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RNS
Rotork PLC  -  ROR   

Final Results

Released 07:00 27-Feb-2017

RNS Number : 8530X
Rotork PLC
27 February 2017
 



27 February 2017

Rotork plc

2016 Full Year Results

 

1 Adjusted figures are before the amortisation of acquired intangible assets.

2 OCC is organic constant currency which has all the acquisitions removed and are restated at 2015 exchange rates.

 

Summary

·     Stabilising trading environment

·     10% currency tailwind

·     Successful cost management programme delivered £9.2m of savings in 2016, a further £4.2m expected in 2017

·     Continued investment in product portfolio and infrastructure

·     £16.3m acquisition of Mastergear

·     Strong cash generation at 130%

·     Full year dividend increased by 1.0% to 5.10p (2015: 5.05p)

 

Peter France, Chief Executive, commenting on the results, said:

"In the second half of 2016, the trading environment saw some stabilisation and we benefited from a strengthening currency tailwind. The acquisitions completed in 2015 and 2016, along with the introduction of a number of new products, also supported our growth.

 

We anticipate that any near-term growth in energy markets will remain modest. Our focus will remain on providing our customers with innovative, high quality products and services, reducing their cost of ownership and improving plant efficiency.  

 

Cost management will remain a priority in the current year as we look to mitigate any inflationary pressures through our highly flexible operating base.

 

We continue to target growth through organic development and acquisition that will enhance our broad product portfolio, diverse end market exposure and wide geographic presence.

 

Whilst mindful of continued macroeconomic uncertainties, at this stage of the year the Board believes Rotork is well placed to make progress in 2017."

 

 

Rotork plc

Tel:  +44 (0)1225 733 200

Peter France, Chief Executive


Jonathan Davis, Finance Director


Sarah Matthews-DeMers, Director of Strategy and Investor Relations



FTI Consulting  

Tel:  + 44 (0)20 3727 1340

Nick Hasell / Susanne Yule


 

There will be a meeting for analysts and institutional investors at 8.30 am GMT this morning at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD.  The presentation will also be webcast (audio only).  Please register at www.rotork.com

 

 

Chairman's statement

Looking back on 2016, I am able to report a return to a more stable trading environment for Rotork following the sharp downturn in oil and gas markets in the second half of 2015. Whilst there has been some improvement in market sentiment following a modest recovery in the oil price, activity levels in the Group's oil and gas markets remain below those seen before the downturn.

 

Against this backdrop, Rotork has delivered a solid set of full-year results, with adjusted operating margin lower than in 2015, as anticipated, but in excess of 20% - a key achievement for the Group. This performance resulted from a combination of focusing on end markets and geographies showing the greatest resilience, and a concerted effort in driving cost efficiencies throughout all areas of our business.

 

Whilst Rotork's trading environment was more stable during 2016, it was a year that brought increased geopolitical uncertainty, notably in Europe and the USA following the outcome of the EU referendum in the UK and the US Presidential elections. We will continue to closely monitor these developments and evaluate their potential impact but the Board remains confident that Rotork's diverse end market, geographic spread and highly flexible operating base leaves it well placed to optimise its performance under a range of potential future scenarios.

 

Financial highlights

Order intake increased 9.6% on the prior year as a result of contributions from acquisitions and currency tailwinds. On an organic constant currency (OCC) basis, order intake reduced by 6.1%, reflecting the current market conditions. Revenue increased by 8.0% (-8.0% OCC) to £590.1m on a reported basis, also supported by acquisitions and currency tailwinds.

 

Adjusted operating profit reduced £4.7m to £120.6m (£102.3m OCC), with adjusted operating margin 250 basis points lower at 20.4%. This reflected the mix effect of newly-acquired businesses at slightly lower margins and the impact of lower volumes, partially offset by £9.2m of material cost and overhead savings from our cost reduction programme and effective control over material and labour costs.

 

Acquisitions

Our principal focus was on the integration of the six businesses acquired in 2015, and in particular on delivering their anticipated synergies. We completed one acquisition during the year, acquiring Mastergear in June for £16.3m. The Mastergear business operates from bases in the USA, Italy and China and sits within the Gears division.

Board composition and performance

As announced last April, Bob Arnold retired in August 2016 as President of Rotork Controls Inc. and a member of the Board after a long career at Rotork.

We are also announcing that John Nicholas retired from the Board on 24 February 2017. John has served on the Board for nine years, latterly as the Senior Independent Director. I would like to thank John on behalf of the Board for his excellent contribution during this period. Sally James has replaced John as the Senior Independent Director and Lucinda Bell has replaced Sally as the Chair of the Audit Committee. We are currently in the process of recruiting a non-executive director to fill the vacancy that John's departure has created.

The Board now comprises two executive directors, three independent non-executive directors and myself as Chairman, which is in compliance with the UK Corporate Governance Code (the Code). In addition, more than 25% of the Board are women which exceeds our stated aim that at least 25% of our independent non-executive directors are women.

The annual performance review of the Board took place during February and March 2016.

Corporate governance

The Board continues to be committed to the highest standards of governance which we see as essential to the delivery of increasing long-term shareholder value. During the year, the Board and Audit Committee were involved in work related to risk appetite and monitoring and disclosure of risk, building on the work that was done during 2015. 

Employees

I would like to thank all of our employees for their continued high level of commitment and professionalism during 2016.

Dividend

The Board recommends a final dividend of 3.15p per share, a 1.6% increase over the 2015 final dividend. Taken with the 2016 interim dividend, the total dividend is 5.10p per share (2015: 5.05p), representing a 1.0% increase in the total dividend on 2015. The final dividend will be payable on 15 May 2017 to shareholders on the register on 7 April 2017.

Outlook

We anticipate that any near-term growth in energy markets will remain modest. Our focus will remain on providing our customers with innovative, high quality products and services, reducing their cost of ownership and improving plant efficiency.

 

Cost management will remain a priority in the current year as we look to mitigate any inflationary pressures through our highly flexible operating base.

 

We continue to target growth through organic development and acquisition that will enhance our broad product portfolio, diverse end market exposure and wide geographic presence.

 

Whilst mindful of continued macroeconomic uncertainties, at this stage of the year the Board believes Rotork is well placed to make progress in 2017.

 

Martin Lamb

Chairman

27 February 2017

 

 

Chief Executive's statement

The Group's trading environment became more stable during the year, although we continued to see caution from our customers in terms of large-scale investments in projects. Geopolitical tensions also affected certain key markets. Our reported numbers benefited from a contribution from acquisitions and currency movements. We continued to invest in infrastructure, including IT, which will improve our operational performance, and we made good progress on our previously announced cost reduction programme, exceeding our initial target.

 

Full year order intake was up 9.6% on a reported basis, but 6.1% lower on an OCC basis. Whilst reported revenue increased 8.0% to £590.1m, underlying revenue decreased 8.0% to £502.6m which was the main driver of the reduction in adjusted operating profit to £120.6m (£102.3m OCC). Our accelerated cost management programme delivered savings of £6.6m in respect of material costs, which was more than sufficient to mitigate the impact of any pricing pressure, which we continue to carefully monitor and manage. A further £2.6m of savings was found in other areas including overhead savings.

 

In 2016, we continued to implement our long-term strategy for growth by introducing new products and investing in new and existing markets through developing our sales channels. Our focus on selling additional products and services to our existing customer base through cross-divisional initiatives, and new product training for our sales force, had a positive impact. We also introduced a Group-wide initiative to improve our success rate on sales quotes.

