REG - Rotork PLC - Half Yearly Report

Tue Jul 31, 2012 2:00am EDT

* Reuters is not responsible for the content in this press release.

RNS Number : 8324I
Rotork PLC
31 July 2012
 



 

Rotork p.l.c. 

 

2012 Half Year Results

 

 

 
HY 2012
HY 2011
% change
OCC *2
% change
Revenue
£245.9m
£199.4m
+23.3%
+17.1%
Adjusted*1 operating profit
£61.7m
£50.3m
+22.8%
+17.0%
Profit before tax
£58.1m
£49.6m
+17.2%
+16.9%
Adjusted*1 profit before tax
£61.7m
£50.7m
+21.9%
+16.2%
Basic earnings per share
47.8p
40.9p
+16.9%
+17.1%
Adjusted*1 basic earnings per share
50.8p
41.7p
+21.8%
+16.5%
Interim dividend
16.40p
14.50p
+13.1%
 

 

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

*2 OCC is organic constant currency

 


Key Points

 

·      Record first-half revenue and profit in each division

·      Order intake up 18.2%

·      Order book at a record high of £177.7m, up 13.0% from December

·      Successful integration of 2011 acquisitions

·      New product launches in each division, including IQ3 in Controls

·      Continued investment for growth

·      Interim dividend increased by 13.1%

 

 

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

"Rotork has continued to perform well during these challenging economic conditions. Order intake, revenue and profit are at record levels. We continue to invest in our infrastructure, product development and sales coverage to support the longer term growth projections of the business and our continued expansion into the wider flow control market.

 

Whilst recognising the challenging economic environment, our record order book and diverse end market exposure provide the Board with confidence of achieving further progress in the full year. We are anticipating, as in previous years, that the Group's performance in 2012 will be weighted towards the second half and that margins will remain similar to those seen in 2011."


For further information, please contact:

 

Rotork p.l.c.

Tel:  01225 733200

Peter France, Chief Executive


Jonathan Davis, Finance Director




FTI Consulting

Tel:  020 7269 7291

Nick Hasell / Susanne Yule



Review of operations

 

Business Review

 

Rotork has performed well in the six months to 30 June 2012, with each division achieving record order intake, revenue and profit for a first half trading period. The order book is 13.0% higher than last December at £177.7m. Order intake was 18.2% higher than the comparator period, with the strongest growth in the Gears division. Revenue at £245.9m was up 23.3% and adjusted operating profit was 22.8% higher at £61.7m.

 

The global economic climate has impacted a number of our businesses and we have seen a slowdown in order placement in countries such as India and China.  Nevertheless, we achieved record order intake in the first half of 2012, with our diverse end-user market and geographic coverage enabling us to focus on markets and geographies where growth is the strongest. The visibility of projects in the second half is good and we expect our markets in the Middle East, South America, USA and Russia to remain active.

 

Whilst revenues have been strong we have experienced some higher costs. Continued upgrade and investment in facilities, product launches and general inflationary pressures have all impacted the profit margin. We have also experienced a headwind in terms of currency in the period. This has been partially offset by operational gearing and has resulted in an adjusted operating margin of 25.1%. Revenue will be weighted to the second half of 2012 and for the full year we expect the adjusted operating margin to be similar to 2011.

 

On 28 June 2012 we completed the purchase of a new factory in Leeds that will house Rotork Gears and the main office of Rotork UK, our sales and marketing operation. We are anticipating a total capital cost, including purchase and fit-out of the building, to be in the region of £6m, representing the major capital project in the year. Due to this expansion, the refurbishment of our second facility in Bath, and other projects, such as the roll out of our new IT system, we anticipate capital spend for the year to be higher than last year at £12-14m.

 

Rotork Site Services, our after-sales and support activity, continues to grow. We have signed a number of preventative maintenance contracts in the period and continue to pursue further significant opportunities. We view investment in after-sales and support as a key differentiator in our ability to provide our customers with best in class products and services.

 

Rotork Instruments, the division created at the end of 2011 through the acquisition of Fairchild, has made a good start to the year, and is performing in line with expectations.

 

 

Financial results

 

The impact of last year's acquisitions on these results is significant, with £16m of incremental revenue in the period. However currency has been a headwind, reducing reported revenue by £4m. Our two main trading currencies have moved in opposite directions compared with the first half of last year, with the euro weakening 8% and the US dollar strengthening 2% relative to sterling. Revenue growth excluding acquisitions and restated at the exchange rates of the comparative period is therefore 17.1% rather than the headline 23.3% reported. The combined impact of currency and acquisitions on adjusted operating margin is minimal, increasing it by 10 basis points to 25.2%.

 

Net cash balances of £56m are £8m higher than December 2011, with the payment of the £20m final dividend the most significant outflow. Capital expenditure is first half weighted this year with £8m spent so far. Net working capital has increased £2m since last December and represents 25% of annualised revenue compared with 27% at the year end.

 

The Group effective tax rate remains similar to last year at 28.7%. Adjusted basic earnings per share is 50.8p, a 21.8% increase but due to the higher intangible amortisation charge following last year's acquisitions, the basic earnings per share is 47.8p, a 16.9% increase.

 

   

 

Operating Review

 

The first half of 2012 saw the launch of a number of important products which will fuel future organic growth. We also continued the integration of the six acquisitions we completed last year. Acquisitions remain an important part of our growth strategy and we continue to look for suitable companies or products that will support our long-term strategic and financial goals.

 

Rotork Controls

 

£m

H1 2012

H1 2011

Change

OCC*2 Change

 

Revenue

146.2

129.4

+13.0%

+11.4%

Adjusted*1 operating profit

46.6

42.9

+8.7%

+8.2%

Adjusted operating margin

31.9%

33.1%

-120 bps

-90 bps

 

Order intake was a record in the first half, 7.1% higher than the first half of last year, resulting in an order book of £95.9m, 5.1% ahead of last December. Growth in Asia and the Far East has slowed as activity in India and China remained subdued in the second quarter. However, there was stronger growth in our markets in the USA, Latin America and Russia, whilst Australia has started to see the benefit of unconventional gas projects, leading to increased sales of Rotork Process Control (RPC) actuators. China and India are traditionally strong power markets for Rotork, and as we have seen this market slow, sales efforts in those countries have switched to the more active oil and gas and water markets. At the same time, there has been good growth in the water market in the UK and USA.

 

During the period, we launched our next generation flagship electric actuator, the IQ3, which brings a number of enhancements to this key product. The RPC range has also been expanded with the launch of the CMA, extending the family of process control actuators. We have received the first orders for both these products and deliveries will start in the second half. We have also moved into our new plant in Chennai, India, with both the factory and RIDEC (Rotork Innovation Design and Engineering Centre) teams now housed together in a world-class facility.

 

Our investment in product development and launches, facilities and people to support further growth has led to a reduction in divisional operating margin compared with the previous year. These investments are important for the long-term growth of the division and will enable us to maintain our market leadership and technological advantage by combining the most innovative product range with unmatched local support.

 

Rotork Fluid Systems

 

£m

H1 2012

H1 2011

Change

OCC*2 Change

 

Revenue

71.4

53.1

+34.6%

+31.3%

Adjusted*1 operating profit

9.2

4.9

+88.0%

+91.3%

Adjusted operating margin

12.9%

9.2%

+370 bps

+420 bps

 

This division had the highest revenue growth in the period, up 34.6%, partly because 2011 was very second half weighted. Order intake was 26.2% ahead of the comparative period and 14.2% ahead of the second half of last year with the order book a record at £69.0m, 21.0% higher than December.

 

The growth has been geographically broad based, with oil and gas still the dominant end market. Russia and Australia have been positive as has China, where our RFS sales channels are less well developed. In Mexico we have made the first deliveries on the large pipeline order which we won last year and Flow-Quip, our US liquid pipelines business, has had a strong start to the year. K-Tork, the business in Dallas, USA, which we purchased last July, has made a positive contribution in the period and its products have now been launched to our global sales teams. Overall, North America and Asia Pacific were the fastest growing regions, with Asia Pacific overtaking the Middle East as the largest end destination.

 

The operating margin for RFS was 12.9%, a 370 basis points improvement on the comparable period last year. Investment in facilities, product development and product launches in the period have added cost but our target margin for this division remains 15%.    

