TIDMROR
RNS Number : 5716I
Rotork PLC
08 August 2023
Tuesday 8(th) August 2023
Rotork plc
2023 Interim Results
Good first half, expectations for the full year unchanged
OCC(3)
Adjusted highlights H1 2023 H1 2022 % change % change
----------------------------- ---------- ---------- --------- ----------
Order intake(1) GBP386.9m GBP340.1m +13.8% +11.9%
Revenue GBP334.7m GBP280.0m +19.5% +17.2%
Adjusted (2) operating
profit GBP65.3m GBP53.3m +22.5% +20.2%
Adjusted (2) operating
margin 19.5% 19.0% +50bps +50bps
Adjusted (2) basic earnings
per share 5.8p 4.8p +21.9% +19.7%
Cash conversion (4) 116% 68% - -
--------- ----------
Reported highlights H1 2023 H1 2022 % change
----------------------------- ---------- ---------- ---------
Revenue GBP334.7m GBP280.0m +19.5%
Operating profit GBP59.4m GBP44.0m +34.9%
Operating margin 17.7% 15.7% +200bps
Profit before tax GBP60.2m GBP44.6m +35.1%
Basic earnings per share 5.3p 3.9p +34.9%
Interim dividend 2.55p 2.40p +6.3%
----------------------------- ---------- ---------- ---------
Summary
-- Order intake increased 11.9% year-on-year OCC, largely driven
by volume, resulting in a record order book at period end
-- Revenue increased 17.2% year-on-year OCC against a more
supply-chain disrupted comparative period, and despite some
supply-chain challenges continuing. All divisions grew at rates
consistent with the Group, with Target Segments delivering premium
growth as expected
-- Good progress under all Growth+ pillars with new product and
digital services launched and a bolt-on technology platform
acquisition
-- Adjusted operating margins 50bps higher at 19.5% reflecting
increased volumes partly offset by Growth+ investments. The
reported operating profit margin was 17.7%
-- ROCE(4) was 32.7% (up 570bps). Strong balance sheet retained
with closing net cash of GBP97.8m (December 2022: GBP105.9m)
reflecting 116% cash conversion and a GBP20m special pension
contribution which facilitated a buy-in, further de-risking the
pension scheme
Kiet Huynh, Chief Executive, commenting on the results,
said:
"I'm pleased with our performance in the first half, in
particular with double-digit year-on-year growth in orders and
sales, the improvement in operating margin and the progress made
under the Growth+ strategy.
The outlook for all our divisions is positive and we entered the
second half with a record order book. Whilst mindful of residual
supply chain challenges, we anticipate delivering further progress
in 2023 in line with expectations on an OCC 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 other adjustments (see note 4).
(3) OCC (4) is organic constant currency results restated at
2022 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 reported measures in note 2.
Rotork plc Tel: +44 (0)1225 733 200
Kiet Huynh, Chief Executive
Jonathan Davis, Finance Director
Andrew Carter, Investor Relations
Director
FTI Consulting Tel: + 44 (0)20 3727 1340
Nick Hasell / Susanne Yule
There will be a meeting for analysts and institutional investors
at 9.30am GMT today in the Library at the offices of JPMorgan
Cazenove, 60 Victoria Embankment, London EC4Y 0JP. The presentation
will also be webcast, with access via
https://www.investis-live.com/rotork/64a8143a2be9e4130067c8af/sahka
. Please join the webcast a few minutes before 9.30am 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 sustainable 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 and reducing energy sector methane emissions.
Performance
The safety of colleagues, partners and visitors is Rotork's
number one priority and the Group's vision for health and safety is
zero harm. In the first half of 2023 the lost-time injury rate was
0.07, an encouraging improvement on the 0.20 in the first half of
2022, in part reflecting the extensive work completed across the
Group to implement its 12 Global Safety Standards. The Total
Recordable Injury Rate in H1 2023 was 0.20 (H1 2022: 0.39).
Order intake increased 13.8% year-on-year to GBP386.9m (11.9% on
an organic constant currency or OCC basis). All three divisions
booked higher orders, with Oil & Gas and Water & Power
strongly ahead. Oil & Gas order intake was the largest it has
been in a six-month period since 2019. Orders, which overall
continue to be driven predominantly by customers' operational
spend, included more large orders than seen for some time.
Whilst the period saw benefits from supply chain improvement
measures, the supply chain challenges faced in recent years have
not entirely disappeared. During the period the Group experienced
amongst other things disruption to the supply of semi-finished
components such as circuit boards. Rotork is working together with
its suppliers to improve availability and saw some improvement in
deliveries towards the end of the period.
Group revenue was 19.5% higher year-on-year (17.2% higher OCC),
benefiting from a lower level of supply chain challenges. Higher
volumes contributed around two-thirds of the Group sales increase.
Oil & Gas sales rose 19.5% (16.4% OCC), driven by the Americas
and Europe, Middle East & Africa ('EMEA') regions. CPI sales
were 19.0% ahead (17.2% OCC), with all geographic regions higher.
Water & Power sales were up 20.4% (18.7% OCC), with all regions
ahead and the Americas seeing a particularly strong
improvement.
By geography, Asia Pacific revenues by destination grew
mid-single digits year-on-year on an OCC basis driven by solid
performances from CPI and Water & Power. EMEA sales grew double
digits, benefiting from Oil & Gas strength. Americas revenues
were also ahead double digits (OCC) with all divisions delivering
strong growth.
Rotork Site Services, Rotork's global service network and a key
differentiator in the industry, performed well with revenue growth
broadly in-line with the Group overall. The recently launched
enhanced Intelligent Asset Management predictive analytics system
has been well received by customers and has good momentum.
Adjusted operating profit was 22.5% higher year-on-year (20.2%
at OCC) at GBP65.3m, reflecting volume growth and positive net
price/mix which together were partly offset by annual wage
inflation, investment in our Growth+ strategy and the bringing
forward of salary increases. Adjusted operating margins were 50bps
ahead year-on-year at 19.5%. Reported profit before tax was
GBP60.2m.
Return on capital employed was 32.7% (H1 2022: 27.0%),
benefiting from the increase in adjusted operating profit. Cash
conversion was 116% (H1 2022: 68%). First half cash conversion
benefited from the normalisation of receivables balances which were
unusually high at the December year-end. Rotork's balance sheet
remains strong, with a closing net cash position of GBP97.8m after
a GBP20m special pension contribution which facilitated a buy-in,
further de-risking the pension scheme.
Rotork is targeting net-zero by 2035 for scopes 1 and 2 and to
encourage achievement during the period incorporated near-term
absolute scope 1 and 2 reduction targets into its long-term
incentive plan. Good progress was made securing renewable energy
contracts and these are now in place at more than a fifth of Rotork
sites. Rotork is targeting net-zero by 2045 for scope 3. This is a
medium-term project and the foundations have been laid by building
sustainability goals into our product development process.
Market update
The outlook for the end markets we serve remains positive.
