2024 Interim Results

Source: RNS
RNS Number : 2543Z
Rotork PLC
06 August 2024
 

Tuesday 6th August 2024

Rotork plc

2024 Interim Results

Strong H1 performance, full year expectations unchanged

 

Adjusted highlights
H1 2024
H1 2023
% change
OCC3 % change
Order intake1
£374.4m
£386.9m
-3.2%
+0.2%
Revenue
£361.4m
£334.7m
+8.0%
+11.6%
Adjusted2 operating profit
£76.5m
£65.3m
+17.1%
+22.3%
Adjusted2 operating margin
21.2%
19.5%
+170bps
+190bps
Adjusted2 basic earnings per share
6.9p
5.8p
+18.0%
+26.1%
Cash conversion4
106%
116%
-

-

Reported highlights
H1 2024
H1 2023
% change
 
Revenue
£361.4m
£334.7m
+8.0%
 
Operating profit
£66.9m
£59.4m
+12.5%
 
Operating margin
18.5%
17.7%
+80bps
 
Profit before tax
£69.7m
£60.2m
+15.6%
 
Basic earnings per share
6.0p
5.3p
+13.7%
 
Interim dividend
2.75p
2.55p
+7.8%
 

 

Summary

·    The Growth+ strategy is delivering with first half revenue 8.0% higher year-on-year4 on a reported basis and 11.6% ahead OCC3, with Oil & Gas and Water & Power sales well ahead and Chemical, Process & Industrial lower as a result of reduced mining sector project activity

·    Orders received were 4% above sales and marginally ahead year-on-year OCC despite the prior period including an unusually high number of large orders. Oil & Gas and Water & Power orders were slightly higher whilst Chemical, Process & Industrial orders were slightly lower

·    Our Target Segments approach - a key pillar of Growth+ - is delivering. Strong year-on-year revenue growth was reported in our upstream and midstream electrification sector (8% of first half group sales) as well as in water infrastructure and wastewater treatment

·    Adjusted operating margins were 170bps higher at 21.2%, reflecting the increased sales and good drop-through. The reported operating margin was 18.5%

·    ROCE5 was 36.9% (H1 2023: 32.7%). We retain a strong balance sheet with closing net cash of £119.3m (December 2023: £134.4m) reflecting 106% cash conversion and £18.1m of share repurchases under the £50m share buyback programme

Kiet Huynh, Chief Executive, commenting on the results, said: 

"I am pleased with our strong first half performance which saw sales up double digits year-on-year at OCC and adjusted operating margins up to 21.2%. Orders grew marginally year-on-year on an OCC basis, against a strong comparison which benefitted from higher levels of large project activity.

 

The benefits of the Target Segment approach under Growth+ are increasingly apparent. Target Segment sales, which represent around half of group revenue, are growing strongly, particularly in water infrastructure, desalination, chemicals and up- and mid-stream oil & gas electrification. Rotork Site Services is also growing strongly.

 

The outlook for our end markets remains positive, order intake was encouraging in June and July and our order book gives us good visibility. Our full year expectations are unchanged and we continue to anticipate 2024 to be another year of progress on an OCC basis."

 

1 Order intake represents the value of orders received during the period.

2 Adjusted5 figures exclude the amortisation of acquired intangible assets and other adjustments (see note 4).

3 OCC5 is organic constant currency results which exclude acquired businesses and are restated at 2023 exchange rates.

4 Year-on-year refers to the first half of 2024 compared to the first half of 2023.

5 Adjusted figures, organic constant currency ('OCC') figures, cash conversion and ROCE are alternative performance measures and are used consistently throughout these results. They are defined in full and reconciled to the statutory measures in note 2.

 

Rotork plc

Tel:  +44 (0)1225 733 200

Kiet Huynh, Chief Executive Officer


Ben Peacock, Chief Financial Officer


Andrew Carter, Investor Relations Director




FTI Consulting  

Tel:  + 44 (0)20 3727 1340

Nick Hasell

Susanne Yule


 

 

There will be a virtual presentation for analysts and institutional investors at 8.30am BST today with access via https://www.investis-live.com/rotork/666849b2e119530d002cc9f9/jwnj. Please join the webcast a few minutes before 8.30am to complete registration.

 

 

Summary

 

Purpose

 

Our Purpose and sustainability vision are one and the same: keeping the world flowing for future generations. We want to help drive the transition to a clean future where environmental resources are used responsibly. We have a major role to play in the transition to a low carbon economy, as well as helping preserve natural resources such as fresh water and eliminating energy sector methane emissions.