 

Rotork Gears

 

£m

H1 2012

H1 2011

Change

OCC*2 Change

 

Revenue

25.3

21.5

+18.1%

+17.5%

Adjusted*1 operating profit

5.6

4.7

+19.7%

+18.6%

Adjusted operating margin

22.0%

21.7%

+30 bps

+20 bps

 

Gears order intake was a record half year increasing 29.7%, with all of our Gears operations experiencing good growth. This resulted in a closing order book of £11.8m, a 49.4% increase from December. The highest growth was in the domestic Chinese market, supplied by our Shanghai factory, and for the subsea and larger gearboxes supplied by our factory in Italy.

 

In Houston, because the Gears operation has already outgrown its facility, additional space has now been taken on to allow further development of the stocking and finishing centre to serve the US market. This will provide the capacity to target new key accounts whilst maintaining service levels. Elsewhere Gears has also been expanding its sourcing team, which will ensure continued close control of material costs, and increasing the number of R&D engineers, which will accelerate the rate of product development. A new manual gearbox range was launched in the period which will generate new business in the second half.

 

Rotork Instruments

 

£m

H1 2012

 




Revenue

8.3




Adjusted*1 operating profit

2.7




Adjusted operating margin

32.6%




 

Rotork Instruments was created at the end of 2011 with the acquisition of Fairchild and has made a good start to the year, performing in line with expectations. With sales into a number of end markets not served by the other divisions, the introduction of Instruments accounts for the increase in sales to the range of end markets we classify as Other. Integration of the business is proceeding to plan and progress is being made in developing the sales channels and supporting purchasing and product development initiatives.

 

 

Principal risks and uncertainties

 

The Group has an established risk management process as part of the corporate governance framework set out in the 2011 Annual Report & Accounts. We regularly review the principal risks and uncertainties facing our businesses and examine the potential impacts on our processes and procedures. The risk management process is described in detail on pages 26 and 27 of the 2011 Annual Report & Accounts. We identify risks in the form of strategic, operational and financial risks and set out mitigations and improvements to our processes and procedures as necessary to adapt to these.

 

The Group has reviewed these risks and concluded that they remain applicable to the second half of the financial year. The risks identified include volatility of exchange rates and political instability in a key end-market and in this context the Board continues to carefully monitor developments in the Eurozone. Whilst we do not have a direct presence in Greece, we do have facilities in many other Eurozone countries, including Spain and Italy, and the Eurozone represents an important customer base, with approximately 30% of our revenues euro denominated. Our hedging policy in respect of the euro is unchanged and we continue to cover up to 75% of our forecast currency exposure using forward contracts. However, we have reduced the cash we hold in euros, returning this to the UK and converting to sterling.

 

We believe that the broad spread of geographic markets which we serve limits the risks associated with instability in any given territory and we will continue to monitor developments to ensure that we are well-placed to mitigate the effects of any instability if it arises.

 



The Board

 

In May 2012 we welcomed Sally James to the board of Rotork plc. as a non-executive director.  Sally is also a non-executive director of UBS Limited and UBS Securities France SA, Towry Ltd and a Governor of the College of Law London.  She is an independent Member of Council of the University of Sussex and chairs its Audit Committee.  Previously Sally held a number of senior legal roles in Investment Banks in London and Chicago including Managing Director and General Counsel for UBS Investment Bank.  She has also held the position of Bursar at Corpus Christi College, Cambridge.  Sally is a member of the Audit, Remuneration and Nomination Committees.

 

 

Statement of Directors' Responsibilities

 

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, 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.

 

The Directors of Rotork p.l.c. are listed in the Rotork p.l.c. Annual Report & Accounts for 31 December 2011 with the exception of Sally James who joined the Board in May 2012. A list of current directors is maintained in the About Us section of the Rotork website: www.rotork.com.

 

 

Dividend

 

The interim dividend is to be increased by 13.1% to 16.4p per ordinary share and will be paid on 28 September 2012 to shareholders on the register at the close of business on 31 August 2012.  Our dividend policy remains to grow core dividends generally in line with earnings and then supplement core dividends with additional dividends when projected cash requirements show we are able to do so. The 2011 final dividend of 22.75p per ordinary share was paid on 21 May at a cash cost of £19.7m.

 

 

Outlook

 

Whilst recognising the challenging economic environment, our record order book and diverse end market exposure provide the Board with confidence of achieving further progress in the full year. We are anticipating as in previous years that the Group's performance in 2012 will be weighted towards the second half and that margins will remain similar to those seen in 2011.

 

 

By order of the Board 

                                   

Peter France                                                    

Chief Executive

30 July 2012

                                              

 

  

Consolidated Income Statement

Unaudited



First half

First half

Full year



2012

2011

2011


Notes

£000

£000

£000






Revenue

2

245,871

199,415

447,833

Cost of sales


(129,992)

(104,846)

(236,359)

Gross profit


115,879

94,569

211,474

Other income


62

37

194

Distribution costs


(2,395)

(1,726)

(4,020)

Administrative expenses


(55,416)

(43,651)

(95,589)

Other expenses


(13)

(11)

(59)






Operating profit before the amortisation of
    acquired intangible assets


61,745

50,273

 

115,921

Amortisation of acquired intangible assets


(3,628)

(1,055)

(3,921)

Operating profit

2

58,117

49,218

112,000

Financial income

3

3,483

3,765

7,590

Financial expenses

3

(3,485)

(3,381)

(7,040)






Profit before tax


58,115

49,602

112,550






Income tax expense

4




UK


(4,989)

(3,939)

(9,728)

Overseas


(11,715)

(10,324)

(22,421)



(16,704)

(14,263)

(32,149)






Profit for the period


41,411

35,339

80,401








pence

pence

pence

Basic earnings per share

6

47.8

40.9

93.0

Adjusted basic earnings per share

6

50.8

41.7

96.2

Diluted earnings per share

6

47.6

40.8

92.6

 

 

 

 

Consolidated Statement of Comprehensive Income and Expense

Unaudited

 

 

First half

First half

Full year

 

2012

2011

2011

 

£000

£000

£000

 

 


Profit for the period

41,411

 

Other comprehensive income and expense

 

(3,015)

-

591

Income and expenses recognised directly in equity

(2,424)


 

Total comprehensive income for the period

38,987

37,430

 

 

 

Consolidated Balance Sheet

Unaudited


30 June

30 June

31 Dec



2012

2011

2011


Notes

£000

£000

£000






Property, plant and equipment


36,379

27,143

31,954

Intangible assets


102,499

46,717

106,784

Deferred tax assets


12,993

11,594

13,244

Derivative financial instruments


545

-

315

Other receivables


1,490

1,339

1,556

Total non-current assets


153,906

86,793

153,853






Inventories

7

72,239

58,121

62,928

Trade receivables


91,558

76,126

96,734

Current tax


1,841

1,899

988

Derivative financial instruments


1,592

521

677

Other receivables


9,814

8,723

8,461

Cash and cash equivalents


56,185

90,202

48,557

Total current assets


233,229

235,592

218,345






Total assets


387,135

322,385

372,198






Ordinary shares

8

4,338

4,335

4,338

Share premium


7,905

7,431

7,835

Reserves


11,500

18,292

13,924

Retained earnings


220,793

184,518

198,072

Total equity


244,536

214,576

224,169






Interest-bearing loans and borrowings


160

125

229

Employee benefits


24,798

16,920

28,142

Deferred tax liabilities


12,305

3,719

12,782

Provisions


2,246

1,796

2,218

Total non-current liabilities


39,509

22,560

43,371






Bank Overdraft


-

-

38

Interest-bearing loans and borrowings


86

23

85

Trade payables


40,518

31,431

38,742

Employee benefits


6,502

5,005

9,624

Current tax


16,427

15,186

13,225

Derivative financial instruments


177

1,001

614

Other payables


34,979

28,610

38,360

Provisions


4,401

3,993

3,970

Total current liabilities


103,090

85,249

104,658






Total liabilities


142,599

107,809

148,029






Total equity and liabilities


387,135

322,385

372,198

 

 


 

Consolidated Statement of Changes in Equity

Unaudited

 

 

 

Issued equity

capital

£000


Share

premium

£000


Translation

reserve

£000

Capital

redemption

reserve

£000

 

Hedging reserve

£000

 

Retained earnings

£000

Total

£000









Balance at 31 December 2010

4,334

7,389

14,100

1,644

457

175,927

203,851









Profit for the period

-

-

-

-

-

35,339

35,339

Other comprehensive income








Foreign exchange translation differences

-

-

2,894

-

-

-

2,894

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

(803)

-

(803)

Total other comprehensive income

-

-

2,894

-

(803)

-

2,091

Total comprehensive income

-

-

2,894

-

(803)

35,339

37,430

Transactions with owners, recorded directly in equity








Equity settled share based payment transactions net of tax

-

-

-

-

-

(671)