 

During the year, oil and gas represented 52.4% of revenue, a decline of 70 basis points on the previous year, with an increase in the percentage of our sales to upstream and midstream but a decrease in downstream. In the water and industrial markets, underlying revenue increased over the prior year by 10.0% and 5.3% respectively, demonstrating that our strategy of diversifying our end markets continues to make progress. Our sales in the power market, down 6.4%, continued to be affected by China's economy, although we saw an increase in activity levels in China in the second half of 2016. USA revenues increased year-on-year, with growth in the water market but weakness in oil and gas. The Latin American market remained difficult due to our exposure to oil and gas in that region. However, the Middle East and Africa had positive sales momentum and we saw an increase in activity in certain territories in Asia.

 

Cost saving initiatives included the consolidation of facilities in the USA and Italy, resulting in a reduction in the number of our manufacturing facilities and offices. We now have 27 manufacturing sites, 69 national offices, and 84 regional locations in 38 countries. In total, we have over 861 sales channels in 101 countries. Our strong global presence remains a core part of our strategy. As well as consolidation of sites, we have focused on the roll-out of a global value engineering programme in support of increased customer demand for "smarter" lower cost solutions and measures to rationalise our supply chain and better leverage our global purchasing spend. We also accelerated the roll-out of our global ERP system to improve operational effectiveness and facilitate future scaleability.

 

We welcomed Mastergear into the Rotork family in June 2016 which expanded our Gears portfolio with new products in motorised and manual gears as we continued to consolidate our market leadership in this segment. Our focus during the year was on integrating Mastergear and the six acquisitions that we completed in 2015 and leveraging their product portfolios to drive growth.

 

The long-term drivers of our markets remain positive with population growth, urbanisation and automation continuing to drive increased demand for flow control products and services. Our customers are also increasingly focused on reducing power consumption, increasing efficiency, maximising cost reduction, improved safety and minimising their carbon footprints, which will drive long-term growth in our markets.

 

The broadening of our product portfolio, developing our geographic reach and expanding our end markets remain the key elements of our strategy. Our sales proposition of providing innovative market leading products and services locally to our customers continues to serve us well.

 

Customers have always been at the heart of what we do and in 2017 we are introducing a number of measures that will further enhance our customer-facing processes to reflect market requirements and to ensure that we remain competitive. This includes the introduction of a Group wide initiative, Project Energise (2017), focused on improving the customer experience.

 

Rotork Controls

£m

2016

2015

Change

OCC2 Change






Revenue

298.4

286.7

+4.1%

-6.5%

Adjusted1 operating profit

87.3

85.5

+2.1%

-8.4%

Adjusted1 operating margin

29.3%

29.8%

-50bps

-60bps

 

Order intake was £295.2m, a 6.6% increase compared with the prior year, with revenue up 4.1% to £298.4m, reflecting benefits from currency tailwinds. On an OCC basis order intake and revenue decreased by 4.3% and 6.5% respectively.

 

Adjusted operating profit of £87.3m was up 2.1% with an adjusted operating margin of 29.3%, 50 basis points lower than in 2015. Excluding the impact of currency, the underlying figures reduced, compared with 2015, by 8.4% and 60 basis points respectively, reflecting the effect of lower volumes but partly offset by continued resilience in our pricing and control of costs.

 

Our exposure to oil and gas reduced again in 2016, with the proportion of revenue down from 48% to 45% with reductions in midstream and downstream. The power market remained slow and although our market exposure declined slightly year-on-year we will continue to focus on expanding in this area. Incremental gains were seen in all the other end markets, including water. Our newer developing territories (Turkey, Poland and Chile) all delivered growth in 2016 and most of Europe, Middle East and Africa had positive sales momentum, with an increase in activity levels seen in South East Asia. Whilst the USA benefited from growth in the water market, overall we saw a decline in this region due to continued challenging conditions in the oil and gas market. Latin America also had its challenges due to our exposure to the oil and gas markets in that region.

 

In 2016, we launched further extensions to our IQ3 range, enabling us to offer more cost effective solutions. We also replaced a number of the original IQT3 variants with improved designs. Single phase and modulating variants of our Centork range were launched in Europe and China and will be sold outside these territories once the required electrical certification has been obtained. We are developing an intelligent asset management system that will collect and analyse field data from our installed actuators to ensure that our preventative service activities are optimised.

 

Rotork Fluid Systems

£m

2016

2015

Change

OCC2 Change






Revenue

145.3

149.2

-2.6%

-12.4%

Adjusted1 operating profit

6.2

15.2

-59.4%

-64.1%

Adjusted1 operating margin

4.3%

10.2%

-590bps

-600bps

 

Order intake was down 4.8% on a reported basis to £134.7m and down 14.2% to £121.4m on an OCC basis, with revenue down 2.6% to £145.3m (-12.4% to £130.7m OCC). Adjusted operating profit was down 59.4% to £6.2m and adjusted operating margin decreased 590 basis points (-64.1% to £5.5m OCC). Despite actions to consolidate facilities, a redundancy programme in one location and material cost saving initiatives, these were unable to fully cover the fall in volume and the impact of mix and pricing which were most pronounced in Fluid Systems.

 

The division's exposure to oil and gas remained broadly similar to 2015 at 69%. There was some positive Liquefied Natural Gas (LNG) activity and an increase in projects in Saudi Arabia helped offset overall lower activity elsewhere in this sector. Exposure to each of the other markets also remained broadly similar to the previous year. Our North American market saw a small increase, with a strong performance by our Gulf Coast subsidiary as a result of good LNG activity offsetting a general decline in other markets in this region. Europe remained broadly similar to the previous year, with the modest increase in the Eastern European market offsetting the decrease in Western Europe. Latin America was a weak performer, largely due to significant project delays as a result of both market and political instability that continues to impact business levels in Venezuela, Mexico and Brazil. Our Malaysia, India and Middle East subsidiaries performed well but the Far East, including China, reported lower activity overall, mainly due to ongoing project delays within oil and gas.

 

2016 saw significant value engineering efforts on our core products that we expect to continue to benefit the division during 2017. This will be supported by our ongoing low cost country sourcing programme that will benefit both our European manufacturing facilities and enable our regional China and India manufacturing operations to better address their regional markets.

 

Product development continued to be a focus for Fluid Systems in 2016. We expanded our SI3 range (our third generation Skilmatic electric fail safe actuator) with the launch of quarter turn and linear variants.  We introduced a stainless steel option in our GT range (pneumatic rack and pinion actuators). A new ELB (electronic line break) detection system designed to detect and isolate leaks in major pipeline infrastructure was also launched.

 

Rotork Gears

£m

2016

2015

Change

OCC2 Change






Revenue

72.4

58.6

+23.4%

-4.0%

Adjusted1 operating profit

14.1

12.0

+17.2%

-14.1%

Adjusted1 operating margin

19.4%

20.5%

-110bps

-220bps

 

Gears performed well over the period, with order intake increasing 22.7%, including contributions from the recent acquisitions, Roto Hammer and Mastergear. On an OCC basis, order intake declined by 4.8% relative to a strong comparable year.

 

Revenue grew 23.4% including contributions from the acquisitions and currency tailwinds. On an OCC basis, revenue fell by 4.0%, primarily due to the impact of the slowdown in oil and gas. Adjusted operating profit increased 17.2% to £14.1m but fell 14.1% excluding the effects of acquisitions and currency as the lower volumes reduced OCC adjusted operating margin by 220 basis points.

 

Oil and gas accounted for 54% of revenue, assisted by the contribution from the recent acquisitions. Upstream remained flat, but midstream and downstream both grew. Water grew 16% over the prior year. North America experienced good sales growth, mainly in the Gulf Coast and we saw an increase in activity in China.

 

The acquisition of Mastergear was completed in June 2016 for £16.3m. Mastergear has its main centres of operations in Italy and the USA, with a further operational presence in China. It has a well regarded product portfolio of manual and motorised gearboxes and will enable us to offer our customers a more comprehensive range of products and services.

 

In 2016, we introduced new products across many of our gearbox ranges: a quarter turn gearbox for use with motorised applications (ABM range); a bronze worm gearbox for steam distribution applications in manholes and vaults (BR range); a hand operated quarter turn worm gearbox for use in the water and pipeline markets (QTW150 range); and a hand operated bevel gearbox for use on gate valves, globe valves and penstocks (HOB range). We also unveiled a fugitive emission detector gearbox which is a new smart gearbox designed for leak detection and which will be launched in 2017. We changed the standard baseplates on all our gearboxes in the IW range to a new improved flat design. We also launched a new Smart Position Indicator which mechanically displays the position of the valve for in-field notification and digitally signals its open/closed position, helping to create a safer working environment.

 

Rotork Instruments

£m

 2016

2015

Change

OCC2 Change






Revenue

91.2

67.3

+35.4%

-3.9%

Adjusted1 operating profit

20.1

18.3

+10.0%

-16.6%

Adjusted1 operating margin

22.1%

27.2%

-510bps

-360bps

 

Instruments benefited both from the acquisitions completed in the prior year and favourable exchange rates, with order intake increasing 42.3% or 5.7% on an OCC basis. The closing order book increased by 22.8% during the year to £9.3m before a £0.5m increase due to currency is included.

 

Revenue increased by 35.4% with contributions from acquisitions and currency tailwinds. On an OCC basis, revenue declined by 3.9% as a result of the challenging conditions in the oil and gas market and on‐going tight conditions in the tyre market. Instruments supplies a number of components to Fluid Systems, and the weak revenue growth in that division also affected Instruments as a result.

 

As anticipated, the 2015 acquisitions were dilutive to the division's margins in 2016. Adjusted operating profit grew by 10% (-16.6% OCC) but adjusted operating margins decreased 510 basis points to 22.1% (-360 basis points to 23.6% OCC). We made additional investment in the division's engineering resource, although the overall margin at Instruments remains above that of the Group as a whole.

 

Instruments' exposure to the oil and gas market increased from 44% to 50% in 2016 following the acquisition in 2015 of Bifold, which increased the level of business derived from the upstream market. There was some softness in the North American market and continuing delays in large rail projects. However, the other markets we are now serving include a wider variety of geographies and end markets, including industrial automation, commercial vehicles, rail and life sciences.

 

In 2016, we continued to develop our product range by updating existing products and introducing new variants. Bifold launched a digital filter booster which integrates a complete control panel into a single unit and a new range of pressure transmitters specifically tailored to the oil and gas market; Rotork Fairchild launched a new PAX1 linear actuator which can be used by itself or paired with a variety of pressure regulators enabling remote control of pneumatic pressure for a variety of applications and a new range of low pressure transducers for use in the medical and precision test rig markets; YTC Positioners were re-engineered and certified for hazardous area use in North America and Canada; Rotork Midland launched a redesigned stainless steel filter regulator; and RI Wireless, a device which provides wireless valve monitoring in the process industry, was re-engineered.

 

Rotork Site Services (RSS)

Our global service network is a key differentiator for us in our industry. Our highly trained service team provide service and support to our customers around the world through preventative maintenance contracts, onsite and workshop service, retrofit solutions and through the Client Support Programme which offers maintenance contracts tailored to our customers' specific needs. In 2016, we continued to invest in our aftermarket business with 430 directly employed service engineers and other service technicians employed by our agents around the world, an increase of 7% on the previous year (2015: 402).

 

Research and Development (R&D)

In 2016, we accelerated a number of product introductions as we continued to widen our product range and improve our existing products to remain competitive. Our investment in R&D is led by Gary Jacobson, who was appointed as Group Innovation Director following the acquisition of Bifold in 2015, and during the year this increased by 5.9% to £10.2m. The increase is partly attributable to the pipeline of Bifold, whose strong history of product development was a key rationale for its acquisition. In addition, we are making a major investment in Bath to replace our mature factory and corporate headquarters and develop a state of the art R&D centre, to be completed by the end of 2018. Innovation and organic product development remains a key part of our strategy for growth.

 

Corporate Social Responsibility (CSR)

CSR values continue to be an integral part of our business model. We take our responsibilities to our stakeholders very seriously and continuously look for ways to improve our performance. The work in this area is led by our CSR committee and sub-committees who met throughout the year.

 

We supported WaterAid and Sightsavers again in 2016 and also Seva Bharathi (an NGO in India) and The Forever Friends Appeal (Royal United Hospitals Bath, UK), donating a total of £102,000. Our employees also gave support to their local communities with the Group contributing a further £157,000 to support these causes. This brought the total Group contributions in the year to £259,000 (2015: £297,000).

 

Our people

Our culture and values are key to Rotork's success. Rotork aims to be an employer of choice and our annual employee satisfaction survey is used to improve employee engagement and guide changes in how we work. Our annual survey for 2016 was completed by over 2,300 employees, with the response rate being slightly down (67% compared to 71% last year), and the overall satisfaction score remaining the same as last year at 3.6 out of 5.

 

The global results showed that on average people are most satisfied with Rotork's products and services, our approach to health and safety, and our values and ethics, and that Rotork is considered a great place to work by the majority of our employees. One clear message that came out of the survey related to employee involvement and understanding of the Group strategy. I am currently looking at the ways we share the Group strategy with all employees and how we might more fully engage employees in a dialogue on strategy in response to this.

 

We increased our training activities for employees during the year, including the introduction of new training materials for our sales engineers and the roll-out of new e-learning modules throughout the business.

Rotork's total employee numbers in 2016 were 3,754, broadly in line with the previous year. This included 55 employees who joined following the Mastergear acquisition. Excluding this, the total number of employees decreased by 59 as a result of the cost management initiatives that were implemented during the year.

Rotork's success is due to the dedication and hard work of our employees. I would like to personally thank them all for making Rotork the industry leading business that it is today.

 

Acquisitions

In June we completed the acquisition of Mastergear, a leading manufacturer of manual and motorised gearboxes focused on the oil and gas, water and distribution, chemical processing and wider industrial markets, for £16.3m. Along with the prior year acquisition of Roto Hammer, this makes our gears product range one of the most complete in the industry.

 

£6.8m of the consideration for Mastergear was attributed to intangible assets which will be amortised and £5.3m is goodwill which will be subject to an annual impairment review. The increased value of acquisitions over the last three years led to a rise in the amortisation charge related to acquired intangible assets to £26.8m (2015: £20.9m). In order to adjust the income statement to show a like-for-like period for each acquisition, 2016 revenue has to be reduced by £32.6m and adjusted1 operating profit by £5.4m. The profit margins of the acquired businesses were slightly dilutive in aggregate, at 16.7%.

 

During 2015, we completed a total of six acquisitions, the most significant of which was Bifold. Each provided access to a new product range, end user market or new geographic market in line with our stated acquisition strategy. We are pleased to report that the integration of these businesses is progressing well and once fully assimilated into the Rotork global sales portfolio, we expect their overall adjusted operating margins to improve.

 

Accelerated cost management programme

In 2015 we announced an accelerated cost management programme as part of our response to the changing market environment which identified £8m of annualised savings, split equally between material costs and overheads. The 2016 benefit of these initiatives was £2.8m of material cost savings and a £2.1m saving in overheads in addition to the £5.4m benefit already delivered in 2015.

 

In 2016 new initiatives were identified targeting a further £7.0m of annualised savings. These have so far delivered material cost savings of £3.8m and £0.5m in relation to other costs, bringing the total benefit in 2016 to £9.2m.

 

The material cost savings resulted in a decrease in the material cost percentage of 180 basis points net of the impacts of pricing and mix. The initiatives to reduce overheads delivered greater savings than anticipated. The consolidation of our facilities along with our headcount reduction initiatives were the largest contributors to the annualised savings. Not replacing leavers and consolidating roles led to a net headcount reduction of 59 people, including some senior posts, before the 55 people added with acquisitions are reflected.

 

A further £4.2m of savings are anticipated from these actions in 2017. We are also targeting a further £4m of annualised savings from new initiatives to be identified.

 

Currency

The progressive strengthening of the US dollar and euro during the year gave the Group a foreign exchange translation tailwind. The US$/£ average rate was $1.36 (2015: $1.53), a 17 cent tailwind. The €/£ average rate was €1.22 (2015: €1.38), a 16 cent tailwind. This, along with movements amongst the other 16 currencies that are home to one or more of our subsidiaries, benefited reported revenue by £54.9m, or 10%.

 

The impact of currency on the Group is both translational and transactional. Given the locations in which we have operations and the international nature of our supply base and sales currencies, the impact of transaction differences can be very different from the translation impact. We are able to partially mitigate the transaction impact through matching supply currency with sales currency, but ultimately we are still net sellers of both US dollars and euros. It is the net sale of these currencies which we principally address through our hedging policy, covering up to 75% of trading transactions in the next 12 months and up to 50% between 12 and 24 months. Net of these mitigating actions adjusted1 operating profit was £12.9m (10.3%) lower than it would have been at 2015 rates.

 

In order to estimate the impact of currency, at the current exchange rates we consider the effect of a 1 cent movement versus sterling. A 1 euro cent movement now results in approximately a £250,000 (2015: £235,000) adjustment to profit and for US dollar, and dollar related currencies, a 1 cent movement equates to approximately a £450,000 (2015: £400,000) adjustment.

 

Return on Capital Employed (ROCE)

Our asset-light business model and strong profit margins mean Rotork generates a high ROCE. Our definition of ROCE is based on adjusted1 operating profit as a return on the average net assets excluding net debt and the pension scheme liability net of the related deferred tax. This means that as we make acquisitions our capital base grows when the associated intangible assets and goodwill are recognised. The average capital employed increased year-on-year by 17.8% to £516m as a result of the full year impact of the additional intangibles and goodwill acquired in the last two years. This, combined with the lower adjusted operating profit resulted in a reduction in ROCE to 23.4% (2015: 28.6%).

 

Taxation

The Group's effective tax rate reduced slightly from 26.5% to 26.2%. The Group continues to operate in many jurisdictions where local profits are taxed at their national statutory rates, ranging from nil to over 35%, compared to a UK statutory rate of 20.0% for the year. In the year, the reduction in the effective rate resulted from the 25 basis points decrease in the UK statutory tax rate and the change in profit mix across the Group. In addition, the Group continues to benefit from the UK patent box regime and R&D tax relief.  The Group's approach to tax continues to be to operate on the basis of full disclosure and co-operation with all tax authorities and, where possible, to mitigate the burden of tax within the local legislation.

 

Cash generation

Our strong cash generation and disciplined working capital management resulted in a reduction in net debt of £16.2m to £55.0m at the end of the year. Our cash generation KPI shows a conversion of 130.1% of operating profit into operating cash. This allowed us to invest £17.6m in capital expenditure and £16.3m on the Mastergear acquisition, pay dividends of £43.9m and after currency movements and tax payments of £32.9m, we reduced net bank borrowings used to fund the prior year acquisitions.

 

Control of working capital as defined in the cashflow statement, using average exchange rates and excluding acquisitions, is key to achieving our cash generation KPI. Inventory reduced by £14.4m in the cashflow but currency and acquisitions reduced the impact to a £1.4m reduction between balance sheets. As a function of revenue, reported inventory reduced from 16.0% to 14.5%. Trade receivables increased by £13.1m as reported, with debtor days outstanding reducing by 1 to 61 days, however in the cashflow receivables generated a £2.5m inflow. In total, net working capital decreased to 30.2% of revenue compared with 31.0% in December 2015 and generated an £18.2m inflow in the cashflow statement.

 

Retirement benefits

The most recent triennial valuation for the UK scheme took place as at 31 March 2016 and showed a decrease in the actuarial deficit of £1.5m to £32.5m and an increase in the funding level from 78% to 82% as investment outperformance, favourable changes in assumptions and additional Company contributions offset the negative impact of the continued reduction in gilt yields, which is the key driver behind the value of the scheme's liabilities. A recovery plan has been agreed with the Trustees resulting in required annual contributions from the Company of £5.5m during 2016, 2017 and 2018, at which time the next valuation will take place.

 

On an accounting basis the deficit on the schemes increased from £23.3m to £58.5m during the year and the funding level decreased from 87% to 75%. The company paid total contributions of £8.5m in the year and the scheme assets increased slightly in value. This was offset, however, by the largest drivers of the increased deficit which were the lower discount rate due to the fall in AA corporate bond rates and increased inflation rates.

 

Dividends

The Board is proposing a 1.6% increase in the final dividend to 3.15p per share. When taken together with the 1.95p interim dividend paid in September, the 5.10p represents a 1.0% increase in dividends over the prior year. This gives dividend cover of 1.5 times (2015: 1.7 times). Our dividend policy is to grow core dividends in line with earnings and supplement core dividends with additional dividends when the Board considers it appropriate to do so having considered the near-term expected cash requirements of the Group.