The recovery in oil & gas sector activity first experienced
in the second half of 2021 continued through the first half of
2023. Hydrocarbons will have an important role in the world's
energy mix for years to come and following an extended period of
industry under-investment a catch-up is now underway. Whilst
hydrocarbon prices have fallen from the highs of 2022, they remain
above incentive levels in most regions and large project activity
remains elevated. The events in Ukraine have also necessitated a
reconsideration of energy security risks with the result that LNG
is having a larger role.
Methane emissions reduction remains an industry priority and our
IQTF has been established as the leading electric actuator for
upstream oil & gas choke valve applications. COP28, to be held
in Dubai in November, is expected to call for a step-up in policy
and financing efforts directed at methane emissions reduction.
The metals and mining sectors are major beneficiaries of the
global mega trends of electrification and decarbonisation, and
significant new resources and processing plants are scheduled to be
commissioned in the next couple of years. Metals benefiting from
the transition include aluminium, cobalt, copper, lithium and
nickel.
The United States' Inflation Reduction Act and the European
Union's similar initiatives are supporting the carbon capture and
storage and hydrogen sectors and we saw a marked pick-up in
enquiries and quotation activity in the period. If passed, the
United States' Environmental Protection Agency's proposed new
carbon pollution standards are expected to provide further
stimulus, particularly to the carbon capture sector.
The water and wastewater sector continues to increase investment
in new and existing infrastructure. The sector is focused on
delivering water availability, improving water quality, reducing
leakage and climate change adaptation. The desalination segment
remains active, and new market opportunities are presenting
themselves (for example, desalination plants in hydrogen
facilities).
Growth+ strategy update
In November 2022 we presented our new Growth+ strategy at a
Capital Markets Event. The starting point of Growth+ is our
purpose, 'keeping the world flowing for future generations'. Our
Purpose remains a powerful motivator, and it drives everything we
do. It recognises the important part that we play in making our
world a great place in which to live, but also the role we can play
helping improve the safety, environmental and social performances
of not just ourselves, but also those of our end users, customers,
suppliers and communities.
Our vision is for Rotork to be the leader in intelligent flow
control. This recognises the ever-increasing importance of
connectivity to our end users. Today's intelligent flow control
systems not only ensure safety, they are also reliable, efficient
and easy to use and play a vital role in ensuring the uptime of our
end users' operations (including through predictive and
preventative maintenance).
Growth+ is designed to deliver our ambition of mid to high
single-digit revenue growth and mid 20s adjusted operating profit
margins over time. The levers are its three pillars of Target
Segments, Customer Value and Innovative Products & Services,
each underpinned by our 'Enabling a Sustainable Future'
initiatives.
We made good progress in Target Segments, which delivered
premium growth in the period. Successes in Oil & Gas included
in the North American upstream methane emissions reduction segment,
where our IQTF range has established itself as the leading electric
actuator for choke valve applications, and in LNG where we won a
sizeable order for actuation equipment destined for a major
liquefaction project in the United States. Successes in CPI
included being chosen to supply a large actuation package to a
major nickel/cobalt processing plant in Indonesia. Water &
Power won a very significant network automation project in the
Middle East.
During the half year we accelerated our business transformation.
We are transforming Rotork through implementing and integrating
common systems and processes throughout the Group. This will
improve efficiency and ultimately deliver improved lead times and
an enhanced customer experience. An important milestone was passed
in Q1 with the successful first deployment of our new Enterprise
Resource Planning system at our Bath site. The Microsoft Dynamics
365 based system integrates into our existing Group-wide Customer
Relationship Management application. Implementation across all
sites will take place over the next 3-4 years.
Our Innovative Products & Services pillar also has good
momentum. During the period we launched the IQ3 Pro and its
accompanying smartphone app. The new IQ3 offers greater
connectivity than its predecessor and the smartphone app enables
intelligent configuration and operation. Our enhanced Intelligent
Asset Management condition monitoring and analytics software has
been well received by customers who appreciate its expanded
diagnostic and predictive functions. After the period end we made a
small acquisition adding a compact high torque electric valve
actuator range to our product offering.
Capital allocation
We retain a strong balance sheet, with a net cash position of
GBP97.8m at the period end (31 December 2022: GBP105.9m). This,
together with good cash generation, provides us with the financial
flexibility to pursue our organic investment plans, pay a
progressive dividend and execute our targeted M&A strategy. We
regularly review our capital needs, in line with our capital
allocation strategy, and have demonstrated discipline and
flexibility in our use of buybacks and dividends to deliver returns
for shareholders. In the event that in the future we determine we
have surplus cash, we will return it to shareholders via share
buybacks.
On 4 August Rotork acquired Montreal (Canada) headquartered
Hanbay Inc ("Hanbay"). Hanbay designs and manufactures compact,
high torque electric valve actuators for both non-hazardous and
hazardous applications. The acquisition expands Rotork's electric
actuator offering and is fully consistent with all three pillars of
the Growth+ strategy and increases the percentage sales
contribution of our Eco-transition portfolio. Hanbay sales in 2023
are expected to be in the region of CAD10m with margins in-line
with the Rotork Group average.
We recognise the importance of a growing dividend to our
shareholders and are committed to a progressive dividend policy
subject to satisfying cash requirements. The Board is declaring an
interim dividend of 2.55p per share which is equivalent to 2.3
times cover based on adjusted earnings per share.
The interim dividend will be payable on 22 September 2023 to
shareholders on the register on 18 August 2023. The ex-dividend
date is 17 August 2023. The last date to elect for the Dividend
Reinvestment Plan ('DRIP') is 4 September 2023.
Board update
Ann Christin Andersen has decided that due to other commitments
she will not seek re-election as a Director of Rotork at the AGM in
April 2024. When Ann Christin steps down she will have served
Rotork for more than five years. We thank Ann Christin for her
service and will announce her replacement in due course.
Outlook
The outlook for all our divisions is positive and we entered the
second half with a record order book. Whilst mindful of residual
supply chain challenges, we anticipate delivering further progress
in 2023 in line with expectations on an OCC basis.
Divisional review
Oil & Gas
GBPm H1 2023 H1 2022 Change OCC(3) Change
Revenue 146.1 122.3 +19.5% +16.4%
Adjusted operating
profit 31.3 23.6 +33.0% +30.3%
Adjusted operating
margin 21.4% 19.3% +210bps +230bps
Oil & Gas sales were 16% ahead year-on-year (OCC) against a
supply-chain disrupted comparative period. Divisional revenues
benefited from both volume and selling price increases. All
segments grew and downstream sales represented 47% of the total
(52% in H1 2022); upstream 29% (24%) and midstream 24% (24%).
The EMEA geographic region reported double-digit revenue growth
year-on-year (OCC), with all three segments (upstream, midstream
and downstream) strongly ahead, benefiting from increased activity
in the Middle East. The Americas reported the strongest growth with
US upstream benefiting from the increase in methane emissions
reduction related sales. In APAC, double-digit year-on-year revenue
growth in the upstream segment was not sufficient to offset lower
downstream and midstream sales, reflecting the non-repeat of larger
projects.