(671)

Share options exercised by employees

1

42

-

-

-

-

43

Own ordinary shares acquired

-

-

-

-

-

(2,184)

(2,184)

Own ordinary shares awarded under share schemes

-

-

-

-

-

3,157

3,157

Dividends

-

-

-

-

-

(27,050)

(27,050)

Balance at 30 June 2011

4,335

7,431

16,994

1,644

(346)

184,518

214,576









Profit for the period

-

-

-

-

-

45,062

45,062

Other comprehensive income








Foreign exchange translation differences

-

-

(5,378)

-

-

-

(5,378)

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

1,010

-

1,010

Actuarial loss on defined benefit pension plans net of tax

-

-

-

-

-

(8,499)

(8,499)

Total other comprehensive income

-

-

(5,378)

-

1,010

(8,499)

(12,867)

Total comprehensive income

-

-

(5,378)

-

1,010

36,563

32,195

Transactions with owners, recorded directly in equity








Equity settled share based payment transactions net of tax

-

-

-

-

-

476

476

Share options exercised by employees

3

404

-

-

-

-

407

Own ordinary shares acquired

-

-

-

-

-

(1,001)

(1,001)

Dividends

-

-

-

-

-

(22,484)

(22,484)

Balance at 31 December 2011

4,338

7,835

11,616

1,644

664

198,072

224,169

 

   

 

Consolidated Statement of Changes in Equity (continued)

Unaudited




Issued equity

capital

£000

 

Share

premium

£000

 

Translation

reserve

£000

Capital

redemption

reserve

£000

 

Hedging reserve

£000

 

Retained earnings

£000

 

 

Total

£000









Balance at 31 December 2011

4,338

7,835

11,616

1,644

664

198,072

224,169









Profit for the period

-

-

-

-

-

41,411

41,411

Other comprehensive income








Foreign exchange translation differences

-

-

(3,015)

-

-

-

(3,015)

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

591

-

591

Total other comprehensive income

-

-

(3,015)

-

591

-

(2,424)

Total comprehensive income

-

-

(3,015)

-

591

41,411

38,987

Transactions with owners, recorded directly in equity








Equity settled share based payment transactions net of tax

-

-

-

-

-

(36)

(36)

Share options exercised by employees

-

70

-

-

-

-

70

Own ordinary shares acquired

-

-

-

-

-

(2,050)

(2,050)

Own ordinary shares awarded under share schemes

-

-

-

-

-

3,114

3,114

Dividends

-

-

-

-

-

(19,718)

(19,718)

Balance at 30 June 2012

4,338

7,905

8,601

1,644

1,255

220,793

244,536



 

Consolidated Statement of Cash Flows

Unaudited


First half

First half

Full year


2012

2011

2011


£000

£000

£000





Profit for the period

41,411

35,339

80,401

Amortisation of acquired intangible assets

3,628

1,055

3,921

Amortisation of development costs

464

366

732

Depreciation

2,567

2,139

4,479

Equity settled share based payment expense

877

609

1,251

Net profit on sale of property, plant and equipment

(38)

(26)

(129)

Financial income

(3,483)

(3,765)

(7,590)

Financial expenses

3,485

3,381

7,040

Income tax expense

16,704

14,263

32,149


65,615

53,361

122,254

Increase in inventories

(10,456)

(8,625)

(11,402)

Decrease / (increase) in trade and other receivables

2,075

(5,538)

(26,791)

Increase in trade and other payables

1,183

2,812

18,537

Difference between pension charge and cash contribution

(3,242)

(2,490)

(2,929)

Increase / (decrease) in provisions

494

(614)

(436)

(Decrease) / increase in employee benefits

(3,224)

(4,365)

1,692


52,445

34,541

100,925

Income taxes paid

(14,442)

(9,307)

(27,754)

Cash flows from operating activities

38,003

25,234

73,171





Purchase of property, plant and equipment

(7,649)

(3,319)

(10,143)

Development costs capitalised

(924)

(492)

(1,328)

Proceeds from sale of property, plant and equipment

74

169

274

Acquisition of subsidiaries, net of cash acquired

280

(2,070)

(59,876)

Contingent consideration paid

(150)

-

(41)

Interest received

403

338

694

Cash flows from investing activities

(7,966)

(5,374)

(70,420)





Issue of ordinary share capital

70

42

450

Purchase of ordinary share capital

(2,050)

(2,184)

(3,185)

Interest paid

(20)

(20)

(117)

Repayment of amounts borrowed

(49)

-

(421)

Repayment of finance lease liabilities

(25)

(35)

(54)

Dividends paid on ordinary shares

(19,718)

(27,050)

(49,534)

Cash flows from financing activities

(21,792)

(29,247)

(52,861)





Net increase in cash and cash equivalents

8,245

(9,387)

(50,110)





Cash and cash equivalents at 1 January

48,519

97,881

97,881

Effect of exchange rate fluctuations on cash held

(579)

1,708

748

Cash and cash equivalents at end of period

56,185

90,202

48,519

 


Notes to the Half Year Report

 

1.       Status of condensed consolidated interim statements, accounting policies and basis of significant estimates

 

 

General information

 

Rotork p.l.c. is a company domiciled in England. 

 

The Company has its primary listing on the London Stock Exchange.

 

The condensed consolidated interim financial statements for the 6 months ended 30 June 2012 and 30 June 2011 are unaudited and the auditors have not 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 2011 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006, statutory accounts for the year ended 31 December 2011 were approved by the Board on 27 February 2012 and delivered to the Registrar of Companies. The Auditors' report on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

 

The consolidated financial statements of the Group for the year ended 31 December 2011 are available from the Company's registered office or website, see note 15.

 

 

Basis of preparation

 

The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2012 comprise the Company and its subsidiaries (together referred to as 'the Group').

 

These condensed consolidated interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the European Union.  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 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

 

Going concern

 

After making enquiries, 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 condensed consolidated interim financial information. In forming this view, the directors have considered trading and cash flow forecasts, financial commitments, the significant orderbook with customers spread across different geographic areas and industries and the significant net cash position.


 

 

1.       Status of condensed consolidated interim statements, accounting policies and basis of significant estimates (continued)

 

 

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 2011.

 

 

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 2011.

 

New accounting standards and interpretations

 

The amendments to IFRS 7 Financial Instruments: disclosures are applicable for the financial year ending 31 December 2012. Application of this standard has not had any material impact on the disclosures, net assets or results of the Group.

 

Recent accounting developments

The following standards and interpretations were issued but are not yet effective and have not been adopted as application was not mandatory for the year (and in some cases not yet endorsed for use in the EU): 

·    IFRS 9 Financial Instruments

·    IFRS 10 Consolidated Financial Statements

·    IFRS 11 Joint Arrangements

·    IFRS 12 Disclosure of Interests in Other Entities

·    IFRS 13 Fair Value Measurement

·    IAS 19 (amendment) - Employee benefits

·    IAS 1 Financial Statement presentation (amendments)

 

The directors anticipate that the adoption of these standards and interpretations will not have a material impact on the net assets or results of the Group.


2.       Analysis by Operating Segment:

Half year to 30 June 2012

 


 

Controls
£000

Fluid Systems
£000

 

Gears
£000

 

Instruments

£000

 

Elimination

£000

 

Unallocated
£000

 

Group
£000

Revenue from external customers

146,221

71,438

19,915

8,297

-

-

245,871

Inter segment revenue

-

-

5,419

-

(5,419)

-

-

Total revenue

146,221

71,438

25,334

8,297

(5,419)

-

245,871









Operating profit before amortisation of acquired intangible assets

46,611

9,182

5,575

2,702

-

(2,325)

61,745

Amortisation of acquired intangibles assets

(368)

(1,196)

(109)

(1,955)

-

-

(3,628)

Operating profit

46,243

7,986

5,466

747

-

(2,325)

58,117

Net financing expense







(2)

Income tax expense







(16,704)

Profit for the period







41,411

 

 

Half year to 30 June 2011


 

Controls

£000

Fluid Systems
£000

 

Gears
£000

 

Instruments

£000

 

Elimination
£000

 

Unallocated
£000

 

Group
£000

Revenue from external customers

129,438

53,061

16,916

-

-

-

199,415

Inter segment revenue

-

-

4,543

-

(4,543)

-

-

Total revenue

129,438

53,061

21,459

-

(4,543)

-

199,415









Operating profit before amortisation of acquired intangible assets


42,861


4,885


4,658

-


-


(2,131)


50,273

Amortisation of acquired intangibles assets

(80)

(975)

-

-

-

-

(1,055)