 

Peter France

Chief Executive Officer

27 February 2017

 

 

Consolidated income statement

For the year ended 31 December 2016

 


Notes

2016

£000

2015

£000

Revenue

2

590,078

546,459

Cost of sales

 

(328,410)

(296,944)

Gross profit

 

261,668

249,515

Other income

 

629

427

Distribution costs

 

(5,138)

(4,613)

Administrative expenses

 

(163,165)

(140,877)

Other expenses

 

(217)

(66)

Operating profit before the amortisation of acquired intangible assets

 

120,588

125,272

Amortisation of acquired intangible assets

 

(26,811)

(20,886)

Operating profit

2

93,777

104,386

Finance income

3

1,744

1,740

Finance expense

3

(4,451)

(4,257)

Profit before tax

 

91,070

101,869

Income tax expense

4

(23,897)

(27,012)

Profit for the year

 

67,173

74,857

Basic earnings per share

9

7.7p

8.6p

Adjusted basic earnings per share

9

10.0p

10.4p

Diluted earnings per share

9

7.7p

8.6p

Adjusted diluted earnings per share

9

10.0p

10.4p

 

 

Consolidated statement of comprehensive income

For the year ended 31 December 2016

 



2016

£000

2015

£000

Profit for the year

 

67,173

74,857

Other comprehensive income

 



Items that may be subsequently reclassified to the income statement:

 



Foreign exchange translation differences

 

36,854

(6,511)

Effective portion of changes in fair value of cash flow hedges net of tax

 

(6,414)

(1,448)


 

30,440

(7,959)

Items that are not subsequently reclassified to the income statement:

 



Actuarial (loss) / gain in pension scheme net of tax

 

(30,732)

8,049

Income and expenses recognised directly in equity

 

(292)

90

Total comprehensive income for the year

 

66,881

74,947

 

Consolidated balance sheet

At 31 December 2016

 


Notes

2016

£000

2015

£000

Non-current assets

 

 

 

Goodwill

 

251,407

222,086

Intangible assets

 

109,019

118,555

Property, plant and equipment

 

83,766

72,008

Deferred tax assets

 

25,259

13,698

Other receivables

6

146

2,234

Total non-current assets

 

469,597

428,581

Current assets

 

 

 

Inventories

5

85,772

87,210

Trade receivables

6

131,891

118,801

Current tax

6

4,349

4,458

Derivative financial instruments

 

-

25

Other receivables

6

22,341

13,225

Cash and cash equivalents

7

61,423

48,968

Total current assets

 

305,776

272,687

Total assets

 

775,373

701,268

Equity

 

 

 

Issued equity capital

8

4,350

4,349

Share premium

 

10,482

10,018

Reserves

 

26,451

(3,989)

Retained earnings

 

392,803

397,424

Total equity

 

434,086

407,802

Non-current liabilities

 

 

 

Interest bearing loans and borrowings

10

51,303

69,756

Employee benefits

11

62,593

26,320

Deferred tax liabilities

 

24,848

28,973

Derivative financial instruments

 

2,483

431

Provisions

12

11,947

11,990

Total non-current liabilities

 

153,174

137,470

Current liabilities

 

 

 

Interest bearing loans and borrowings

10

65,108

50,352

Trade payables

13

39,652

36,724

Employee benefits

11

14,256

11,118

Current tax

13

13,352

14,276

Derivative financial instruments

 

8,143

3,601

Other payables

13

41,999

34,612

Provisions

12

5,603

5,313

Total current liabilities

 

188,113

155,996

Total liabilities

 

341,287

293,466

Total equity and liabilities

 

775,373

701,268

 

Consolidated statement of changes in equity

 


Issued

equity

capital

Share

premium

Translation

reserve

Capital

redemption

reserve

Hedging

reserve

Retained

earnings

Total

Balance at 31 December 2014

4,346

9,422

1,799

1,644

527

359,057

376,795









Profit for the year

-

-

-

-

-

74,857

74,857

Other comprehensive income








Foreign exchange translation differences

-

-

(6,511)

-

-

-

(6,511)

Effective portion of changes in fair value of cash
flow hedges

-

-

-

-

(1,790)

-

(1,790)

Actuarial gain on defined benefit pension plans

-

-

-

-

-

9,704

9,704

Tax on other comprehensive income

-

-

-

-

342

(1,655)

(1,313)

Total other comprehensive income

-

-

(6,511)

-

(1,448)

8,049

90

Total comprehensive income

-

-

(6,511)

-

(1,448)

82,906

74,947









Transactions with owners, recorded directly in equity








Equity settled share-based payments transactions

-

-

-

-

-

(1,447)

(1,447)

Tax on equity settled share-based payment transactions

-

-

-

-

-

(799)

(799)

Share options exercised by employees

3

596

-

-

-

-

599

Own ordinary shares acquired

-

-

-

-

-

(2,785)

(2,785)

Own ordinary shares awarded under share schemes

-

-

-

-

-

4,257

4,257

Dividends

-

-

-

-

-

(43,765)

(43,765)

Balance at 31 December 2015

4,349

10,018

(4,712)

1,644

(921)

397,424

407,802









Profit for the year

-

-

-

-

-

67,173

67,173

Other comprehensive income








Foreign exchange translation differences

-

-

36,854

-

-

-

36,854

Effective portion of changes in fair value of cash
flow hedges

-

-

-

-

(7,822)

-

(7,822)

Actuarial loss on defined benefit pension plans

-

-

-

-

-

(37,923)

(37,923)

Tax on other comprehensive income

-

-

-

-

1,408

7,191

8,599

Total other comprehensive income

-

-

36,854

-

(6,414)

(30,732)

(292)

Total comprehensive income

-

-

36,854

-

(6,414)

36,441

66,881









Transactions with owners, recorded directly in equity








Equity settled share-based payments transactions

-

-

-

-

-

1,557

1,557

Tax on equity settled share-based payment transactions

-

-

-

-

-

74

74

Share options exercised by employees

1

464

-

-

-

-

465

Own ordinary shares acquired

-

-

-

-

-

(1,019)

(1,019)

Own ordinary shares awarded under share schemes

-

-

-

-

-

2,202

2,202

Dividends

-

-

-

-

-

(43,876)

(43,876)

Balance at 31 December 2016

4,350

10,482

32,142

1,644

(7,335)

392,803

434,086

 

Consolidated statement of cash flows

For the year ended 31 December 2016

 


Notes

 

2016

£000

2016

£000

2015

£000

2015

£000

Cash flows from operating activities






Profit for the year


67,173


74,857


Adjustments for:






Amortisation of intangibles


26,811


20,886


Amortisation of development costs


2,226


1,814


Depreciation


11,759


9,759


Equity settled share-based payment expense


3,759


2,810


Profit on sale of property, plant and equipment


(254)


(280)


Finance income


(1,744)


(1,740)


Finance expense


4,451


4,257


Income tax expense


23,897


27,012




138,078


139,375


Decrease in inventories


14,416


731


Decrease in trade and other receivables


2,511


15,664


Increase / (decrease) in trade and other payables


1,309


(6,931)


Difference between pension charge and cash contribution


(5,297)


(5,051)


Decrease in provisions


(496)


(56)


Increase / (decrease) in employee benefits


1,047


(4,226)




151,568


139,506


Income taxes paid


(32,876)


(35,716)


Cash flows from operating activities



118,692


103,790







Investing activities






Purchase of property, plant and equipment


(14,692)


(11,762)


Development costs capitalised


(2,957)


(3,063)


Sale of property, plant and equipment


648


1,508


Acquisition of businesses, net of cash acquired

 

(16,109)


(133,857)


Contingent consideration paid


(257)


(4,536)


Settlement of hedging derivatives


(25,867)


1,949


Interest received


180


1,103


Cash flows from investing activities



(59,054)


(148,658)







Financing activities






Issue of ordinary share capital


466


599


Own ordinary shares acquired


(1,019)


(2,785)


Interest paid


(2,649)


(1,759)


(Decrease) / increase in bank loans


(3,619)


98,326


Repayment of finance lease liabilities


(253)


(100)


Dividends paid on ordinary shares


(43,876)


(43,765)


Cash flows from financing activities



(50,950)


50,516

Increase in cash and cash equivalents



8,688


5,648

Cash and cash equivalents at 1 January



48,968


46,816

Effect of exchange rate fluctuations on cash held



3,767


(3,496)

Cash and cash equivalents at 31 December

7


61,423


48,968

 

 

Notes to the Group Financial Statements

For the year ended 31 December 2016

 

Except where indicated, values in these notes are in £000.