The division's adjusted operating profit was GBP31.3m, 33.0% up
year-on-year. Positive pricing more than offset adverse product mix
and any impact of higher material costs. The benefit of strong
volume growth, improved labour productivity and a slower rate of
overhead growth resulted in adjusted operating margins rising 210
basis points to 21.4%.
Oil & Gas' focus on target segments delivered notable
successes during the period. The Rotork IQTF established itself as
the leading electric actuator for wellhead choke valve methane
emissions reduction applications in the North American upstream
market. In the LNG segment Oil & Gas received a major actuation
package order from a liquefaction project in Texas. In India the
Rotork team won a large order for electric actuators and controls
systems, together with a five-year maintenance and service
contract, for a multi-location tank farm automation project.
Chemical, Process & Industrial ("CPI")
GBPm H1 2023 H1 2022 Change OCC(3) Change
Revenue 110.4 92.8 +19.0% +17.2%
Adjusted operating
profit 25.0 22.7 +10.0% +8.4%
Adjusted operating
margin 22.7% 24.5% -180bps -180bps
CPI is a supplier of specialist actuators and instruments for
niche applications in the broad chemical, process industry and
industrial sectors. The division serves a broader range of end
markets than Rotork's other divisions and typically has a shorter
order backlog.
The division delivered a good sales performance with revenues
19% higher year-on-year. Asia Pacific sales grew year-on-year OCC,
benefiting from our coverage expansion initiative and growth in
target segments including HVAC and mining. EMEA revenue growth was
in the mid-teens. The Americas was CPI's fastest growing geographic
region.
The division's adjusted operating profit was GBP25.0m, 10%
higher than the prior year. Adjusted operating margins fell 180
basis points to 22.7%. Particularly strong revenue growth in fluid
power actuators contributed to a negative product mix which, even
with improved direct labour productivity, meant a decline in gross
margin. With overheads then increasing slightly ahead of the Group
average this resulted in a 180bps reduction in adjusted operating
margin.
CPI is benefiting from the pursuit of its chosen Growth+ target
segments such as decarbonisation (hydrogen and carbon capture,
usage and storage), chemicals, HVAC (semi-conductor, lithium-ion
battery and data centre) and mining. Rotork's electric and fluid
power actuators and MasterStation control systems were selected to
control fluids at a major new ethylene (chemical) multi-phase
project in China. Rotork Schischek explosion proof actuators were
specified as part of a HVAC upgrade at a pharmaceutical ingredient
plant in Switzerland. Rotork's electric actuators and emergency
shutdown duty fluid-powered actuators were chosen to automate a
major nickel/cobalt processing plant in Indonesia.
Water & Power
GBPm H1 2023 H1 2022 Change OCC(3) Change
Revenue 78.1 64.9 +20.4% +18.7%
Adjusted operating
profit 17.0 13.4 +27.1% +25.6%
Adjusted operating
margin 21.8% 20.7% +110bps +110bps
Water & Power is a supplier of premium actuators,
predominantly electric, and gearboxes for applications in the
water, wastewater treatment and power generation sectors. The water
segment contributed 68% of divisional sales in the period (66% in
H1 2022).
Sales in the half were ahead 19% year-on-year (OCC) against a
particularly supply-chain disrupted comparative period. Asia
Pacific sales were low-teens ahead year-on-year (OCC). Sales in the
Americas grew strongly year-on-year driven by higher water sector
activity and was the fastest growing geographic region. EMEA sales
grew year-on-year benefiting from higher power station
refurbishment revenues.
The division's adjusted operating profit was GBP17.0m, 27.1%
higher year on year. Volume accounted for more of the revenue
increase in this division than the other two and, with positive
product mix, this more than covered any material cost increases.
This, together with improved labour productivity, resulted in
adjusted operating margins increasing 110 basis points to 21.8%
despite overheads growing fastest in this division.
The division made good progress in its target segments of water
infrastructure, waste and wastewater treatment, desalination and
alternative energy during the period. Rotork actuators were
selected by a Middle Eastern end user for a large water
infrastructure network automation project. Rotork's IQ3 electric
actuator range was picked for a major upgrade project at a drinking
water purification plant in the United States Midwest. In the
alternative energy space, Rotork IQ series intelligent electric
actuators were chosen to control cooling circuits on HVDC platforms
destined for North Sea (UK) offshore wind farms.
By order of the Board
Kiet Huynh
Chief Executive
7 August 2023
Financial Key Performance Indicators (KPIs) H1 2023 H1 2022 FY 2022
-------- -------- --------
Revenue growth 19.5% -2.9% 12.8%
Adjusted operating margin 19.5% 19.0% 22.3%
Cash conversion 116.4% 68.1% 76.0%
Return on capital employed 32.7% 27.0% 31.3%
Adjusted EPS growth 21.9% -12.7% 13.2%
-------- -------- --------
The KPIs are defined below:
* Revenue growth is defined as the increase in revenue
divided by comparative 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
for adjusted items and the pension charge to cash
adjustment as a percentage of adjusted operating
profit (note 2g).
* 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 and less the
pension fund surplus net of related deferred tax
liability (note 2d).
* Adjusted EPS growth is defined as the
increase/(decrease) in adjusted basic EPS (based on
adjusted profit after tax) divided by the comparative
period adjusted basic EPS (note 2c).
Adjusted items
Adjusted profit measures are presented alongside reported results as we believe they
provide a useful comparison of underlying business trends and performance from one
period to the next. The Group believes alternative performance measures, which are
not considered to be a substitute for, or superior to, IFRS measures, provide stakeholders
with additional helpful information on the performance of the business.
The reported profit measures are adjusted to exclude amortisation of acquired intangibles,
business transformation costs associated with the implementation of a new ERP system
and integration with business processes, 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 of adjusted items are provided in note 4.
Gain on Business
Reported property transformation Other Adjusted
GBPm results Amortisation disposal cost Adjustments results
--------- ------------- --------- --------------- ------------ ---------
Operating
profit 59.4 0.6 (0.7) 5.9 0.1 65.3
Profit
before
tax 60.2 0.6 (0.7) 5.9 0.1 66.1
Tax (14.7) (0.1) 0.1 (1.4) - (16.1)
--------- ------------- --------- --------------- ------------ ---------
Profit
after
tax 45.5 0.5 (0.6) 4.5 0.1 50.0
--------- ------------- --------- --------------- ------------ ---------
Financial position
The balance sheet remains strong and we ended the period with net cash of GBP97.8m
(Dec 2022: GBP105.9m). Net cash comprises cash balances of GBP105.3m less loans and
borrowings and leases of GBP7.5m.
Net working capital (note 2e) has decreased by GBP10.8m since the year end to GBP173.5m
at the period end; this was largely driven by trade receivables. December 2022 trade
receivables were higher due to sales being weighted towards the end of the year,
and this has unwound driving part of the reduction together with a reduction in days
sales outstanding, which is two days lower compared with the year end at 56 days.
In total, net working capital as a percentage of sales was 25.9% compared with 28.7%
in December 2022 and 28.1% in June 2022. The decrease in working capital has resulted
in cash conversion of 116.4% of adjusted operating profit into operating cash, up
from 68.1% in the first half of 2022.
Taxation
The estimated effective tax rate used for the year ending 31 December 2023 is 24.5%
(2022 actual rate: 24.9%). Removing the impact of the adjusted items provides a more
comparable measure and, on this basis, the adjusted effective tax rate is 24.5% (2022:
23.9%).
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. During the period
the Group made a special contribution of GBP20m to the Rotork Pension and Life Assurance
Scheme. This contribution, together with some of the existing assets, were used to
purchase a bulk annuity covering the UK scheme's existing pensioner liabilities.
This has been accounted for as a buy-in. The pension scheme has moved from a deficit
of GBP8.0m at 31 December 2022 to a surplus of GBP9.3m at 30 June 2023, principally
due to the special contribution.
Currency
Overall, currency tailwinds increased revenue by GBP6.6m (2.3%) compared with the
first half of 2022. The average US dollar rate was $1.23 (H1 2022: $1.30) and the
average Euro rate was EUR1.14 (H1 2022: EUR1.19), whilst the rates at 30 June 2023
were $1.27 and EUR1.16 respectively (30 June 2022: $1.22 and EUR1.16).
Dividend
The Board has declared an interim dividend of 2.55p (H1 2022: 2.40p) per ordinary
share. The interim dividend will be paid on 22 September 2023 to shareholders on
the register at the close of business on 18 August 2023.
Principal risks and uncertainties
The Group has an established risk management process as part of the corporate governance
framework set out in the 2022 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 86 to 89 of the 2022 Annual Report and Accounts. The Group's principal risks
and uncertainties were 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 90 to 97 of
the 2022 Annual Report and Accounts.
Risk update
Whilst there has been no change in the principal risks and uncertainties under review
by the business since the risks disclosed in the 2022 Annual Report, the following
risk updates are noted:
* Geopolitical instability - remains at an elevated
level with potential knock-on impacts to other risks
such as supply chain disruption. The Group continues
to monitor potential impacts and where possible put
in place mitigations to reduce the impact in those
underlying risks.
* Supply chain disruption - remains as one of our key
risks with component shortages and constraints
driving delays in specific areas. This is a change to
prior periods where the shortages and constraints
were more widespread. Management actions to secure
the supply of key components have mitigated
potentially more severe outcomes.
* Cybersecurity - we are responding to the external
threat of increasingly sophisticated cyberattacks by
investing in our cyber strategy.
* Various strategic initiatives continue to respond to
our risks and in the period the Group has seen
positive engagement on People and Health & Safety
risks in particular.
Emerging risks
We continue to monitor and review emerging risks, which are those risks that are
hard to determine the severity. Risks under review include those in relation to geo-political
events, technological, social, 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, product or technology
offering leading to a loss of sales globally or market share.
3. Geopolitical instability: Increasing social and political instability results
in disruption and increased protectionism in key geographic markets. Business disruption
could impact our sales and might ultimately lead to loss of assets located in the
affected region.
4. Health & Safety: The nature of Rotork's core business and geographical locations
involves potential risks to the health and safety of our employees or other stakeholders.
5. 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.
6. Climate commitments: We do not deliver against our commitment to enable a sustainable
future and Rotork is not recognised by our stakeholders as being part of the solution,
leading to reputational damage.
7. People: Our people, epitomised through our Stronger Together value, are critical
to delivering our culture and plans. An inability to attract, retain and develop
key and diverse talent could mean we fail to successfully deliver our strategic goals.
8. 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.
9. 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.
10. 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 .
11. Business change management: The delivery of our strategic initiatives relies
upon our ability to deliver a series of key change programmes without causing business
disruption or having a negative impact to our 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 .
By order of the Board
Kiet Huynh
Chief Executive
7 August 2023
Independent Review Report to Rotork plc
Conclusion
We have been engaged by the company to review the condensed set of financial statements
in the half-yearly financial report for the six months ended 30 June 2023 which comprises
the condensed consolidated income statement, the condensed consolidated statement
of comprehensive income and expense, the condensed consolidated balance sheet, the
condensed consolidated statement of changes in equity, the condensed consolidated
cash flow statement and related notes 1 to 17.
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 June 2023 is not prepared, in all material respects,
in accordance with United Kingdom adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review Engagements
(UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in the United Kingdom
(ISRE (UK) 2410). A review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in scope than
an audit conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware of
all significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are prepared
in accordance with United Kingdom adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted International Accounting
Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed in
an audit as described in the Basis for Conclusion section of this report, nothing
has come to our attention to suggest that the directors have inappropriately adopted
the going concern basis of accounting or that the directors have identified material
uncertainties relating to going concern that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with this
ISRE (UK) 2410; however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report in accordance
with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the company or to cease operations,
or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for expressing
to the group a conclusion on the condensed set of financial statements in the half-yearly
financial report. Our Conclusion, including our Conclusion Relating to Going Concern,
are based on procedures that are less extensive than audit procedures, as described
in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410. 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
7 August 2023
Condensed consolidated Income Statement
First half First half Full year
2023 2022 2022
Notes GBP000 GBP000 GBP000
------------- ------------ -----------
Revenue 3 334,691 280,014 641,812
Cost of sales (182,890) (155,222) (350,079)
------------- ------------ -----------
Gross profit 151,801 124,792 291,733
Other income 929 374 1,620
Distribution costs (2,922) (2,939) (6,197)
Administrative expenses (90,265) (78,160) (163,177)
Other expenses (144) (39) (372)
------------- ------------ -----------
Operating profit 3 59,399 44,028 123,607
Finance income 5 3,235 1,791 3,049
Finance expense 6 (2,388) (1,229) (2,554)
Profit before tax 60,246 44,590 124,102
Income tax expense 7 (14,749) (10,882) (30,901)
Profit for the period 45,497 33,708 93,201
Attributable to:
Owners of the parent 45,687 33,741 93,243
Non-controlling interests (190) (33) (42)
------------- ------------ -----------
45,497 33,708 93,201
============= ============ ===========
Basic earnings per share 9 5.3p 3.9p 10.9p
=============
Diluted earnings per share 9 5.3p 3.9p 10.8p
Operating profit
Adjustments: 59,399 44,028 123,607
* Amortisation of acquired intangible assets 618 3,096 7,051
* Other adjustments 4 5,277 6,179 12,587