Operating profit

42,781

3,910

4,658

-

-

(2,131)

49,218

Net financing income







384

Income tax expense







(14,263)

Profit for the period







35,339

 

 

Year to 30 December 2011


 

Controls
£000

Fluid Systems
£000

 

Gears
£000

 

Instruments

£000

 

Elimination
£000

 

Unallocated
£000

 

Group
£000

Revenue from external customers

277,957

132,624

35,816

1,436

-

-

447,833

Inter segment revenue

-

-

10,777

-

(10,777)

-

-

Total revenue

277,957

132,624

46,593

1,436

(10,777)

-

447,833









Operating profit before amortisation of acquired intangible assets

92,085

17,077

10,336

394

-

(3,971)

115,921

Amortisation of acquired intangibles assets

(890)

(2,277)

(18)

(736)

-

-

(3,921)

Operating profit

91,195

14,800

10,318

(342)

-

(3,971)

112,000

Net financing income







550

Income tax expense







(32,149)

Profit for the year







80,401



 

2.       Operating segments (continued)

 

Revenue from external customers by location of customer

 


First half

First half

Full year


2012

2011

2011


£000

£000

£000





UK

19,337

15,033

25,703

Rest of Europe

70,228

60,326

148,513

USA

54,869

38,082

87,144

Other Americas

21,784

16,609

38,256

Rest of the World

79,653

69,365

148,217


245,871

199,415

447,833

  

 

 

3.       Net financial (expense) / income

 


First half

First half

Full year


2012

2011

2011


£000

£000

£000





Interest income

349

359

746

Expected return on assets in the pension schemes

3,005

3,338

6,739

Foreign exchange gain

129

68

105


3,483

3,765

7,590





Interest expense

(59)

(29)

(116)

Interest charge on pension scheme liabilities

(3,197)

(3,240)

(6,468)

Foreign exchange loss

(229)

(112)

(456)


(3,485)

(3,381)

(7,040)

 

 

 

4.       Income taxes

 

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year ended 31 December 2012 is 28.7% (the effective tax rate for the year ended 31 December 2011 was 28.6%).

 

The Group continues to expect its effective corporation tax rate to be higher than the standard UK rate due to higher tax rates in the US, China, Canada, France, Germany, Italy, Japan and India.

 



 

5.       Dividends

 


First half

First half

Full year


2012

2011

2011


£000

£000

£000

The following dividends were paid in the period per

qualifying ordinary share:

 




22.75p final dividend (2011: 19.75p)

19,718

17,065

17,097

14.5p interim dividend

-

-

12,543

Additional interim dividend of 11.5p paid June 2011

-

9,985

9,948

Additional interim dividend of 11.5p paid December 2011

-

-

9,946


19,718

27,050

49,534





The following dividends per qualifying ordinary share were declared / proposed at the balance sheet date:








22.75p final dividend

-

-

19,736

16.4p interim dividend declared (2011: 14.5p)

14,229

12,571

-

Additional dividend of 11.5p to be paid in December 2011

-

10,000

-


14,229

22,571

19,736

 

The interim dividend of 16.4 pence will be payable to shareholders on 28 September 2012 to those on the register on 31 August 2012.

 

 

 

6.       Earnings per share

 

Earnings per share is calculated using the profit attributable to the ordinary shareholders for the period and 86.6m shares (six months to 30 June 2011: 86.5m; year to 31 December 2010: 86.5m) being the weighted average ordinary shares in issue.

 

Diluted earnings per share is calculated using the profit attributable to the ordinary shareholders for the period and the weighted average ordinary shares in issue adjusted to assume conversion of all potentially dilutive ordinary shares under the Group's option schemes, Sharesave plan and Long-term incentive plan.

 

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

 


First half

First half

Full year


2012

2011

2011


£000

£000

£000





Net profit attributable to ordinary shareholders

41,411

35,339

80,401

Amortisation

3,628

1,055

3,921

Tax effect on amortisation at effective rate

(1,043)

(303)

(1,120)

Adjusted net profit attributable to ordinary shareholders

43,996

36,091

83,202





Weighted average number of ordinary shares

during the year

86,571

86,476

86,486





Adjusted basic earnings per share

50.8p

41.7p

96.2p

 

                                                                     

 

7.       Inventories

 


30 June

2012

£000

30 June 2011

£000

31 Dec 2011

£000





Raw materials and consumables

43,832

35,075

40,609

Work in progress

12,146

10,131

13,209

Finished goods

16,261

12,915

9,110


72,239

58,121

62,928

 

 

                                   

8.       Share capital and reserves

 

The number of ordinary 5p shares in issue at 30 June 2012 was 86,763,000 (30 June 2011: 86,690,000; 31 December 2011: 86,750,000).