 

Rotork plc is a company domiciled in England. The consolidated financial statements of the Company for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the Group).

 

1. Accounting policies

 

Basis of preparation

The consolidated financial statements of Rotork plc have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

 

New accounting standards and interpretations

The following narrow scope amendments which were issued as part of the IFRS Annual improvement cycles have been applied from 1 January 2016:

·      Amendments to IAS 1, 'Disclosure Initiative'

·      Amendments to IFRS 10, IFRS 12 and IAS 28, 'Applying the consolidation exemption'

·      Amendments to IFRS 11, 'Accounting for Acquisition Interests in Joint Operations'

·      Amendments to IAS 16 and IAS 38, 'Clarification of Acceptable Methods of Depreciation and Amortisation'

·      Amendments to IAS 27, 'Equity Method in Separate Financial Statements'

·      Amendments to IFRS 5, 'Changes in methods of disposal'

·      Amendments to IFRS 7, 'Servicing contracts'

·      Amendments to IAS19, 'Regional market issue'

 

Application of these standards and amendments has not had any material impact on the disclosures or on the amounts recognised in the Group's consolidated financial statements.

 

Recent accounting developments

IFRS 15, 'Revenue from contracts with customers' has been issued but is not yet effective and has not been adopted as application was not mandatory for the year. The new standard requires the separation of performance obligations within contracts with customers and the contractual value to be allocated to the performance obligations. Once a performance obligation is satisfied revenue should be recognised on that element of the contract. The introduction of the standard is likely to have some impact on Rotork but this is unlikely to be material due to the relatively straightforward contractual terms and conditions with customers. An exercise is in process to confirm the impact of this standard before it becomes effective in January 2018.

 

IFRS 9, 'Financial Instruments' has been issued but is not yet effective and has not been adopted as application was not mandatory for the year. The directors anticipate that the adoption of this standard will not have a material impact on the disclosures, net assets or results of the Group.

 

IFRS 16, 'Leases' has been issued but is not yet effective and has not been adopted as application was not mandatory for the year. The new standard will eliminate the classification of leases as either operating or finance leases and result in operating leases being treated as finance leases. This will result in previously recognised operating leases being treated as property, plant and equipment and a finance lease creditor. The introduction of the standard will increase the value of property, plant and equipment and the finance lease liability on the balance sheet but it is unlikely to have a material impact on profit in any year. An assessment will be carried out to understand the full impact of the standard before it becomes effective in January 2019.

 

Going concern

After carrying out a detailed review of the viability of the business, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. In forming this view, the directors have considered trading and cash flow forecasts, financial commitments, the significant order book with customers spread across different geographic areas and industries and the net debt position.

 

Consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year to 31 December 2016. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. Intra-group balances and any unrealised gains or losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

 

Status of this preliminary announcement

The financial information contained in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015. Statutory accounts for 2015, which were prepared under International Financial Reporting Standards as adopted by the EU, have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Full financial statements for the year ended 31 December 2016, will shortly be posted to shareholders, and after adoption at the Annual General Meeting on 28 April 2017 will be delivered to the registrar.

 

 

2. Operating segments

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

 

Controls - the design, manufacture and sale of electric actuators

Fluid Systems - the design, manufacture and sale of pneumatic and hydraulic actuators

Gears - the design, manufacture and sale of gearboxes, adaption and ancillaries for the valve industry

Instruments - the manufacture of high precision pneumatic controls and power transmission products for a wide range of industries

 

Unallocated expenses comprise corporate expenses. Transfer prices between business segments are set on an arm's length basis in a manner similar to transactions with third parties.

 

Geographic analysis

Rotork has a worldwide presence in all four operating segments through its subsidiary selling offices and through an agency network. A full list of locations can be found at www.rotork.com.

 

Analysis by operating segment:


Controls

2016

Fluid

Systems

2016

Gears

2016

Instruments

2016

Elimination

2016

Unallocated

2016

Group

2016

Revenue from external customers

298,381

145,317

60,802

85,578

-

-

590,078

Inter segment revenue

-

-

11,577

5,592

(17,169)

-

-

Total revenue

298,381

145,317

72,379

91,170

(17,169)

-

590,078

Adjusted operating profit*

87,293

6,181

14,051

20,130

-

(7,067)

120,588

Amortisation of acquired intangible assets

(3,860)

(1,582)

(1,698)

(19,671)

-

-

(26,811)

Operating profit

83,433

4,599

12,353

459

-

(7,067)

93,777

Net finance expense

 

 

 

 

 

 

(2,707)

Income tax expense

 

 

 

 

 

 

(23,897)

Profit for the year

 

 

 

 

 

 

67,173










Controls

2015

Fluid

Systems

2015

Gears

2015

Instruments

2015

Elimination

2015

Unallocated

2015

Group

2015

Revenue from external customers

286,708

149,228

46,072

64,451

-

-

546,459

Inter segment revenue

-

-

12,562

2,875

(15,437)

-

-

Total revenue

286,708

149,228

58,634

67,326

(15,437)

-

546,459

Adjusted operating profit*

85,479

15,215

11,991

18,306

-

(5,719)

125,272

Amortisation of acquired intangible assets

(3,326)

(2,300)

(990)

(14,270)

-

-

(20,886)

Operating profit

82,153

12,915

11,001

4,036

-

(5,719)

104,386

Net finance expense

 

 

 

 

 

 

(2,517)

Income tax expense

 

 

 

 

 

 

(27,012)

Profit for the year

 

 

 

 

 

 

74,857

*Adjusted operating profit is operating profit before the amortisation of acquired intangible assets

 


Controls

2016

Fluid

Systems

2016

Gears

2016

Instruments

2016

Unallocated

2016

Group

2016

Depreciation

5,429

2,571

1,546

2,170

43

11,759

Amortisation:







- Acquired intangible assets

3,860

1,582

1,698

19,671

-

26,811

- Development costs

1,628

211

281

106

-

2,226

Non-cash items: equity settled share-based payments

1,709

680

480

473

417

3,759

Net financing expense

-

-

-

-

(2,707)

(2,707)

Acquired as part of business combinations:







- Goodwill

-

-

5,317

-

-

5,317

- Intangible assets

-

-

6,816

-

-

6,816

Capital expenditure

6,975

4,575

1,741

1,357

13

14,661

 


Controls

2015

Fluid

Systems

2015

Gears

2015

Instruments

2015

Unallocated

2015

Group

2015

Depreciation

4,585

2,560

1,194

1,369

51

9,759

Amortisation:







- Acquired intangible assets

3,326

2,300

990

14,270

-

20,886

- Development costs

1,514

148

67

85

-

1,814

Non-cash items: equity settled share-based payments

1,911

549

351

103

(104)

2,810

Net financing expense

-

-

-

-

(2,517)

(2,517)

Acquired as part of business combinations:







- Intangible assets

3,048

-

4,951

58,685

-

66,684

Capital expenditure

5,093

4,970

811

818

46

11,738

 

Balance sheets are reviewed by subsidiary and operating segment balance sheets are not prepared, as such no further analysis of operating segments assets and liabilities is presented.