 

Performance

 

The safety of our people, partners and visitors is our number one priority, and our vision for health and safety is zero harm. In the first half of 2024, we recorded a lost-time injury rate of 0.09, broadly in-line with the 0.08 recorded in 2023. Our Total Recordable Injury Rate was 0.19 (2023: 0.20).

 

Group order intake was 3.2% lower year-on-year (0.2% higher on an OCC basis) at £374.4m against a strong comparative which benefitted from higher levels of project activity. All three divisions reported broadly similar orders year-on-year on an OCC basis. Orders in the period were driven predominantly by customers' operational spend. In contrast the first half of 2023 had seen more large orders than seen for some time.

 

Group revenue was 8.0% higher year-on-year (11.6% higher OCC). Oil & Gas sales rose 16.5% (20.4% OCC), with growth across all sectors with the midstream and downstream sectors particularly strong. CPI sales were 8.7% lower (6.1% OCC), with solid growth in EMEA offset by declines in the Americas and APAC. The CPI sales decline largely reflects reduced mining sector large project activity and follows three years of strong sales growth. Water & Power sales were up 15.6% (20.2% OCC), with both sectors delivering double-digit growth.

 

By geography, EMEA was Rotork's fastest growing region, with sales by destination up double digit year-on-year (OCC). Asia Pacific revenues grew high single-digit year-on-year on an OCC basis with Oil & Gas and Water & Power strongly ahead and Chemical, Process & Industrial lower. Americas revenues were modestly lower.

 

Rotork Site Services, our global service network and a key differentiator in our industry, performed well with revenues growing faster than the Group overall. Our Lifetime Management and Reliability Services programmes have good momentum, as does our Intelligent Asset Management predictive analytics system. Rotork Site Services contributed 22% of Group sales (2023: 21%).

 

Adjusted operating profit was 17.1% higher year-on-year (22.3% higher OCC) at £76.5m benefitting from higher volumes and positive price/mix. Adjusted operating margins were 170bps ahead year-on-year at 21.2% (190bps higher at 21.4% OCC) and back to levels more typically seen in the first half prior to the supply chain impacted 2022 and 2023. Reported profit before tax was £69.7m.

 

Return on capital employed was 36.9% (2023: 32.7%), benefitting from a greater increase in adjusted operating profit than the increase in capital employed. Cash conversion was 106% (2023: 116%).

 

Growth+ strategy update

 

The starting point of our Growth+ strategy is our Purpose, 'keeping the world flowing for future generations'. Our Purpose is a powerful motivator, and it drives everything we do. It also recognises the role we play in making our world a great place to live, and the role we play in helping improve the safety, environmental and social performances of not just ourselves but also 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 ensure safety, are reliable, efficient, easy to use, and play a vital role in ensuring the uptime of our end users' operations (including through predictive and preventative maintenance).

 

Our ambition is mid to high single-digit revenue growth and mid 20s adjusted operating margins over time. Three powerful megatrends help drive our growth: automation, electrification and digitalisation, as well as the trends of sustainability, decarbonisation, energy security, water scarcity, water quality and alternative energy. Our Growth+ strategy is designed to drive our growth and to balance our investments with margin progression. At the core of our strategy are three pillars: Target Segments, Customer Value and Innovative Products & Services, each underpinned by our focus on 'Enabling a Sustainable Future'.

 

Our 'Target Segments' are key areas within each of our divisions where there are significant opportunities for profitable growth. We are investing in business development into these areas, helping us to grow faster than our overall markets. As previously guided, we estimate that the segments targeted by the Oil & Gas division will grow high single-digit in the coming years, those targeted by CPI will grow low double-digit and Water & Power's mid to high single-digit. Our Target Segments represented around half of group sales in the period.

 

We are also making good progress on our Customer Value pillar, which puts the customer at the forefront of everything we do. One example is the implementation and integration of common systems and processes throughout the Group. This will improve efficiency and ultimately deliver improved lead times and customer experience. Implementation is currently underway in Europe and global implementation will take several years.

 

Our Innovative Products & Services pillar also has good momentum. Rotork's recently launched modular Electro-Hydraulic (EH) actuators combine our electric, hydraulic and instrumentation expertise and offer customers highly flexible solutions to their emissions reduction challenges. They have applications in both the upstream and the midstream and are particularly suitable for retrofit. The Rotork IQT/IQTF Battery Back Up (BBU) variant is a high-performance electric actuator containing a lithium-ion battery and is zero emission when operated using renewable electricity and is able to operate off-grid. The BBU has applications across all three Rotork divisions. The EH and BBU product families support our customers' decarbonisation initiatives and have been well received.

 

Post period end we successfully completed the relocation of our Shanghai (China) facility. The new 21,000m2 facility is strategically located in Changshu and was developed with sustainability as a key priority. Its 2,500 roof-mounted solar panels will generate an estimated 1,500 MWh of renewable electricity annually.

 

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 2024. 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. The electrification of upstream and midstream operations to reduce the GHG emissions intensity of processes is of increased priority post COP28 and is benefitting Rotork's Oil & Gas division. The upstream and midstream electrification sector represented 8% of first half Group sales.

 

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 reverse osmosis desalination sector is forecast to grow at high single-digit over the medium term.

 

The outlook for the global power market is more positive than it has been for some time driven by electrification, economic growth, and in the United States by the repatriation of manufacturing and data centre build-out. In response to this acceleration in demand growth, the industry is stepping up new build activity as well as plant modernisation, refurbishment and life extension. Renewable energy continues to play an important role including in delivering zero-emission electricity as well as energy security.

 

The global chemicals and specialty chemicals industries have experienced sluggish demand over the last year or so due to the energy crisis in Europe, recession concerns in North America, and in China a slower than expected recovery from Covid-19 and a property sector downturn. Whilst the outlook remains uncertain there are tentative signs of improvement in North America and China. We remain focused on identifying growth opportunities in structurally growing markets and share gains in areas where we have historically been under-represented.

 

The critical HVAC market has a positive outlook driven by the data centre, tunnel ventilation and marine sectors. Asia Pacific growth is expected to be the fastest, driven by these sectors. The outlook for activity in North America is also positive, due to data centres, tunnel ventilation and the latest air quality requirements.

 

Decarbonisation remains a high-potential market for all three of our divisions.

 

Capital allocation and dividend

 

We have a clear and disciplined capital allocation framework. Our priorities in order are organic investment, a progressive dividend, acquisitions and return of cash. We have increased our dividend each year for over twenty years and have completed 30 acquisitions since 2000 including most recently Hanbay in 2023 which is performing in-line with expectations and was successfully integrated into the Group in the period. We have demonstrated discipline and flexibility in using buybacks and special dividends to deliver shareholder returns, including in March 2024 the launch of a £50m share buyback programme. After investing £18.1m in Rotork shares during the first half of the year, our net cash at period end was £119.3m (31 December 2023: £134.4m). We remain active in looking for suitable acquisition opportunities, consistent with the Growth+ strategy.

 

The Board has declared an interim dividend for 2024 of 2.75p per ordinary share which is equivalent to 2.5 times cover based on adjusted earnings per share. The interim dividend will be payable on 23 September 2024 to all ordinary shareholders on the register on 16 August 2024. The last date to elect for the Dividend Reinvestment Plan ('DRIP') is 2 September 2024.

 

The Rotork DRIP is provided by Equiniti Financial Services Limited. The DRIP enables the Company's shareholders to elect to have their cash dividend payments used to purchase the Company's shares. More information can be found at www.shareview.co.uk/info/drip.

 

Board update

 

As announced on 12 September 2023, Jonathan Davis stepped down as Group Finance Director and from the Board at the AGM in April 2024, after 21 years with the company. We all wish Jonathan well for his retirement.

 

We welcomed Ben Peacock to Rotork as our Chief Financial Officer on 11th March. Ben was previously Vice President of Finance & IT - Minerals Division at The Weir Group PLC.

 

As announced on 1 March 2024, Andrew Heath and Vanessa Simms joined the Rotork Board as Independent Non-Executive Directors during the period. Andrew was appointed Chair of the Safety and Sustainability Committee on 1 May 2024.

 

As announced on 29 May 2024, Tim Cobbold has advised the Board that he will step down as a Director of Rotork with effect from 31 December 2024. When Tim steps down he will have served on the Rotork Board for 6 years, the final year as the Company's Senior Independent Director. We will announce Tim's replacement in due course.

 

 

Outlook

 

The outlook for our end markets remains positive, order intake was encouraging in June and July and our order book gives us good visibility. Our full year expectations are unchanged and we continue to anticipate 2024 to be another year of progress on an OCC basis.

 

 

Divisional review

 

Oil & