and investing in targeted geographies and in
aftermarket activities is delivering results. Margin improvement
continued, despite significantly higher logistics and commodity
costs, through our focus on managing inflation and the continued
successful execution of our Growth Acceleration Programme.
Our first half performance demonstrates good momentum, and
whilst mindful of the risks of additional Covid-19 disruption and
of continuing component shortages, we anticipate 2021 to be a year
of progress on a constant currency basis."
(1) Order intake represents the value of orders received during
the period.
(2) Adjusted (4) figures exclude the amortisation of acquired
intangible assets and restructuring costs (see note 4).
(3) OCC (4) is organic constant currency results excluding
discontinued businesses and restated at 2020 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) Rotork did not pay an interim dividend in respect of H1
2020, however an interim dividend of 3.9p was paid which was
equivalent to the 2019 final dividend which was previously
deferred.
Rotork plc Tel: +44 (0)1225 733 200
Kevin Hostetler, Chief Executive
Jonathan Davis, Finance Director
Andrew Carter, Investor Relations
Director
FTI Consulting Tel: + 44 (0)20 3727 1340
Nick Hasell / Susanne Yule
There will be a meeting for analysts and institutional investors
at 8.30am BST today in the Great Hall 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/60eec6e42527a916004efc14/21hyr
. 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 want to help
drive the transition to a cleaner future where environmental
resources are used responsibly. We have a major role to play in new
energies and technologies that will support the transition to a low
carbon economy, as well as helping preserve natural resources such
as fresh water.
Health, safety and wellbeing
The wellbeing of our people and our wider stakeholders is the
number one priority of everyone at Rotork. During the period we
successfully rolled-out our new 'Rotork Life Saving Rules'. These
are based on the globally recognised 'Life Saving Rules' which are
widely used in industries including Oil & Gas.
Business performance
Group order intake in the period decreased 0.8% year-on-year,
but increased 3.2% on an OCC basis, to GBP298.2m. Orders were
solidly ahead at both Water & Power and Chemical, Process &
Industrial ("CPI"). Oil & Gas faced tougher prior year
comparisons and, as expected, is proving to be relatively late
cycle.
Our customers continue to spend on automation and environmental
projects as well as maintenance and upgrade activities. Large
project activity remains generally subdued. The majority of
Rotork's activity is 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 GBP100k) generate 75% of Group orders by value in a typical
year, and that orders above GBP1m represent only 5% of Group order
intake.
Our operational teams performed well in what was a very
challenging period due to Covid-19. Whilst we made every effort to
keep our production facilities open, we did not hesitate to shut
them if we believed there was any risk to our colleagues, and there
were several closures in the period. The requirement for staff to
isolate and quarantine affected many of our facilities. Similar
issues were also faced by our component and logistics suppliers,
causing supply chain delays and disruption, which were further
impacted by the temporary closure of the Suez Canal in March. As
widely reported these disruptions have had a very significant
impact on logistics costs (particularly sea freight) and
commodities. We have responded by utilising our global network to
mitigate supply chain disruption and in some cases have built
tactical inventories. Our Global Strategic Sourcing team have been
focussed on mitigating the impact of rising commodity costs. We
expect component supply and costs (including of electronics) to
remain a challenge for the remainder of the year, as well as
escalated logistics costs and logistics disruption.
Group revenue was 1.8% higher year-on-year (5.7% OCC). Oil &
Gas sales were lower, the result of significantly reduced spending
by upstream customers. Sales to the less cyclical midstream and
downstream sectors (representing 75% of Oil & Gas sales) were
in aggregate unchanged year-on-year on an OCC basis. CPI revenue
was strongly ahead, driven by the chemical and process sectors.
Water & Power sales were up 10.1% OCC, benefiting from
increased activity in the water sector.
By geography, Asia Pacific revenues by destination grew
double-digits 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 on an OCC
basis, benefiting from a strong performance in Latin America.
Rotork Site Services, our global service network and a key
differentiator in our industry, made good progress in the period
despite access to customer sites remaining a challenge in some
countries. Revenues are back to pre-pandemic levels and our
Lifetime Management and Reliability Services programmes are
performing above expectations. 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 2.4% higher year-on-year (6.5%
OCC) reflecting increased sales and benefits from the Growth
Acceleration Programme which were partly offset by foreign exchange
headwinds and significantly higher logistics costs. Adjusted
operating margins increased 20 basis points to 21.8%. We introduced
temporary logistics surcharges on the most affected routes early in
the period. Given the customary lag we expect most of the benefits
from these surcharges to be weighted to the second half.
Return on capital employed increased to 32.2% (H1 2020: 30.7%),
driven by higher operating profit and lower capital employed. Cash
conversion was 94% (116%) reflecting the lower working capital
position at the start of this year and phasing of activity within
the second quarter.
Our balance sheet remains strong, with a net cash position of
GBP144m at the period end. This provides us with optionality in
uncertain times and the financial flexibility to execute our
organic investment plans and our targeted M&A strategy. It also
enabled us to navigate the COVID-19 crisis without taking
government funding or seeking material payroll support.
Strategy update
Our target is to deliver mid to high single-digit revenue growth
through a combination of organic growth and acquisitions. We are
targeting mid-20s adjusted operating margins over time through
simplifying our core business, manufacturing improvements and
development of our global supply chain. We aim to play our part in
improving our world and making it more sustainable by 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 that of our suppliers.
Our Growth Acceleration Programme ("GAP"), which we began to
implement in the second half of 2018, is designed to deliver these
targets. This 5-year programme is about refining how we do things,
building on our strong foundations, through people, processes and
systems. During the period we made further good progress
implementing our GAP initiatives.
Driving our growth
Several of our GAP initiatives are specifically designed to
drive our future growth.
One of the most important is market re-alignment, focusing our
sales teams more closely on end-market segments. We completed this
transition in early 2020. Our new structure more closely addresses
customer needs and facilitates closer customer relationships
through key account management. We continue to see benefits of the
change, as evidenced by the sales performance of CPI and Water
& Power. To further improve the effectiveness of our sales
efforts we recently launched a new digital sales enablement
platform.
The expansion of Rotork Site Services is a key opportunity for
us. We benefit from having the largest installed base of any
electric actuator manufacturer and our customers are investing more
in advanced analytics, with uptime and availability an increasingly
important consideration. We are focused on driving new and
recurring service revenue through our Lifetime Management and
Reliability Services programmes and through targeted footprint
expansion, including new service centres in actuator intensive
locations.
Industry analysts forecast more than half of future global flow
control spend to occur in Asia, meaning a strong presence in high
growth regions such as China and India is an imperative. We have a
leading position in many parts of the region and as part of GAP we
are investing in additional sales and business development
personnel and selectively localising production. The benefits of
our position and investment to date was apparent in our first half
sales performance.
We are reinvigorating and re-focusing our research, innovation,
and new product development processes with a particular focus on
enabling greater positive environmental impact. The benefits of
improvements in these areas take time, but we are now seeing the
launch of a greater number of more meaningful products, and there
will be more in the second half of the year and into 2022. To be
sure we are focusing on the correct customer challenges we
completed a major voice-of-customer survey in the Spring.
We have identified adjacent markets which we believe could
become major opportunities for growth in the future, including
biofuels, hydrogen and carbon capture, utilisation and storage
(CCUS) and we are investing to position ourselves to benefit from
these. Additionally we see further growth opportunities arising
from the energy transition such as the electrification of valve
actuation.
Improving our margins
The Rotork mixed-model lean continuous improvement programme is
well embedded within our larger plants and was rolled-out to our
other facilities in 2020. Further good progress was made in the
period with over 180 rapid improvement events completed, and we
have ambitious plans for the second half. These events aim to
improve quality and on-time-delivery as well as freeing-up factory
space, enabling increased production and in some cases footprint
consolidation.
We stepped-up our sourcing and supply chain initiatives in the
period, as previously announced. Our work to focus on a smaller
number of suppliers continues and we made good progress, reducing
the number by over a thousand. As widely reported, we have seen a
significant increase in logistics costs and higher commodity costs,
reducing our near-term targets for net savings from these
programmes.
Our footprint optimisation work continues on track. We recently
announced plans to consolidate two mid-sized manufacturing plants
into other locations in the second half. Upon completion we will
have 17 manufacturing sites, down from 30 at the start of GAP. Site
rationalisation has several benefits including improved cyclical
resilience and reduced capital employed. We continued the back
office consolidation work which was started in 2020.
Our inventory reduction initiatives continue, with the Rotork
Inventory Optimiser tool now rolled-out across the Group. We saw a
temporary increase in inventory in the first half as we introduced
some buffer stocks in certain locations. These helped us to
maintain customer service levels despite significant disruptions to
global logistics.
We continue to find opportunities to improve our operational
efficiency whilst at the same time delivering net positive
environmental benefit. One such example is the shortly to be opened
state-of-the-art paint line at our Rochester, US, manufacturing
facility. Bringing the capability into our operation provides
environmental benefits from avoided transportation and packaging
when compared with outsourcing, though it will increase our own
energy and water consumption at the site.
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 inaugural 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.
-- 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.
In the report we also present our commitments for each of the
pillars of our sustainability framework: Operating Responsibly;
Enabling a Sustainable Future; and Making a Positive Social Impact.
We will:
-- Aim to reduce our lost time injury rate each year and strive for a zero-harm workplace
-- Embed social, ethical and environmental considerations into
our Global Supplier Excellence Programme
-- Aim to reduce carbon emissions generated per GBP1m revenue
and work to develop a net-zero roadmap
-- Enable sustainable management of water resources and greater
water efficiency for our customers
-- Support customers' energy and emissions reduction and enable
them to incorporate renewable energy into their operations
-- Play our part to enable the global energy transition and
support a cleaner more sustainable future
-- Develop and deliver initiatives to drive greater gender and ethnic diversity
-- Contribute to a fairer society more broadly, including by
ensuring 100% of employees are covered by our Fair Pay
Framework
The Sustainability Report also provides additional information
on our safety, diversity and environmental performance, as well as
our current view of climate-related risks and opportunities, in
line with the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD).
Capital deployment strategy
Rotork remains a highly cash generative business and our net
cash balance was GBP144.3m at period end. Our cash position
provides us with considerable financial flexibility in uncertain
times. The priorities for our cash remain unchanged: organic
development (new markets, new product development); our progressive
dividend policy; followed by targeted acquisitions. We regularly
review our capital requirements 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 2.35p per share which is equivalent to 2.3 times cover
based on adjusted earnings per share. The interim dividend will be
payable on 24 September 2021 to shareholders on the register on 20
August 2021.
CEO transition
As announced separately today, Kevin Hostetler has informed the
Board of his decision to return home to the US next year. Kevin is
fully committed to leading Rotork through his notice period, and to
ensuring an effective handover to his successor, at which time he
will step down from the Board and as Chief Executive Officer of
Rotork. The process is expected to conclude by 30 June 2022.
Outlook
Our first half performance demonstrates good momentum, and
whilst mindful of the risks of additional Covid-19 disruption and
of continuing component shortages, we anticipate 2021 to be a year
of progress on a constant currency basis.
Divisional review
Oil & Gas
GBPm H1 2021 H1 2020 Change OCC(3) Change
Revenue 129.6 137.2 -5.6% -1.9%
Adjusted operating
profit 26.9 29.0 -7.1% -3.6%
Adjusted operating
margin 20.8% 21.1% -30bps -30bps
Oil & Gas' customers remained cautious regarding their
discretionary spending in the period, particularly in the upstream
sector which represented 25% of sales, meaning the division has so
far experienced a slower post-pandemic recovery than our others.
This supply side constraint has however led to hydrocarbon prices
recently making multi-year highs. The division is well positioned
to respond if these higher prices lead to increased customer
spending.
Divisional revenues fell 5.6% year-on-year (-1.9% OCC) driven by
the upstream sector. Sales to the less cyclical midstream /
downstream sectors were in aggregate slightly lower year-on-year
but ahead on an OCC basis. EMEA sales were lower with the upstream
and downstream sectors declining. However, the resumption of
spending on small/mid-sized automation projects benefited Rotork
Site Services' regional revenues. Asia Pacific sales grew strongly,
with increased downstream activity particularly in China more than
offsetting Covid-19 related project slippage in India. Americas
revenues were slightly ahead OCC, driven by the midstream sector,
and we saw an increase in emissions reduction related activity. Our
new US intermountain region service centre is performing well.
Adjusted operating profits were GBP26.9m, 7.1% lower
year-on-year. The decline in profits reflected reduced sales and
higher logistics costs, partly offset by GAP savings and a reduced
share of costs shared across the divisions. Adjusted margins fell
30 basis points to 20.8%, reflecting the above factors and adverse
mix.
Oil & Gas aims to outperform its markets through several
strategic initiatives. These include leveraging our installed base
(through Rotork Site Services and our iAM and Lifetime Management
programmes), helping our customers improve their operational and
environmental performance, and increasing our sales of low energy
consumption and connected products. We are also making targeted
investments in high growth regions such as the Middle East and Asia
Pacific.
We consider the energy transition to be a significant
opportunity where we play 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 has stepped-up the policy agenda
further following a widely reported United Nations Environment
Programme campaign. We believe that electrification has an
important role to play in the reduction of our customers' carbon
emissions across their upstream, midstream and downstream
processes, and that as the world leader in electric actuation we
are well placed to assist them 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.
Water & Power
GBPm H1 2021 H1 2020 Change OCC(3) Change
Revenue 77.5 73.2 5.9% 10.1%
Adjusted operating
profit 21.0 20.7 1.8% 5.8%
Adjusted operating
margin 27.1% 28.2% -110bps -110bps
Water & Power's products and services, and those of its
customers, are generally considered essential, and activity has
largely continued without any significant disruption throughout the
pandemic. The first half's encouraging progress therefore largely
reflects the benefit of earlier initiatives such as our transition
to an end-market aligned structure and value selling. Looking
ahead, 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. The division is well
placed to support these efforts.
Revenues increased 5.9% year-on-year (10.1% OCC) with higher
sales in all geographic regions on an OCC basis. In Asia Pacific
both segments achieved solid growth with particularly strong demand
from the water sector and the waste-to-energy segment within the
power sector. In the Americas, water sales were higher, whilst
power sales were lower largely due to the strong comparison. The
growth in EMEA sales was largely driven by the water sector. The
region also saw strong growth in the currently small but high
potential district heating segment. For the division overall, both
water and power sector sales were ahead year-on-year on an OCC
basis.
The division's adjusted operating profits were GBP21.0m, 1.8%
higher year-on-year. Adjusted margins were 27.1%, down 110bps
year-on-year. The margin decline reflected higher logistics costs
and foreign exchange, which disproportionately affected the
division, as well as an increased share of common costs, which
together exceeded the savings derived from GAP.
Water & Power aims to outperform its markets through an
optimised channel strategy, regional expansion and new product
development. The division is focused on solving its customers'
challenges. For example, water customers rely on Rotork's
technologies 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.
Chemical, Process & Industrial ("CPI")
GBPm H1 2021 H1 2020 Change OCC(3) Change
Revenue 81.2 72.9 11.5% 15.4%
Adjusted operating
profit 20.6 16.8 23.0% 27.8%
Adjusted operating
margin 25.4% 23.0% 240bps 250bps
CPI delivered a strong sales recovery 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 seeing the benefits of the
economic recovery as well as earlier GAP initiatives such as
focusing on key niches for profitable growth. Examples include
business wins in mining, hydrogen, semi-conductor, li-ion battery
and data centre end markets and the addition of carefully selected
specialist distribution partners.
Revenues grew 15.4% year-on-year on an OCC basis. Asia Pacific
saw the strongest growth, with most end markets well ahead of the
prior year period, including basic materials. EMEA sales were
slightly lower year-on-year but unchanged on an OCC basis, with
Covid-19 continuing to affect customer activity in some markets
including the Iberian Peninsula. Americas revenues grew double
digits OCC despite the naval and specialist marine end market
remaining quiet.
The process sector represents a substantial proportion of CPI
overall. Process revenues in EMEA were broadly unchanged. In Asia
Pacific we continued to see strong demand from control valve OEMs
in China. Americas process sales grew. Both chemical and industrial
sector revenues were higher year-on-year.
The division's adjusted operating profit was GBP20.6m, 23.0% up
year-on-year. Adjusted operating margins increased 240bps to 25.4%
reflecting the drop-through of higher sales, beneficial mix and GAP
savings which were only partly offset by slightly higher logistics
costs and a higher share of common costs.
CPI aims to outgrow its markets through focusing on niche
sectors and high growth regions, optimising its channel coverage
and developing the aftermarket. The division is targeting key
sectors including HVAC, chemicals and basic materials. 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.
Financial Key Performance Indicators (KPIs)
H1 2021 H1 2020 FY 2020
-------- -------- --------
Revenue growth 1.8% -11.1% -9.7%
Adjusted operating margin 21.8% 21.6% 23.6%
Cash conversion 94.0% 116.1% 129.5%
Return on capital employed 32.2% 30.7% 31.9%
Adjusted EPS growth 1.9% -7.3% -3.9%
-------- -------- --------
The KPIs are defined below:
-- Revenue growth is defined as the increase in revenue divided by prior period revenue.
-- Adjusted operating margin is defined as adjusted operating
profit as a percentage of revenue (note 2a).
-- Cash conversion is defined as cash flow from operating
activities before tax outflows, payments of restructuring charges
and the pension charge to cash adjustment as a percentage of
adjusted operating profit (note 2a).
-- Return on capital employed is defined as adjusted operating
profit as a percentage of average capital employed. Capital
employed is defined as shareholders' funds less net cash held, with
the pension fund deficit net of related deferred tax asset added
back (note 2d).
-- Adjusted EPS growth is defined as the increase in adjusted
basic EPS (based on adjusted profit after tax) divided by the prior
year adjusted basic EPS (note 2c).
Adjusted items
Adjusted profit measures are presented alongside statutory
results as the directors believe they provide a useful comparison
of business trends and performance from one period to the next.
The statutory profit measures are adjusted to exclude
amortisation of acquired intangibles and other adjustments, which
in both periods comprise restructuring costs, including redundancy
costs, asset write downs relating to the merger of businesses and
other restructuring costs. Restructuring costs in the first half
year were GBP4.1m, with GAP initiatives and other restructuring
costs of GBP5.6m offset by gain on disposal of properties of
GBP1.5m. Restructuring costs are currently expected to be lower in
the second half.