 

 

Geographical analysis:

 

Revenue by location of subsidiary

2016

2015

UK

74,144

64,415

Italy

63,040

57,254

Rest of Europe

112,759

92,908

USA

145,473

137,898

Other Americas

27,365

30,698

Rest of the World

167,297

163,286

 

590,078

546,459

 

 


UK

2016

Europe

2016

USA

2016

Other

Americas

2016

Rest of

World

2016

Group

2016

Non-current assets:







- Goodwill

81,329

64,984

62,730

740

41,624

251,407

- Intangible assets

52,138

17,595

20,674

-

18,612

109,019

- Property, plant and equipment

26,099

29,812

10,348

527

16,980

83,766

 


UK

2015

Europe

2015

USA

2015

Other

Americas

2015

Rest of

World

2015

Group

2015

Non-current assets:







- Goodwill

81,328

53,645

48,817

740

37,556

222,086

- Intangible assets

60,917

20,833

16,827

-

19,978

118,555

- Property, plant and equipment

25,675

22,362

7,834

618

15,519

72,008

 

 

3. finance Income and EXPENSE

 

Recognised in the income statement

 

 


2016

2015

Interest income

934

1,119

Foreign exchange gains

810

621

Finance income

1,744

1,740

 

 


2016

2015

Interest expense

(2,970)

(1,811)

Interest charge on pension scheme liabilities

(767)

(1,181)

Foreign exchange losses

(714)

(1,265)

Finance expense

(4,451)

(4,257)

 

 

Recognised in equity

 


2016

2015

Effective portion of changes in fair value of cash flow hedges

(8,772)

(1,123)

Fair value of cash flow hedges transferred to income statement

950

(667)

Foreign currency translation differences for foreign operations

36,854

(6,511)


29,032

(8,301)

Recognised in:



Hedging reserve

(7,822)

(1,790)

Translation reserve

36,854

(6,511)


29,032

(8,301)

 

 

4. Income tax expense

 

 

2016

2016

2015

2015

Current tax:

 

 

 

 

UK corporation tax on profits for the year

3,671

 

3,154

 

Adjustment in respect of prior years

4

 

(668)

 

 

 

3,675

 

2,486

Overseas tax on profits for the year

28,487

 

28,995

 

Adjustment in respect of prior years

(413)

 

(232)

 

 

 

28,074

 

28,763

Total current tax

 

31,749

 

31,249


 

 

 

 

Deferred tax:

 

 

 

 

Origination and reversal of other temporary differences

(7,937)

 

(3,540)

 

Impact of rate change

(127)

 

(732)

 

Adjustment in respect of prior years

212

 

35

 

Total deferred tax

 

(7,852)

 

(4,237)

Total tax charge for year

 

23,897

 

27,012






Effective tax rate (based on profit before tax)

 

26.2%

 

26.5%


 


 


Profit before tax

 

91,070

 

101,869


 


 


Profit before tax multiplied by the blended standard rate of corporation tax in

the UK of 20.0% (2015: 20.25%)

 

18,214

 

20,629


 


 


Effects of:

 


 


Different tax rates on overseas earnings

 

6,381

 

7,910

Permanent differences

 

301

 

1,331

Losses not recognised

 

224

 

463

Research and development credits

 

(899)

 

(1,724)

Impact of rate change

 

(127)

 

(732)

Adjustments to tax charge in respect of prior years

 

(197)

 

(865)

Total tax charge for year

 

23,897

 

27,012

 

A tax credit of £74,000 (2015: £799,000 expense) in respect of share-based payments has been recognised directly in equity in the year.

 

The reduction in the effective tax rate from 26.5% to 26.2% is primarily due the mix of where profits are generated. The Group continues to expect its effective rate of corporation tax to be higher than the standard UK rate due to higher rates of tax in the USA, China, Canada, France, Germany, Italy, Japan and India.

 

There is an unrecognised deferred tax liability for temporary differences associated with investments in subsidiaries. Rotork plc controls the dividend policies of its subsidiaries and the timing of the reversal of the temporary differences. The value of temporary differences associated with unremitted earnings of subsidiaries for which deferred tax has not been recognised is £282,541,000 (2015: £307,714,000).

 

 

5. Inventories

 


2016

2015

Raw materials and consumables

59,398

60,604

Work in progress

10,211

8,890

Finished goods

16,163

17,716


85,772

87,210

 

Included in cost of sales was £204,729,000 (2015: £196,826,000) in respect of inventories consumed in the year.

 

 

6. Trade and other receivables

 


2016

2015

Non-current assets:



Other non-trade receivables

146

2,234

Other receivables

146

2,234

Current assets:



Trade receivables

139,108

124,285

Less provision for impairment of receivables

(7,217)

(5,484)

Trade receivables - net

131,891

118,801




Corporation tax

4,349

4,458

Current tax

4,349

4,458




Other non-trade receivables

7,600

2,025

Other taxes and social security

7,333

6,002

Prepayments

7,408

5,198

Other receivables

22,341

13,225

 

Included with non-trade receivables is £2,334,000 (2015: £nil) which relate to collateral held by a third party in respect of the Group's outstanding forward exchange contracts.

 

 

7. Cash and cash equivalents

 


2016

2015

Bank balances

50,110

35,013

Cash in hand

65

63

Short term deposits

11,248

13,892

Cash and cash equivalents

61,423

48,968

Bank overdraft

-

-

Cash and cash equivalents in the Consolidated Statement of Cash Flows

61,423

48,968

 

 

8. Capital and reserves

 

 


0.5p Ordinary

shares

Issued

and fully

paid up

2016

£1 Non-

redeemable

preference

shares

2016

0.5p Ordinary

shares

Issued

and fully

paid up

2015

£1 Non-

redeemable

preference

shares

2015

At 1 January

4,349

40

4,346

40

Issued under employee share schemes

1

-

3

-

At 31 December

4,350

40

4,349

40

Number of shares (000)

870,051


869,738


 

The ordinary shareholders are entitled to receive dividends as declared and are entitled to vote at meetings of the Company.

 

The Group received proceeds of £465,000 (2015: £599,000) in respect of the 312,540 (2015: 458,990) ordinary shares issued during the year: £1,000 (2015: £3,000) was credited to share capital and £464,000 (2015: £596,000) to share premium.

 

The preference shareholders take priority over the ordinary shareholders when there is a distribution upon winding up the Company or on a reduction of equity involving a return of capital. The holders of preference shares are entitled to vote at a general meeting of the Company if a preference dividend is in arrears for six months or the business of the meeting includes the consideration of a resolution for winding up the Company or the alteration of the preference shareholders' rights.

 

Within the retained earnings reserve are own shares held. The investment in own shares held is £2,738,000 (2015: £3,920,000) and represents 963,000 (2015: 1,406,000) ordinary shares of the Company held in trust for the benefit of directors and employees for future payments under the Share Incentive Plan and Long Term Incentive Plan. The dividends on these shares have been waived.

 

Translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.

 

Capital redemption reserve

The capital redemption reserve arises when the Company redeems shares wholly out of distributable profits.

 

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments that are determined to be an effective hedge.

 

Dividends

The following dividends were paid in the year per qualifying ordinary share:

 


2016

Payment date

2016

2015

3.10p final dividend (2015: 3.09p)

16 May

26,933

26,835

1.95p interim dividend (2015: 1.95p)

23 September

16,943

16,930



43,876

43,765

 

After the balance sheet date the following dividends per qualifying ordinary share were proposed by the directors. The dividends have not been provided for and there are no corporation tax consequences.