----------------------------------------------------------------- -------- ------------- ------------ -----------
Adjusted operating profit 65,294 53,303 143,245
Adjusted basic earnings per share 2 5.8p 4.8p 12.7p
Adjusted diluted earnings per share 2 5.8p 4.8p 12.7p
----------------------------------------------------------------- -------- ------------- ------------ -----------
Condensed consolidated Statement of Comprehensive Income and Expense
First half First half Full year
2023 2022 2022
GBP000 GBP000 GBP000
----------- ----------- ----------
Profit for the period 45,497 33,708 93,201
Other comprehensive income and expense
Items that may be subsequently reclassified
to the income statement:
Foreign currency translation differences (22,669) 19,676 21,928
Effective portion of changes in fair value
of cash flow
hedges net of tax 1,250 (1,786) (1,627)
----------- ----------- ----------
(21,419) 17,890 20,301
Items that are not subsequently reclassified
to the income statement:
Actuarial (loss)/gain in pension scheme net
of tax (5,340) 11,412 (4,932)
----------- ----------- ----------
Income and expenses recognised directly
in equity (26,759) 29,302 15,369
Total comprehensive income for the period 18,738 63,010 108,570
Attributable to:
Owners of the parent 18,861 63,043 108,561
Non-controlling interests (123) (33) 9
----------- ----------- ----------
18,738 63,010 108,570
=========== =========== ==========
Condensed consolidated Balance Sheet
30 June 30 June 31 Dec
2023 2022 2022
Notes GBP000 GBP000 GBP000
------- ------- -------
Goodwill 219,292 224,575 228,005
Intangible assets 21,022 24,337 20,579
Property, plant and equipment 70,260 79,507 78,726
Derivative financial instruments - - 74
Deferred tax assets 15,277 10,428 15,965
Other receivables 9 41 -
Defined benefit scheme surplus 11 9,317 11,233 -
Total non-current assets 335,177 350,121 343,349
Inventories 10 91,088 90,521 92,306
Trade receivables 125,019 108,117 134,279
Current tax 8,272 10,255 7,877
Derivative financial instruments 16 913 288 62
Other receivables 43,924 40,281 39,112
Assets classified as held for sale - - 211
Cash and cash equivalents 105,307 100,382 114,770
------- ------- -------
Total current assets 374,523 349,844 388,617
Total assets 709,700 699,965 731,966
======= ======= =======
Issued equity capital 12 4,304 4,302 4,304
Share premium 20,267 19,266 19,959
Other reserves 10,917 29,909 32,269
Retained earnings 536,487 509,810 531,951
------- ------- -------
Equity attributable to owners of the
parent 571,975 563,287 588,483
Non-controlling interests 1,167 1,382 1,424
------- ------- -------
Total equity 573,142 564,669 589,907
------- ------- -------
Interest bearing loans and borrowings 13 5,280 6,454 5,405
Employee benefits 11 3,994 4,064 11,955
Deferred tax liabilities 4,101 2,696 4,028
Derivative financial instruments 16 21 403 215
Provisions 1,331 1,524 1,439
------- ------- -------
Total non-current liabilities 14,727 15,141 23,042
Interest bearing loans and borrowings 13 2,254 3,505 3,431
Trade payables 42,605 41,332 42,314
Employee benefits 14,239 10,771 15,200
Current tax 12,684 14,071 11,893
Derivative financial instruments 16 616 1,024 2,729
Other payables 45,352 45,902 39,084
Provisions 4,081 3,550 4,366
------- ------- -------
Total current liabilities 121,831 120,155 119,017
Total liabilities 136,558 135,296 142,059
Total equity and liabilities 709,700 699,965 731,966
======= ======= =======
Condensed consolidated Statement of Changes in Equity
Attributable
Issued Capital to owners
equity Share Translation redemption Hedging Retained of the Non-controlling
capital premium reserve reserve reserve earnings parent interest Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Balance at 31
December 2022 4,304 19,959 31,352 1,716 (799) 531,951 588,483 1,424 589,907
Profit for the
period - - - - - 45,687 45,687 (190) 45,497
Other
comprehensive
(expense)/income
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Foreign currency
translation
differences - - (22,602) - - - (22,602) (67) (22,669)
Effective portion
of changes in
fair value of
cash flow hedges - - - - 1,634 - 1,634 - 1,634
Actuarial loss
on defined
benefit
pension plans - - - - - (6,501) (6,501) - (6,501)
Tax in other
comprehensive
(expense)/income - - - - (384) 1,161 777 - 777
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Total other
comprehensive
(expense)/income - - (22,602) - 1,250 (5,340) (26,692) (67) (26,759)
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Total
comprehensive
income - - (22,602) - 1,250 40,347 18,995 (257) 18,738
Transactions
with owners,
recorded directly
in equity
Equity settled
share-based
payment
transactions - - - - - (763) (763) - (763)
Tax on equity
settled
share-based
payment
transactions - - - - - 191 191 - 191
Shares issued
to satisfy
employee
awards - 308 - - - - 308 - 308
Own ordinary
shares acquired - - - - - (1,694) (1,694) - (1,694)
Own ordinary
shares awarded
under share
schemes - - - - - 3,381 3,381 - 3,381
Dividends - - - - - (36,926) (36,926) - (36,926)
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Balance at 30
June 2023 4,304 20,267 8,750 1,716 451 536,487 571,975 1,167 573,142
======== ======== ============ =========== ========= ========== ============= ================ =========
Attributable
Issued Capital to owners
equity Share Translation redemption Hedging Retained of the Non-controlling
capital premium reserve reserve reserve earnings parent interest Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Balance at 31
December 2021 4,302 18,828 9,475 1,716 828 498,931 534,080 - 534,080
Profit for the
period - - - - - 33,741 33,741 (33) 33,708
Other
comprehensive
(expense)/income
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Foreign currency
translation
differences - - 19,676 - - - 19,676 - 19,676
Effective portion
of changes in
fair value of
cash flow hedges - - - - (2,205) - (2,205) - (2,205)
Actuarial gain
on defined
benefit
pension plans - - - - - 15,500 15,500 - 15,500
Tax in other
comprehensive
(expense)/income - - - - 419 (4,088) (3,669) - (3,669)
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Total other
comprehensive
(expense)/income - - 19,676 - (1,786) 11,412 29,302 - 29,302
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Total
comprehensive
income - - 19,676 - (1,786) 45,153 63,043 (33) 63,010
Non-controlling
interest on
newly-established
subsidiary - - - - - - - 1,415 1,415
Transactions
with owners,
recorded directly
in equity
Equity settled
share-based
payment
transactions - - - - - (869) (869) - (869)
Tax on equity
settled
share-based
payment
transactions - - - - - 164 164 - 164
Shares issued
to satisfy
employee
awards - 438 - - - - 438 - 438
Own ordinary
shares acquired - - - - - (1,600) (1,600) - (1,600)
Own ordinary
shares awarded
under share
schemes - - - - - 2,818 2,818 - 2,818
Dividends - - - - - (34,787) (34,787) - (34,787)
-------- -------- ------------ ----------- --------- ---------- ------------- ---------------- ---------
Balance at 30
June 2022 4,302 19,266 29,151 1,716 (958) 509,810 563,287 1,382 564,669
======== ======== ============ =========== ========= ========== ============= ================ =========
Condensed consolidated Statement of Cash Flows
First half First half Full year
2023 2022 2022
Notes GBP000 GBP000 GBP000
---------- ---------- ---------
Cash flows from operating activities
Profit for the period 45,497 33,708 93,201
Adjustments for:
Amortisation of acquired intangible
assets 618 3,104 7,051
Other adjustments 4 5,277 6,179 12,587
Amortisation and impairment of other
intangible assets 1,082 741 1,436
Depreciation 6,169 7,426 14,933
Equity settled share-based payment expense 3,125 2,118 4,601
Net profit on sale of property, plant
and equipment (582) (60) (159)
Finance income (3,235) (1,791) (3,049)
Finance expense 2,388 1,229 2,554
Income tax expense 14,749 10,882 30,901
75,088 63,536 164,056
(Increase) in inventories (2,962) (16,852) (19,479)
(Increase) in trade and other receivables (2,551) (9,439) (32,591)
Increase/(decrease) in trade and other
payables 7,621 2,514 (2,902)
Cash impact of other adjustments (4,662) (5,030) (12,056)
Difference between pension charge and