Amortisation Restructuring
Statutory of acquired costs (note Adjusted
GBPm results intangibles 4) results
---------- ------------- -------------- -----------
Operating profit 54.0 4.7 4.1 62.7
Profit before tax 54.1 4.7 4.1 62.9
Tax (13.3) (1.0) (0.7) (15.0)
---------- ------------- -------------- -----------
Profit after tax 40.8 3.7 3.4 47.9
---------- ------------- -------------- -----------
Financial position
The balance sheet remains strong and we ended the period with
net cash of GBP144.3m (Dec 2020: GBP178.1m). The December cash
balance benefited from the timing of dividend payments. Net cash
comprises cash balances of GBP153.4m less loans and borrowings and
leases of GBP9.1m.
Our focus on working capital management resulted in a net
working capital decrease since the year end of GBP8.7m to GBP131.8m
at the period end. This was offset by increases in other
receivables relating to timing of treasury and sales tax inflows,
resulting in a cash conversion KPI of 94.0% of adjusted operating
profit into operating cash, down from 116.1% in H1 2020. Inventory
increased GBP1.6m since year end, which is the normal pattern
during the first half of the year, but is GBP18.1m lower than June
2020. A GBP8.5m reduction in trade receivables since the year end
more than offsets the increase in inventory and the days sales
outstanding remains at the same level it was in December, 57 days.
In total, net working capital as a percentage of sales is 22.9%
compared with 23.2% in December and 27.5% in June 2020.
The estimated average annual tax rate used for the year ending
31 December 2021 is 24.5% (2020: 23.5%) and the estimated adjusted
effective tax rate for the year ending 31 December 2021, based on
adjusted profit before tax, is 23.9% (2020: 23.4%). This increase
is due to the balance of profits in the Group moving towards high
tax jurisdictions. The 2020 effective tax rate also benefitted from
a one-off reduction in the deferred tax liability on unremitted
earnings driven by a decrease in Indian withholding tax rates.
Retirement benefits
The Group operates two defined benefit pension schemes, the
larger of which is in the UK. Both the UK and US schemes are closed
to future accrual.
The pension scheme deficit decreased from GBP38.5m at 31
December 2020 to GBP22.2m at 30 June 2021, principally due to an
increase in the discount rate.
Currency
Overall, currency headwinds decreased revenue by GBP11.1m (3.9%)
compared with the first half of 2020. The average US dollar rate
was $1.39 (H1 2020: $1.26) and the average Euro rate was EUR1.15
(H1 2020: EUR1.14), whilst the rates at 30 June 2021 were $1.38 and
EUR1.17 respectively (30 June 2020: $1.24 and EUR1.10).
Dividend
The Board recommends an interim dividend of 2.35p per ordinary
share. The interim dividend will be paid on 24 September 2021 to
shareholders on the register at the close of business on 20 August
2021.
Principal risk and uncertainties
The Group has an established risk management process as part of
the corporate governance framework set out in the 2020 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 38 to 39 of the 2020 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 42 to 45 of the 2020 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.
-- Supply chain disruption - we continue to monitor impacts to
our supply chain across the globe and have been working with our
suppliers to reduce any impact to the business and our
customers.
-- Risks to our IT systems and cyber security - cyber risk has
increased globally with all companies facing an increased threat of
cyber-attacks. Threat intelligence has played a key role in the
mitigation of this risk.
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. In the next six months, focus will be on the return to
the workplace in a safe manner.
Climate risk
We continue to monitor climate risk closely given its
significance internally and externally. As we noted in our 2020
Sustainability report, during 2021, we will undertake a
TCFD-aligned scenario analysis as part of our journey to better
understand, and quantify, climate risks and opportunities for
Rotork. Outcomes of the scenario analysis will be published in our
2021 Annual Report and Accounts.
Emerging risks
We continue to monitor and review emerging risks that may impact
our business including 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 under
performance 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 tooling failure at a key supplier, logistics issue,
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 . Sally
James served as a director until the conclusion of the AGM on 30
April 2021.
By order of the Board
Kevin G. Hostetler
Chief Executive
2 August 2021
Independent Review Report to Rotork plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income and expense, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated
statement of cash flows and related notes 1 to 16. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half -yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting 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".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Base d 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 2020 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.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
2 August 2021
Consolidated Income Statement
First half First half Full year
2021 2020 2020
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Revenue 3 288,261 283,234 604,544
Cost of sales (155,081) (150,504) (320,234)
---------- ---------- ---------
Gross profit 133,180 132,730 284,310
Other income 220 393 1,581
Distribution costs (2,504) (2,525) (5,271)
Administrative expenses (76,858) (80,351) (157,336)
Other expenses (34) (29) (710)
Adjusted operating profit
Adjustments 2 62,735 61,237 142,543
* Amortisation of acquired intangible assets (4,655) (7,058) (14,110)
* Other adjustments 4 (4,076) (3,961) (5,859)
-------------------------------------------------- ----- ---------- ---------- ---------
Operating profit 3 54,004 50,218 122,574
Finance income 5 1,341 1,635 2,394
Finance expense 6 (1,196) (1,888) (2,931)
Profit before tax 54,149 49,965 122,037
Income tax expense 7 (13,265) (11,728) (28,709)
Profit for the period 40,884 38,237 93,328
========== ========== =========
Pence Pence Pence
Basic earnings per share 9 4.7 4.4 10.7
Adjusted basic earnings per share 2 5.5 5.4 12.5
Diluted earnings per share 9 4.7 4.4 10.7
Adjusted diluted earnings per share 2 5.5 5.4 12.5
Consolidated Statement of Comprehensive Income and Expense
First half First half Full year
2021 2020 2020
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit for the period 40,884 38,237 93,328
Other comprehensive income and expense
Items that may be subsequently reclassified
to the income statement:
Foreign currency translation differences (8,559) 15,699 (3,913)
Effective portion of changes in fair value
of cash flow
hedges net of tax 342 (1,738) (12)
---------- ---------- ---------
(8,217) 13,961 (3,925)
Items that are not subsequently reclassified
to the income statement:
Actuarial gain / (loss) in pension scheme
net of tax 10,241 (16,521) (14,836)
---------- ---------- ---------
Income and expenses recognised directly in
equity 2,024 (2,560) (18,761)
Total comprehensive income for the period 42,908 35,677 74,567
========== ========== =========
Consolidated Balance Sheet
30 June 30 June 31 Dec
2021 2020 2020
Notes GBP000 GBP000 GBP000
------- ------- -------
Goodwill 218,283 229,636 223,537
Intangible assets 46,450 37,809 25,145
Property, plant and equipment 80,593 96,571 100,620
Deferred tax assets 8,036 14,057 16,624
Other receivables 332 335 -
Total non-current assets 353,694 378,408 365,926
Inventories 10 63,077 81,166 61,467
Trade receivables 104,104 112,275 112,565
Current tax 5,740 4,237 7,180
Derivative financial instruments 16 1,676 44 1,582
Other receivables 33,308 30,799 25,868
Assets classified as held for sale - - 1,119
Cash and cash equivalents 153,361 153,811 187,204
------- ------- -------
Total current assets 361,266 382,332 396,985
Total assets 714,960 760,740 762,911
======= ======= =======
Ordinary shares 12 4,371 4,364 4,370
Share premium 17,153 14,858 16,826
Reserves 12,717 38,820 20,934
Retained earnings 533,067 515,918 540,400
------- ------- -------
Total equity 567,308 573,960 582,530
------- ------- -------
Interest-bearing loans and borrowings 13 5,051 6,020 5,396
Employee benefits 22,042 44,111 42,846
Deferred tax liabilities 1,060 2,674 8,705
Derivative financial instruments 16 40 495 -
Other payables 314 - -
Provisions 1,707 1,854 1,720
------- ------- -------
Total non-current liabilities 30,214 55,154 58,667
Interest-bearing loans and borrowings 13 4,038 4,156 3,754
Trade payables 35,385 37,448 33,560
Employee benefits 19,006 18,904 23,645
Current tax 13,074 16,486 14,765
Derivative financial instruments 16 - 2,088 168
Other payables 38,316 44,852 41,334
Provisions 7,619 7,692 4,488
------- ------- -------
Total current liabilities 117,438 131,626 121,714
Total liabilities 147,652 186,780 180,381
Total equity and liabilities 714,960 760,740 762,911
======= ======= =======
Consolidated Statement of Changes in Equity
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- ------------- ------------ ---------- -------------- ------------
Balance at 31
December
2020 4,370 16,826 18,374 1,644 916 540,400 582,530
Profit for the period - - - - - 40,884 40,884
Other comprehensive
(expense)/income
--------- --------- ------------- ------------ ---------- -------------- ------------
Foreign currency
translation
differences - - (8,559) - - - (8,559)
Effective portion of
changes in fair
value
of cash flow hedges - - - - 422 - 422
Actuarial gain on
defined
benefit
pension plans - - - - - 12,837 12,837
Tax in other
comprehensive
(expense)/income - - - - (80) (2,596) (2,676)
--------- --------- ------------- ------------ ---------- -------------- ------------
Total other
comprehensive
(expense)/income - - (8,559) - 342 10,241 2,024
--------- --------- ------------- ------------ ---------- -------------- ------------
Total comprehensive
income - - (8,559) - 342 51,125 42,908
Transactions with
owners,
recorded directly in
equity
Equity settled share
based payment
transactions - - - - - (4,325) (4,325)
Tax on equity settled
share based payment
transactions - - - - - 817 817
Share options
exercised
by employees 1 327 - - - - 328
Own ordinary shares
acquired - - - - - (5,409) (5,409)
Own ordinary shares
awarded under share
schemes - - - - - 5,455 5,455
Dividends - - - - - (54,996) (54,996)
--------- --------- ------------- ------------ ---------- -------------- ------------
Balance at 30 June
2021 4,371 17,153 9,815 1,644 1,258 533,067 567,308
========= ========= ============= ============ ========== ============== ============
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- ------------- ------------ -------------- -------------- -----------
Balance at 31
December
2019 4,363 14,521 22,287 1,644 928 495,657 539,400
Profit for the period - - - - - 38,237 38,237
Other comprehensive
income/(expense)
--------- --------- ------------- ------------ -------------- -------------- -----------
Foreign currency
translation
differences - - 15,699 - - - 15,699
Effective portion of
changes in fair
value
of cash flow hedges - - - - (2,106) - (2,106)
Actuarial loss on
defined
benefit
pension plans - - - - - (20,781) (20,781)
Tax in other
comprehensive
income/(expense) - - - - 368 4,260 4,628
--------- --------- ------------- ------------ -------------- -------------- -----------
Total other
comprehensive
income/(expense) - - 15,699 - (1,738) (16,521) (2,560)
--------- --------- ------------- ------------ -------------- -------------- -----------
Total comprehensive
income - - 15,699 - (1,738) 21,716 35,677
Transactions with
owners,
recorded directly in
equity
Equity settled share
based payment
transactions - - - - - (2,495) (2,495)
Tax on equity settled
share based payment
transactions - - - - - 473 473
Share options
exercised
by employees 1 337 - - - - 338
Own ordinary shares
acquired - - - - - (3,625) (3,625)
Own ordinary shares
awarded under share
schemes - - - - - 4,192 4,192
Balance at 30 June
2020 4,364 14,858 37,986 1,644 (810) 515,918 573,960
========= ========= ============= ============ ============== ============== ===========
Issued Capital
equity Share Translation redemption Hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- ------------ ------------ ---------- ----------- ---------
Balance at 31 December
2019 4,363 14,521 22,287 1,644 (928) 495,657 539,400
Profit for the year - - - - - 93,328 93,328
Other comprehensive
expense
--------- --------- ------------ ------------ ---------- ----------- ---------
Foreign currency translation
differences - - (3,913) - - - (3,913)
Effective portion of
changes in fair value
of cash flow hedges - - - - 6 - 6
Actuarial loss on defined
benefit pension plans - - - - - (18,570) (18,570)
Tax in other comprehensive
expense - - - - (18) 3,734 3,716
--------- --------- ------------ ------------ ---------- ----------- ---------
Total other comprehensive
expense - - (3,913) - (12) (14,836) (18,761)
--------- --------- ------------ ------------ ---------- ----------- ---------
Total comprehensive
income - - (3,913) - (12) 78,492 74,567
Transactions with owners,
recorded directly in
equity
Equity settled share
based payment transactions - - - - - (306) (306)
Tax on equity settled
share based payment
transactions - - - - - (65) (65)
Share options exercised
by employees 7 2,305 - - - - 2,312
Own ordinary shares
acquired - - - - - (3,645) (3,645)
Own ordinary shares
awarded under share
schemes - - - - - 4,193 4,193
Dividends - - - - - (33,926) (33,926)
--------- --------- ------------ ------------ ---------- ----------- ---------
Balance at 31 December
2020 4,370 16,826 18,374 1,644 916 540,400 582,530
========= ========= ============ ============ ========== =========== =========
Consolidated Statement of Cash Flows
First half First half Full year
2021 2020 2020
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Cash flows from operating activities
Profit for the period 40,884 38,237 93,328
Amortisation of acquired intangible
assets 4,655 7,058 14,110
Other adjustments 4 4,076 3,961 5,859
Amortisation of development and software
costs 978 1,098 2,967
Depreciation 7,905 7,600 16,313
Equity settled share based payment expense 1,951 2,172 3,685
Net (profit)/loss on sale of property,
plant and equipment (27) - 146
Finance income (1,341) (1,626) (2,394)
Finance expense 1,196 1,879 2,931
Income tax expense 13,265 11,728 28,709
73,542 72,107 165,654
(Increase)/decrease in inventories (3,070) (4,618) 12,561
(Increase)/decrease in trade and other
receivables (1,070) 14,156 14,672
(Decrease)/increase in trade and other
payables (1,667) 302 (7,195)
Restructuring costs paid (1,663) (739) (6,437)
Difference between pension charge and
cash contribution (3,733) (6,496) (10,109)
Decrease in provisions (162) (529) (483)
Decrease in employee benefits (8,615) (10,339) (622)
---------- ---------- ---------
53,562 63,844 168,041
Income taxes paid (15,245) (10,907) (30,781)
---------- ---------- ---------
Net cash flows from operating activities 38,317 52,937 137,260
Investing activities
Purchase of property, plant and equipment (7,541) (11,595) (25,279)
Development and software costs capitalised (6,979) (597) (1,298)
Proceeds from sale of property, plant
and equipment 3,028 (21) 272
Disposal of business - 3,807 3,807
Settlement of hedging derivatives 205 (2,455) (3,157)
Interest received 540 912 1,389
---------- ---------- ---------
Net cash flows from investing activities (10,747) (9,949) (24,266)
Financing activities
Issue of ordinary share capital 328 338 2,312
Own ordinary shares acquired (5,409) (3,625) (3,645)
Interest paid (458) (497) (954)
Repayment of borrowings (34) (34) (69)
Repayment of lease liabilities (2,380) (2,626) (5,168)
Dividends paid on ordinary shares (54,996) - (33,926)
Net cash flows from financing activities (62,949) (6,444) (41,450)
Net (decrease)/increase in cash and
cash equivalents (35,379) 36,544 71,544
Cash and cash equivalents at 1 January 187,204 117,612 117,612
Effect of exchange rate fluctuations
on cash held 1,536 (345) (1,952)
---------- ---------- ---------
Cash and cash equivalents at end of
period 153,361 153,811 187,204
========== ========== =========
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 2021 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 2020 does
not constitute statutory accounts within the meaning of Section 435
of the Companies Act 2006, statutory accounts for the year ended 31
December 2020 were approved by the Board on 1 March 2021 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 2020 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 2021 comprise the Company
and its subsidiaries (together referred to as 'the Group'). These
condensed consolidated interim financial statements have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Services Authority and with International
Accounting Standard 34, 'Interim Financial Reporting' as adopted by
the 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 2020, 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 on-going impact of COVID-19 on the
Group has been considered. The directors have reviewed: the current
financial position of the Group, which has net cash of GBP144m and
unused committed debt facilities of GBP60m 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 on available 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 2020.
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
2020, except for the adoption of new standards effective as of 1
January 2021. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
New accounting standards and interpretations
During April 2021 the IFRS Interpretations Committee finalised
their agenda decision regarding configuration and customisation
costs in Cloud Computing Arrangements (Software as a Service,
'SaaS') under IAS 38. This agenda decision offers clarification of
the treatment of implementation costs which is relevant to the
Group's ongoing Growth Acceleration Programme ('GAP'). This
programme is driving technology investments which are predominantly
SaaS arrangements with third party implementation partners.
The Group's investment in IT infrastructure is large scale and
complex, involving the configuration and customisation of both
cloud-based and on-premises systems using multiple independent
service vendors and incorporating a wider business controls
transformation. Capitalised expenditure as at 30 June 2021 is
GBP26.1m (30 June 2020: GBP12.5m, 31 December 2020: GBP20.0m).
Hosting and licencing costs for SaaS arrangements have already been
expensed.
The Group intends to change its accounting policy for
capitalisation and configuration costs, to align with the agenda
decision. However, a detailed assessment will need to be made by
management to determine the amount of costs that will be accounted
for differently in accordance with IFRICs interpretation and, given
the complexities described, it has not been possible to complete
that assessment in time for those adjustments to be reflected in
these interim financial statements. As a consequence of the
proposed change in accounting policy it is anticipated that there
will be a material level of previously-capitalised costs that will
be expensed and presented as other adjustments in the income
statement. The timing and quantum of cash outflows for these costs
will be unchanged.
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
Other amendments
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 2020 2020
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit before tax 54,149 49,965 122,037
Adjustments:
Amortisation of acquired intangible assets 4,655 7,058 14,110
Redundancy and executive change costs 2,863 3,961 5,744
Other restructuring costs 2,782 - 115
Gain on disposal of properties (1,569) - -
Adjusted profit before tax 62,880 60,984 142,006
---------- ---------- ---------
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 2020 2020
GBP000 GBP000 GBP000
---------- ---------- ---------
Net profit attributable to ordinary shareholders 40,884 38,237 93,328
Adjustments:
Amortisation of acquired intangible assets 4,655 7,058 14,110
Loss on disposal of businesses - - -
Redundancy and executive change costs 2,863 3,961 5,744
Other restructuring costs 2,782 - 115
Gain on disposal of properties (1,569) - -
Tax effect on adjusted items (1,728) (2,557) (4,484)
Adjusted net profit attributable to ordinary
shareholders 47,887 46,699 108,313
---------- ---------- ---------
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
2021 2020 2020
GBP000 GBP000 GBP000
---------- ---------- ---------
Adjusted operating profit
As reported - - 142,543
Rolling 12 months 144,041 145,003 -
Capital employed
Shareholders' funds 567,308 573,960 582,530
Cash and cash equivalents (153,361) (153,811) (187,204)
Interest bearing loans and borrowings 9,089 10,176 9,150
Pension deficit net of deferred tax 17,228 35,153 30,965
440,264 465,478 435,441
---------- ---------- ---------
447,061 472,235 446,357
Average capital employed (1) (1) (2)
---------- ---------- ---------
Return on capital employed 32.2% 30.7% 31.9%
---------- ---------- ---------
(1) defined as the average of the capital employed at June 2020,
December 2020 and June 2021 (2019: June 2019, December 2019, and
June 2020).