 


2016

2015

Final proposed dividend per qualifying ordinary share



3.15p

27,407


3.10p


26,962

 

 

9. Earnings per share

Basic earnings per share

Earnings per share is calculated for both the current and previous years using the profit attributable to the ordinary shareholders for the year. The earnings per share calculation is based on 868.7m shares (2015: 867.8m shares) being the weighted average number of ordinary shares in issue (net of own ordinary shares held) for the year.


2016

2015

Net profit attributable to ordinary shareholders

67,173

74,857

Weighted average number of ordinary shares



Issued ordinary shares at 1 January

868,332

867,258

Effect of own shares held

273

428

Effect of shares issued under Sharesave plans

61

131

Weighted average number of ordinary shares during the year

868,666

867,817

Basic earnings per share

7.7p

8.6p

 

Adjusted basic earnings per share

Adjusted basic earnings per share is calculated for both the current and previous years using the profit attributable to the ordinary shareholders for the year after adding back the after tax amortisation charge.

 


2016

2015

Net profit attributable to ordinary shareholders

67,173

74,857

Amortisation

26,811

20,886

Tax effect on amortisation at effective rate

(7,035)

(5,538)

Adjusted net profit attributable to ordinary shareholders

86,949

90,205

Weighted average number of ordinary shares during the year

868,666

867,817

Adjusted basic earnings per share

10.0p

10.4p

 

Diluted earnings per share

Diluted earnings per share is based on the profit for the year attributable to the ordinary shareholders and 872.0m shares (2015: 869.3m shares). 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. The Company has two categories of potentially dilutive ordinary shares: those share options granted to employees under the Sharesave plan where the exercise price is less than the average market price of the Company's ordinary shares during the year and contingently issuable shares awarded under the Long Term Incentive Plan (LTIP).

 


2016

2015

Net profit attributable to ordinary shareholders

67,173

74,857

Weighted average number of ordinary shares (diluted)



Weighted average number of ordinary shares for the year

868,666

867,817

Effect of Sharesave options

870

1,214

Effect of LTIP share awards

2,498

300

Weighted average number of ordinary shares (diluted) during the year

872,034

869,331

Diluted earnings per share

7.7p

8.6p

 

Adjusted diluted earnings per share


2016

2015

Net profit attributable to ordinary shareholders

67,173

74,857

Amortisation

26,811

20,886

Tax effect on amortisation at effective rate

(7,035)

(5,538)

Adjusted net profit attributable to ordinary shareholders

86,949

90,205

Weighted average number of ordinary shares (diluted) during the year

872,034

869,331

Adjusted diluted earnings per share

10.0p

10.4p

 

 

10. Interest bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest bearing loans and borrowings.

 


2016

2015

Non-current liabilities



Preference shares classified as debt

40

40

Bank loans

51,260

69,645

Finance lease liabilities

3

71


51,303

69,756

Current liabilities



Bank loans

65,039

50,098

Finance lease liabilities

69

254


65,108

50,352

 

Terms and debt repayment schedule

The terms and conditions of outstanding loans were as follows:

 


Currency

Interest rates

Year of maturity

2016

2015

Non-redeemable preference shares

Sterling

9.5%

-

40

40

Bank loans and overdrafts

Sterling

0.6-1.1%

2018-20

115,180

118,560

Bank loans and overdrafts

Euro

1.4% - 4.5%

2017-32

1,119

1,183

Finance lease liabilities

Sterling

1.9% - 10.6%

2017-19

72

325





116,411

120,108

 

Repayment profile

Finance leases and bank loans are payable as follows:

 


Principal

2016

Interest

2016

Minimum

payments

2016

Principal

2015

Interest

2015

Minimum

payments

2015

Bank loans less than one year

65,039

310

65,349

50,098

386

50,484

Bank loans more than one and less than five years

50,565

81

50,646

68,987

73

69,060

Bank loans more than five years

695

101

796

658

99

757

Finance leases less than one year

69

2

71

254

7

261

Finance leases more than one and less than five years

3

0

3

71

2

73


116,371

494

116,865

120,068

567

120,635

 

 

11. Employee benefits


2016

2015

Recognised liability for defined benefit obligations:



- Present value of funded obligations

236,543

180,406

- Fair value of plan assets

(178,045)

(157,131)


58,498

23,275

Other pension scheme liabilities

356

239

Employee bonuses

10,824

8,601

Long term incentive plan

216

80

Employee indemnity provision

3,359

2,495

Other employee benefits

3,596

2,748


76,849

37,438




Non-current

62,593

26,320

Current

14,256

11,118


76,849

37,438

 

 

12. Provisions

 


Contingent

consideration

Warranty

provision

Total

Balance at 1 January 2016

11,775

5,528

17,303

Exchange differences

190

713

903

Increase as a result of business combinations

-

96

96

Provisions utilised during the year

(257)

(1,707)

(1,964)

Charged to the income statement

-

1,212

1,212

Balance at 31 December 2016

11,708

5,842

17,550





Maturity at 31 December 2016




Non-current

10,000

1,947

11,947

Current

1,708

3,895

5,603


11,708

5,842

17,550





Maturity at 31 December 2015




Non-current

10,147

1,843

11,990

Current

1,628

3,685

5,313


11,775

5,528

17,303

 

The warranty provision is based on estimates made from historical warranty data associated with similar products and services. The provision relates mainly to products sold during the last 12 months and the typical warranty period is 18 months.

 

Contingent consideration relating to the Bifold acquisition is £10,500,000. £10,000,000 will become payable in 2018 if an EBITDA target is achieved in respect of the 2017 financial year. Other contingent consideration relates to amounts outstanding in respect of the GTA Group, Masso and SMS acquisitions.

 

 

13. Trade and other payables

 


2016

2015

Trade payables

39,652

36,724




Corporation tax

13,352

14,276

Current tax

13,352

14,276




Other taxes and social security

10,806

8,592

Payments on account

7,053

6,674

Other payables and accrued expenses

24,140

19,346

Other payables

41,999

34,612

 

 

14. Related parties

 

The Group has a related party relationship with its subsidiaries and with its directors and key management. Transactions between two subsidiaries for the sale and purchase of products or the subsidiary and parent Company for management charges are priced on an arm's length basis.

 

Severn Trent plc was a related party of Rotork plc by virtue of M Lamb's non-executive directorship which ended on 20 July 2016. Sales to subsidiaries and associates of Severn Trent plc totalled £504,000 during the period to 20 July 2016 (2015: £1,229,000 during the year).

 

Key management emoluments

The emoluments of those members of the management team, including directors, who are responsible for planning, directing and controlling the activities of the Group were:

 


2016

2015

Emoluments including social security costs

3,370

2,972

Post-employment benefits

229

269

Pension supplement

202

208

Share-based payments

848

(309)


4,649

3,140

 

 

15. Financial calendar

 

 

27 February 2017

Preliminary announcement of annual results for 2016

6 April 2017

Ex-dividend date for final proposed 2016 dividend

7 April 2017

Record date for final proposed 2016 dividend

28 April 2017

Announcement of trading update

28 April 2017

Annual General Meeting held at Rotork House, Brassmill Lane, Bath, BA1 3JQ

8 August 2017

Announcement of interim financial results for 2017

23 November 2017

Announcement of trading update

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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