cash contribution (23,490) (3,474) (6,979)
(Decrease)/increase in provisions (498) 341 (383)
(Decrease)/increase in employee benefits (685) (3,823) 67
---------- ---------- ---------
Operating cash flow 47,861 27,773 89,733
Income taxes paid (12,758) (12,053) (30,221)
---------- ---------- ---------
Net cash flows from operating activities 35,103 15,720 59,512
Investing activities
Purchase of property, plant and equipment (3,435) (3,887) (8,291)
Purchase of intangible assets (140) (1,041) (2,066)
Development costs capitalised (889) (1,327) (2,541)
Sale of property, plant and equipment 1,306 4,097 4,629
Settlement of hedging derivatives 886 (474) 9
Interest received 1,936 499 751
---------- ---------- ---------
Net cash flows from investing activities (336) (2,133) (7,509)
Financing activities
Issue of ordinary share capital 308 438 1,133
Own ordinary shares acquired (1,694) (1,600) (3,475)
Interest paid (283) (440) (817)
Decrease in bank loans - (686) (694)
Repayment of lease liabilities (1,661) (2,536) (3,966)
Dividends paid on ordinary shares (36,926) (34,787) (55,384)
Receipt for non-controlling interest - 1,415 1,415
Net cash flows from financing activities (40,256) (38,196) (61,788)
Net decrease in cash and cash equivalents (5,489) (24,609) (9,785)
Cash and cash equivalents at 1 January 114,770 123,474 123,474
Effect of exchange rate fluctuations
on cash held (3,974) 1,518 1,081
---------- ---------- ---------
Cash and cash equivalents at end of
period 105,307 100,383 114,770
========== ========== =========
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 2023 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 2022 does
not constitute statutory accounts within the meaning of Section 435
of the Companies Act 2006. Statutory accounts for the year ended 31
December 2022 were approved by the Board on 27 February 2023 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 2022 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 2023 comprise the results
for the Company and its subsidiaries (together referred to as 'the
Group'). These condensed consolidated interim financial statements
have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Services Authority and with
International Accounting Standard 34, 'Interim Financial Reporting'
as adopted by the United Kingdom. They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Group for the year ended 31 December 2022, 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 macroeconomic conditions, the impact
of supply chain disruption and geo-political instability on the
Group has been considered. The directors have reviewed: the current
financial position of the Group, which has net cash of GBP97.8m and
unused overdraft facilities of GBP24m 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 the
Group has adequate resources to continue operating as a going
concern for the foreseeable future, and that no material
uncertainties exist with respect to this assessment. 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 2022.
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
2022, except for the adoption of new standards effective as of 1
January 2023. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
Non-controlling interests
Non-controlling interests in subsidiaries are identified
separately from the Group's equity therein. The interest of
non-controlling shareholders is initially measured at the
non-controlling interests' proportion of the share of the fair
value of the acquiree's identifiable net assets. Subsequent to
acquisition, the carrying amount of non-controlling interests is
the amount of those interests at initial recognition plus the
non-controlling interests' share of subsequent changes in equity.
Total comprehensive income is attributed to non-controlling
interests even if this results in the non-controlling interests
having a deficit balance.
New accounting standards and interpretations
Other amendments
A number of 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
There are no further narrow scope amendments which have been
issued where the application of the amendments would have a
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 provide stakeholders with additional useful
information to facilitate greater comparison of the Group's
underlying results with prior periods and assessment of trends in
financial performance.
The Group believes alternative performance measures, which are
not considered to be a substitute for, or superior to, IFRS
measures, provide stakeholders with additional helpful information
on the performance of the business. These alternative performance
measures are consistent with how the business performance is
planned and reported within the internal management reporting to
the Board. Some of these measures are also used for the purpose of
setting remuneration targets.
The key alternative performance measures that the Group use
include adjusted profit measures and organic constant currency
(OCC).
Explanations of how they are calculated and how they are
reconciled to IFRS reported 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 as defined below. Adjustments to profit are items of
income and expense which, because of the nature, size and/or
infrequency of the events giving rise to them, merit separate
presentation. These specific items are presented as a footnote to
the income statement to provide greater clarity and an enhanced
understanding of the impact of these items on the Group's financial
performance. In doing so, it also facilitates greater comparison of
the Group's underlying results with prior periods and assessment of
trends in financial performance. This split is consistent with how
underlying business performance is measured internally.
Adjustments to profit items may include but are not restricted
to: costs of significant business restructuring including any
associated significant impairments of intangible or tangible
assets, adjustments to the fair value of acquisition related items
such as contingent consideration, acquired intangible asset
amortisation and other items considered to be significant due to
their nature or the expected infrequency of the events giving rise
to them.
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
2023 2022 2022
GBP000 GBP000 GBP000
---------- ---------- ---------
Profit before tax 45,497 44,590 124,102
Adjustments:
Amortisation of acquired intangible assets 618 3,096 7,051
Gain on disposal of property (723) (1,209) (1,208)
Business transformation costs 5,925 3,549 8,868
Redundancy and other restructuring costs 75 283 1,372
Russia market exit - 3,555 3,555
Adjusted profit before tax 51,392 53,864 143,740
---------- ---------- ---------
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
2023 2022 2022
GBP000 GBP000 GBP000
---------- ---------- ---------
Net profit attributable to ordinary shareholders 45,497 33,708 93,201
Adjustments:
Amortisation of acquired intangible assets 618 3,096 7,051
Gain on disposal of property (723) (1,209) (1,208)
Business transformation costs 5,925 3,549 8,868
Redundancy and other restructuring costs 75 283 1,372
Russia market exit - 3,555 3,555
Tax effect on adjusted items (1,488) (2,000) (3,440)
Adjusted net profit attributable to ordinary
shareholders 49,904 40,982 109,399
---------- ---------- ---------
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
2023 2022 2022
GBP000 GBP000 GBP000
---------- ---------- ---------
Adjusted operating profit
As reported - - 143,245
Rolling 12 months 155,236 118,648 -
Capital employed
Shareholders' funds 573,142 564,669 589,907
Cash and cash equivalents (105,307) (100,382) (114,770)
Interest bearing loans and borrowings 7,534 9,959 8,836
Pension (surplus)/deficit net of deferred tax (7,254) (8,747) 6,065
Capital Employed 468,115 465,499 490,038
---------- ---------- ---------
474,551 439,122 458,002
Average capital employed (1) (1) (2)
---------- ---------- ---------
Return on capital employed 32.7% 27.0% 31.3%
---------- ---------- ---------
(1) defined as the average of the capital employed at June 2022,
December 2022 and June 2023 (2022: June 2021, December 2021, and
June 2022).