(2) defined as the average of the capital employed at December
2019 and December 2020.
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 2021 half year results are restated
using the average exchange rates applied for the 2020 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:
OCC
30 June Currency 30 June 30 June
2021 adjustment 2021 2020
---------- ------------- ---------- ----------
Revenue 288,261 11,011 299,272 283,234
Cost of sales (155,082) (6,642) (161,724) (150,504)
---------- ------------- ---------- ----------
Gross margin 133,179 4,369 137,548 132,730
Net overheads (70,444) (1,875) (72,319) (71,493)
---------- ------------- ---------- ----------
Adjusted operating profit 62,735 2,494 65,229 61,237
---------- ------------- ---------- ----------
Adjusted operating margin 21.8% 21.8% 21.6%
Adjusted profit before tax 62,880 2,494 65,374 60,984
Adjusted basic earnings
per share 5.5p - 5.5p 5.4p
---------- ------------- ---------- ----------
g. Flow through
Flow through is calculated as the change in adjusted operating
profit as reported, divided into the change in revenue.
Change vs Change vs
First half First half first half Second half second half
2021 2020 2020 2020 2020
GBP000 GBP000 GBP000 GBP000 GBP000
---------- ---------- ----------- ----------- ------------
Revenue 288,261 283,234 5,027 321,310 (33,049)
Adjusted operating profit 62,735 61,237 1,498 81,306 (18,571)
Flow through 29.8% 56.2%
---------- ---------- ----------- ----------- ------------
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
-- Water & Power
-- Chemical, Process & Industrial
Unallocated expenses comprise corporate expenses.
Half year to 30 June 2021
Oil &
Gas Water Chemical, Unallocated
& Power Process Group
GBP000 GBP000 & IndustrialGBP000 GBP000 GBP000
--------- --------- -------------------- -------------- ---------
Revenue 129,562 77,496 81,203 - 288,261
Adjusted operating
profit 26,924 21,019 20,627 (5,835) 62,735
Amortisation of acquired intangibles
assets (3,300) (433) (922) - (4,655)
--------- --------- -------------------- -------------- ---------
Segment result before other
adjustments 23,624 20,586 19,705 (5,835) 58,080
Other adjustments (4,076)
--------- --------- -------------------- -------------- ---------
Operating profit 54,004
Net financing income 145
Income tax expense (13,265)
---------
Profit for the period 40,884
---------
Half year to 30 June 2020
Oil &
Gas Water Chemical, Unallocated
& Power Process Group
GBP000 GBP000 & IndustrialGBP000 GBP000 GBP000
--------- --------- -------------------- -------------- ---------
Revenue 137,189 73,194 72,851 - 283,234
Adjusted operating
profit 28,969 20,654 16,769 (5,155) 61,237
Amortisation of acquired intangibles
assets (3,691) (473) (2,894) - (7,058)
--------- --------- -------------------- -------------- ---------
Segment result before other
adjustments 25,278 20,181 13,875 (5,155) 54,179
Other adjustments (3,961)
--------- --------- -------------------- -------------- ---------
Operating profit 50,218
Net financing expense (253)
Income tax expense (11,728)
---------
Profit for the period 38,237
---------
Full year to 31 December 2020
Oil &
Gas Water Chemical, Unallocated
& Power Process Group
GBP000 GBP000 & IndustrialGBP000 GBP000 GBP000
--------- --------- -------------------- -------------- ---------
Revenue 292,173 157,766 154,605 - 604,544
--------- --------- -------------------- -------------- ---------
Adjusted operating
profit 67,949 47,037 38,553 (10,996) 142,543
Amortisation of acquired intangibles
assets (7,380) (945) (5,785) - (14,110)
--------- --------- -------------------- -------------- ---------
Segment result before other
adjustments 60,569 46,092 32,768 (10,996) 128,433
Other adjustments (5,859)
--------- --------- -------------------- -------------- ---------
Operating profit 122,574
Net financing
expense (537)
Income tax expense (28,709)
---------
Profit for the
year 93,328
---------
Revenue by location of subsidiary
First half First half Full year
2021 2020 2020
GBP000 GBP000 GBP000
----------- ----------- ----------
UK 29,569 29,641 66,077
Italy 27,440 31,230 62,176
Rest of Europe 51,860 53,498 106,940
USA 51,619 58,514 109,929
Other Americas 19,560 13,597 35,965
Rest of World 108,213 96,754 223,457
----------- ----------- ----------
288,261 283,234 604,544
----------- ----------- ----------
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
2021 2020 2020
GBP000 GBP000 GBP000
----------- ----------- ----------
Gain on disposal of properties 1,569 - -
Redundancy and executive change costs (2,863) (3,961) (5,744)
Other restructuring costs (2,782) - (115)
(4,076) (3,961) (5,859)
----------- ----------- ----------
In 2021 it was announced that the Group's operations in Cusago,
Italy would cease during the second half of 2021 and the
production. The closure of the Cusago facility will result in
redundancy costs of GBP1,377,000 and other restructuring costs of
GBP2,696,000.
A further GBP1,486,000 (2020: GBP3,961,000) redundancy and
executive change costs have been incurred as a result of the
progress made with the Growth Acceleration Programme.
The GBP1,569,000 (2020: GBPnil) gain on disposal of properties
relates to the sale of two properties in the period.
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
2021 2020 2020
GBP000 GBP000 GBP000
----------- ----------- ----------
Interest income 697 916 1,517
Foreign exchange gains 644 719 877
1,341 1,635 2,394
----------- ----------- ----------
6. Finance expense
First half First half Full year
2021 2020 2020
GBP000 GBP000 GBP000
Interest expense 376 610 872
Interest expense on lease liabilities 206 186 499
Interest charge on pension scheme liabilities 275 352 609
Foreign exchange losses 339 740 951
1,196 1,888 2,931
----------- ----------- ----------
7. Income taxes
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year. The estimated average annual tax rate
used for the year ending 31 December 2021 is 24.5%. This is higher
than the effective tax rate for the year ended 31 December 2020 of
23.5%, reflecting the mix of taxable profits in group companies
worldwide.