 

The Group acquired 101,010 of its own shares through purchases on the London Stock Exchange during the period, (30 June 2011: 128,162; 31 December 2011: 193,261). The total amount paid to acquire the shares was £2,050,000 (30 June 2011: £2,184,000; 31 December 2011: £3,185,000), and this has been deducted from shareholders equity. The shares are held in trust for the benefit of Directors and employees for future payments under the Share Incentive Plan and Long-term incentive plan. All issued shares are fully paid.

 

Awards under the Group's long-term incentive plan and share investment plan vested during the period and 55,539 and 138,493 shares respectively were transferred to employees.

 

Employee share options schemes: options exercised during the period to 30 June 2012 resulted in 12,817 ordinary 5p shares being issued (30 June 2011: 8,731 shares), with exercise proceeds of £70,000 (30 June 2011: £43,000). The weighted average market share price at the time of exercise was £20.14 (30 June 2011: £17.19) per share.

 

 

 

9.       Interest-bearing loans and borrowings

 

The following loans and borrowings were issued and repaid during the six months ended 30 June 2012:


Year of maturity

Interest rate

Carrying value

£000





Balance at 1 January 2012



314





Movement in the period:




Loans

2012-16

0%

(49)

Repayment of finance leases

2012-15

3% - 8%

(25)

Exchange differences



6





Balance at 30 June 2012



246

 



 

10.     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 2011 Annual Report & 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 arms length basis.

 

Sales to subsidiaries and associates of BAE Systems plc, a related party by virtue of non-executive director IG King's directorship of that company, totalled £2,000 during the period to 30 June 2012 (First half 2011: £nil; Full year 2011: £29,000) and £2,000 was outstanding at 30 June 2012 ( 30 June 2011: £Nil; 31 December 2011: £Nil).

 

 

 

11.     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 are:

 


First half

2012

£000

First half 2011

£000

Full year 2011

£000





Emoluments including social security costs

2,138

1,852

3,782

Post employment benefits

227

199

392

Share based payments

591

451

844


2,956

2,502

5,018

 

 

 

12.     Share-based payments

 

A grant of shares was made on 1 March 2012 to selected members of senior management at the discretion of the Remuneration Committee. The key information and assumptions from this grant were:

 


Equity Settled
TSR condition

Equity Settled

EPS condition




Grant date

1 March 2012

1 March 2012

Share price at grant date

£20.71

£20.71

Shares / Share equivalents under scheme

59,993

59,993

Vesting period

3 years

3 years

Expected volatility

27.6%

27.6%

Risk free rate

0.5%

0.5%

Expected dividends expressed as a dividend yield

2.4%

2.4%

Probability of ceasing employment before vesting

5% p.a.

5% p.a.

Fair value

£12.49

£19.36

 

The basis of measuring fair value is consistent with that disclosed in the 2011 Annual Report & Accounts.

 

 

 

13.     Events Post Balance Sheet Date

 

There have been no significant events after the 30 June 2012 which would materially impact either the Consolidated Income statement or the Consolidated Balance Sheet.

 

14.     Shareholder information

 

This interim report is being sent to shareholders who requested it and copies are available to the public from the Registered Office at the address below.  The interim report is also available on the Rotork website at www.rotork.com.

 

General shareholder contact numbers:

Shareholder General Enquiry Number (UK):             0871 384 2030

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: 0871 384 2268

 

 

 

15.     Group information

 

Secretary and registered office:

Stephen Rhys Jones

Rotork plc

Rotork House

Brassmill Lane

Bath

BA1 3JQ

 

Company website:

www.rotork.com

 

Investor Section:

http://www.rotork.com/en/investors/index/

 

 

 

16.     Financial Calendar

 

31 July 2012                  Announcement of half year financial results for 2012

29 August 2012             Ex-dividend date for 2012 interim dividend

31 August 2012             Record date for 2012 interim dividend

28 September 2012       Payment date for 2012 interim dividend

 

 

 

 

 

 

 

 

 


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