(2) defined as the average of the capital employed at December
2021 and December 2022.
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 2023 half year results are restated
using the average exchange rates applied for the 2022 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
First First
half Currency half First half
2023 adjustment 2023 2022
---------- ------------- ---------- -----------
Revenue 334,691 (6,561) 328,130 280,014
Cost of sales (182,890) 4,232 (178,658) (155,222)
---------- ------------- ---------- -----------
Gross margin 151,801 (2,329) 149,472 124,792
Net overheads (86,507) 1,129 (85,378) (71,489)
---------- ------------- ---------- -----------
Adjusted operating profit 65,294 (1,200) 64,094 53,303
---------- ------------- ---------- -----------
Adjusted operating margin 19.5% 19.5% 19.0%
Adjusted profit before tax 66,141 (1,200) 64,941 53,865
Adjusted basic earnings
per share 5.8p - 5.7p 4.8p
---------- ------------- ---------- -----------
g. Cash conversion
Cash conversion is calculated as adjusted operating cash flow as
a percentage of adjusted operating profit. It is monitored to
illustrate how efficiently adjusted operating profits are converted
into cash. Adjusted operating cash flow is calculated as
follows:
First First half Full year
half 2023 2022 2022
GBP000 GBP000 GBP000
======================================================== ========== ========== =========
Adjusted operating cash flow
Operating cash flow 47,861 27,773 89,733
Operating cash flow impact of other adjustments 4,662 5,030 12,056
Difference between pension charge and cash contribution 23,490 3,474 6,979
Adjusted operating cash flow 76,013 36,277 108,768
======================================================== ========== ========== =========
Adjusted operating profit 65,294 53,303 143,245
======================================================== ========== ========== =========
Cash conversion 116% 68% 76%
======================================================== ========== ========== =========
3. Analysis by operating segment
The three identifiable operating segments where the financial
and operating performance is reviewed monthly by the chief
operating decision maker are as follows:
-- Oil & Gas
-- Chemical, Process & Industrial
-- Water & Power
Unallocated expenses comprise corporate expenses.
Half year to 30 June 2023
Chemical,
Oil & Process Water
Gas & Industrial & Power Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000
-------- -------------- --------- ------------ ---------
Revenue 146,138 110,406 78,147 - 334,691
Adjusted operating
profit 31,328 25,010 17,041 (8,085) 65,294
Amortisation of acquired intangibles
assets (444) (123) (51) - (618)
-------- -------------- --------- ------------ ---------
Segment result before other
adjustments 30,884 24,887 16,990 (8,085) 64,676
Other adjustments (5,277)
-------- -------------- --------- ------------ ---------
Operating profit 59,399
Net financing income 847
Income tax expense (14,749)
---------
Profit for the period 45,497
---------
Half year to 30 June 2022
Chemical,
Oil & Process Water
Gas & Industrial & Power Unallocated Group
GBP000 lGBP000 GBP000 GBP000 GBP000
-------- -------------- --------- ------------ ---------
Revenue 122,287 92,813 64,914 - 280,014
Adjusted operating
profit 23,560 22,730 13,405 (6,392) 53,303
Amortisation of acquired intangibles
assets (2,195) (613) (288) - (3,096)
-------- -------------- --------- ------------ ---------
Segment result before other
adjustments 21,365 22,117 13,117 (6,392) 50,207
Other adjustments (6,179)
-------- -------------- --------- ------------ ---------
Operating profit 44,028
Net financing income 562
Income tax expense (10,882)
---------
Profit for the period 33,708
---------
Full year to 31 December 2022
Chemical,
Oil & Process Water &
Gas & Industrial Power Unallocated Group
GBP000 GBP000 GBP000 GBP000 GBP000
-------- -------------- -------- ------------ ---------
Revenue 283,266 198,355 160,191 - 641,812
-------- -------------- -------- ------------ ---------
Adjusted operating
profit 63,960 51,206 40,293 (12,214) 143,245
Amortisation of acquired intangibles
assets (5,063) (1,410) (578) - (7,051)
-------- -------------- -------- ------------ ---------
Segment result 58,897 49,796 39,715 (12,214) 136,194
Other adjustments (12,587)
-------- -------------- -------- ------------ ---------
Operating profit 123,607
Net financing income 495
Income tax expense (30,901)
---------
Profit for the year 93,201
---------
Revenue by location of subsidiary
First
half First half Full year
2023 2022 2022
GBP000 GBP000 GBP000
-------- ----------- ----------
UK 34,501 25,120 55,146
Italy 34,073 23,855 52,997
Rest of Europe 47,911 44,750 96,627
USA 72,808 54,861 129,499
Other Americas 24,770 17,890 44,161
China 50,522 54,527 120,188
Rest of World 70,106 59,011 143,194
-------- ----------- ----------
334,691 280,014 641,812
-------- ----------- ----------
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 reported profit are
as follows:
First
half First half Full year
2023 2022 2022
GBP000 GBP000 GBP000
-------- ----------- ----------
Gain on disposal of properties 723 1,209 1,208
Redundancy and other restructuring costs (75) (284) (1,372)
Business transformation costs (5,925) (3,549) (8,868)
Russia market exit - (3,555) (3,555)
(5,277) (6,179) (12,587)
-------- ----------- ----------
The GBP723,000 (2022: GBP1,209,000) gain on disposal of
properties relates to the sale of two properties (2022: one
property) in the period which were exited as part of the Growth
Acceleration Programme, footprint optimisation.
During the period GBP5.9m of costs were incurred on business
transformation. The multi-year transformation includes the
implementing and integrating of common systems and processes
throughout the Group, including a new cloud-based ERP system. This
brings the total expensed under the programme to GBP37.7m. These
costs were expensed as they do not meet the capitalisation criteria
under IAS38.
The new ERP system launched at the Bath, UK factory in Q1 2023
and is due to go live at the Head Office site in Q3 2023. The next
phase of the programme is the implementation of the new ERP system
and integration of common business processes across the other Group
entities. It is estimated that a further GBP50m to GBP55m will be
incurred over the next 3 - 4 years to complete the implementation.
These costs will continue to be reported in adjusted items.
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
2023 2022 2022
GBP000 GBP000 GBP000
------- ----------- ----------
Interest income 2,163 592 1,235
Foreign exchange gains 1,072 1,199 1,814
Finance Income 3,235 1,791 3,049
------- ----------- ----------
6. Finance expense
First
half First half Full year
2023 2022 2022
GBP000 GBP000 GBP000
Interest expense 386 370 744
Interest expense on lease liabilities 191 197 406
Interest charge on pension scheme liabilities 102 17 110
Foreign exchange losses 1,709 645 1,294
Finance Expense 2,388 1,229 2,554
------- ----------- ----------
7. Income taxes
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year. The estimated effective tax rate used
for the year ending 31 December 2023 is 24.5% (2022 actual:
24.9%).
The estimated adjusted effective tax rate for the year ending 31
December 2023, based on the adjusted profit before tax, is 24.5%
(2022: 23.9%). The adjusted effective tax rate has increased from
23.9% in 2022 to an estimated 24.5% principally because of the
increase in the blended UK corporation tax rate from 19% in 2022 to
23.5% in 2023.
The Group continues to operate in many jurisdictions where local
profits are taxed at their national statutory rates. As a result,
the Group income tax charge will be subject to fluctuation
depending on the actual profit mix. The Group continues to expect
its effective tax rate to be higher than the blended UK corporation
tax rate of 23.5% due to higher tax rates in overseas
subsidiaries.
8. Dividends
First half First half Full year
2023 2022 2022
GBP000 GBP000 GBP000
---------- ---------- ---------
The following dividends were paid in the
period per
qualifying ordinary share:
4.30p final dividend (2022: 4.05p) 36,926 34,787 34,787
2.40p interim dividend - - 20,597
36,926 34,787 55,384
---------- ---------- ---------
The following dividends per qualifying
ordinary share were
declared/proposed after the balance sheet
date:
4.30p final dividend proposed - - 37,013
2.55p interim dividend declared (2022: 2.40p) 21,906 20,613 -
21,906 20,613 34,780
---------- ---------- ---------
9. Earnings per share
Earnings per share is calculated using the profit attributable
to the ordinary shareholders for the period and 859.0m shares (six
months to 30 June 2022: 858.9m; year to 31 December 2022: 858.9m)
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 862.3m shares (six
months to 30 June 2022: 859.7m; year to 31 December 2022: 860.6m).
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
2023 2022 2022
GBP000 GBP000 GBP000
-------- -------- --------
Raw materials and consumables 71,443 69,810 72,182
Work in progress 5,408 5,551 5,091
Finished goods 14,237 15,160 15,033
-------- -------- --------
91,088 90,521 92,306
-------- -------- --------
11. Defined benefit pension schemes
The defined benefit asset at 30 June 2023 of GBP9,317,000 (30
June 2022: asset of GBP11,233,000 included within defined benefit
asset; 31 December 2022: liability of GBP8,006,000 included within
employee benefits) is estimated based on the latest full actuarial
valuations at 31 March 2022 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 2023 by
independent actuaries to reflect updated assumptions regarding
discount rates, inflation rates and asset values.
30 June 30 June
31 Dec
2023 2022 2022
% % %
--------- -------- -------
Discount rate 5.2 3.8 4.8
Rate of inflation 3.2 3.0 3.1
--------- -------- -------
The Group made a special contribution of GBP20m to the Rotork
Pension and Life Assurance Scheme in May 2023. In June 2023 the
scheme used this contribution and some existing assets to purchase
a bulk annuity covering the UK scheme's existing pensioner
liabilities. This has been accounted for as a buy-in as it is an
investment decision to reduce risk of the scheme. The deferred
member pension liabilities remain outstanding under the scheme. In
addition, the defined benefit plan assets and liabilities have been
updated to reflect the GBP3.4 million regular contributions
made.
12. Share capital and reserves
The number of ordinary 0.5p shares in issue at 30 June 2023 was
860,899,000 (30 June 2022: 860,467,000; 31 December 2022:
860,771,000). All issued shares are fully paid.
The Group acquired 387,000 of its own shares during the period
(30 June 2022: 482,000; 31 December 2022: 1,124,000). The total
amount paid to acquire the shares was GBP1,694,000 (30 June 2022:
GBP1,600,000; 31 December 2022: GBP3,475,000), and this has been
deducted from shareholders' equity. At 30 June 2023 the number of
shares held in trust for the benefit of directors and employees for
future payments under the Share Incentive Plan and Long-term
incentive plan was 1,325,000 (30 June 2022: 1,177,000; 31 December
2022: 1,831,000). In the period 1,036,000 shares were released to
satisfy share plan awards.
In respect of the SAYE scheme, options exercised during the
period to 30 June 2023 resulted in 127,000 ordinary 0.5p shares
being issued (30 June 2022: 190,000 shares), with exercise proceeds
of GBP308,000 (30 June 2022: GBP438,000). The weighted average
market share price at the time of exercise was GBP3.26 (30 June
2022: GBP3.13) per share.
The share-based payment charge for the period was GBP3,125,000
(30 June 2022: GBP2,178,000; 31 December 2022: GBP4,601,000).
13. Loans and borrowings
The following loans and borrowings were issued and repaid during
the six months ended 30 June 2023:
Preference
Lease liabilities shares Total
GBP000 GBP000 GBP000
------------------ ----------- --------
Balance at 31 December 2022 8,796 40 8,836
Additions/drawdowns 807 - 807
Repayment (1,661) - (1,661)
Disposals (127) - (127)
Exchange differences (321) - (321)
Balance at 30 June 2023 7,494 40 7,534
------------------ ----------- --------
Preference
Lease liabilities shares Total
GBP000 GBP000 GBP000
------------------ ----------- --------
Current 2,254 - 2,254
Non-current 5,240 40 5,280
Balance at 30 June 2023 7,494 40 7,534
------------------ ----------- --------
14. Share-based payments
A grant of share options was made on 24 March 2023 to selected
members of senior management at the discretion of the Remuneration
Committee. The key information and assumptions from this grant
were:
Equity Settled
------------------------------------------------------------
Emissions
TSR condition EPS condition ROIC condition condition
-------------- -------------- --------------- -----------
24 March 24 March 24 March
Grant date 2023 24 March 2023 2023 2023
Share price at grant date GBP3.07 GBP3.07 GBP3.07 GBP3.07
Shares awarded under scheme 462,945 462,945 462,945 154,313
Vesting period 3 years 3 years 3 years 3 years
Expected volatility 28.4% N/A N/A N/A
Risk free rate 3.3% N/A N/A N/A
Expected dividends expressed
as a dividend yield nil nil nil nil
Probability of ceasing employment
before vesting 5% p.a. 5% p.a. 5% p.a. 5% p.a.
Fair value GBP1.89 GBP3.05 GBP3.05 GBP3.05
-------------- -------------- --------------- -----------
The basis of measuring fair value is consistent with that
disclosed in the 2022 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 2022 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
2022 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 2023
the fair value of these contracts was a net asset of GBP276,000 (30
June 2022: a net liability of GBP1,139,000; 31 December 2022: a net
liability of GBP2,808,000). 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.
17. Post balance sheet events
On 4 August 2023 Rotork acquired 100% of the equity interest in
Hanbay Inc, who are headquartered in Montreal, Canada. The
acquisition expands Rotork's electric actuator offering and is
fully consistent with all three pillars of the Growth+ strategy and
increases the percentage sales contribution of our Eco-transition
portfolio.
Due to the proximity of the completion date of the acquisition
and the issuing of the condensed consolidated interim financial
statements, the initial accounting for the business combination is
incomplete. Further information will be provided in the
consolidated financial statements of the Group for the year ended
31 December 2023.
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 PRMMTMTBMTJJ
(END) Dow Jones Newswires
August 08, 2023 02:00 ET (06:00 GMT)
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