The estimated adjusted effective tax rate for the year ending 31
December 2021, based on the adjusted profit before tax, is 23.9%.
This is higher than the effective tax rate for the year ended 31
December 2020 of 23.4% due to the balance of profits within the
group moving towards high tax jurisdictions. The 2020 effective tax
rate also benefitted from a one-off reduction in the deferred tax
liability on unremitted earnings driven by a decrease in Indian
withholding tax rates.
The Group continues to operate in many jurisdictions where local
profits are taxed at their national statutory rates. As a result,
the Group income tax charge will be subject to fluctuation
depending on the actual profit mix. The Group continues to expect
its effective corporation tax rate to be higher than the standard
UK rate of 19% due to higher tax rates in the majority of overseas
subsidiaries.
8. Dividends
First half First half Full year
2021 2020 2020
GBP000 GBP000 GBP000
---------- ---------- ---------
The following dividends were paid in the
period per
qualifying ordinary share:
6.30p final dividend 54,996 - -
3.90p interim dividend - - 33,926
54,996 - 33,926
---------- ---------- ---------
The following dividends per qualifying ordinary
share were
declared/proposed at the balance sheet date:
6.30p final dividend proposed - - 55,059
2.35p interim dividend declared (2020: 3.90p) 20,523 34,036 -
20,523 34,036 55,059
---------- ---------- ---------
Last year 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. This year we are returning to the regular schedule of
dividend payments and are declaring an interim dividend of 2.35
pence which will be payable on 24 September 2021 to shareholders on
the register on 20 August 2021.
9. Earnings per share
Earnings per share is calculated using the profit attributable
to the ordinary shareholders for the period and 873.1m shares (six
months to 30 June 2020: 871.3m; year to 31 December 2020: 871.7m)
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 874.2m shares (six
months to 30 June 2020: 872.8m; year to 31 December 2020: 873.3m).
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
2020 2020 2020
GBP000 GBP000 GBP000
-------- -------- --------
Raw materials and consumables 49,461 59,293 46,101
Work in progress 3,755 6,263 3,630
Finished goods 9,861 15,610 11,736
-------- -------- --------
63,077 81,166 61,467
-------- -------- --------
11. Pension schemes - Defined benefit deficit
The defined benefit obligation at 30 June 2021 of GBP22,184,000
(30 June 2020: GBP44,440,000; 31 December 2020: GBP38,517,000) 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 2021 by independent actuaries to
reflect updated assumptions regarding discount rates, inflation
rates and asset values.
30 June 30 June
31 Dec
2021 2020 2020
% % %
-------- -------- -------
Discount rate 1.8 1.5 1.3
Rate of inflation 3.2 2.8 2.9
-------- -------- -------
In addition, the defined benefit plan assets and liabilities
have been updated to reflect the regular payments, the GBP3.4
million payment made in respect of past service and the benefits
earned during the period to 30 June 2021.
12. Share capital and reserves
The number of ordinary 0.5p shares in issue at 30 June 2021 was
874,147,000 (30 June 2020: 872,730,000; 31 December 2020:
873,955,000). All issued shares are fully paid.
The Group acquired 1,468,000 of its own shares through purchases
on the London Stock Exchange during the period (30 June 2020:
1,424,000; 31 December 2020: 1,431,000). The total amount paid to
acquire the shares was GBP5,409,000 (30 June 2020: GBP3,625,000; 31
December 2020: GBP3,645,000), and this has been deducted from
shareholders' equity. At 30 June 2021 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 814,000 (30 June 2020: 990,000; 31 December 2020:
997,000). In the period 803,000 shares were transferred from the
trust to employees in respect of the share investment plan and the
overseas profit linked share plan.
In respect of the SAYE scheme, options exercised during the
period to 30 June 2021 resulted in 193,000 ordinary 0.5p shares
being issued (30 June 2020: 192,000 shares), with exercise proceeds
of GBP328,000 (30 June 2020: GBP338,000). The weighted average
market share price at the time of exercise was GBP3.46 (30 June
2020: GBP2.89) per share.
The share based payment charge for the period was GBP1,951,000
(30 June 2020: GBP2,172,000; 31 December 2020: GBP3,685,000).
13. Loans and borrowings
The following loans and borrowings were issued and repaid during
the six months ended 30 June 2021:
Lease Preference
liabilities Bank loans shares Total
GBP000 GBP000 GBP000 GBP000
------------- ----------- ----------- --------
Balance at 31 December 2020 8,302 797 40 9,139
Additions/drawdowns 2,534 - - 2,534
Repayment (2,380) (34) - (2,414)
Disposals (130) - - (130)
Exchange differences (8) (32) - (40)
Balance at 30 June 2021 8,318 731 40 9,089
------------- ----------- ----------- --------
Lease Preference
liabilities Bank loans shares Total
GBP000 GBP000 GBP000 GBP000
------------- ----------- ----------- --------
Current 3,972 66 - 4,038
Non-current 4,346 665 40 5,051
Balance at 30 June 2021 8,318 731 40 9,089
------------- ----------- ----------- --------
The Group has committed loan facilities of GBP60,000,000 (First
half 2020: GBP60,000,000; Full year 2020: GBP60,000,000), of which
GBPnil (30 June 2020: GBPnil; 31 December 2020: GBPnil) was drawn
down at the balance sheet date. The facilities attract a blended
interest rate of LIBOR plus 0.65%.
14. Share-based payments
A grant of share options was made on 24 March 2021 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 2021 24 March 2021 24 March 2021
Share price at grant date GBP3.62 GBP3.62 GBP3.62
Shares awarded under scheme 401,664 401,664 401,666
Vesting period 3 years 3 years 3 years
Expected volatility 34.0% 34.0% 34.0%
Risk free rate 0.1% 0.1% 0.1%
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 GBP2.37 GBP3.62 GBP3.62
--------------- --------------- ----------------
The basis of measuring fair value is consistent with that
disclosed in the 2020 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 2020 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
2020 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 2021
the fair value of these contracts was a net asset of GBP1,636,000
(30 June 2020: a net liability of GBP2,539,000; 31 December 2020: a
net asset of GBP1,414,000). 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 .
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
Investors section:
http://www.rotork.com/en/investors/
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END
IR PTMPTMTJMBMB
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August 03, 2021 02:00 ET (06:00 GMT)
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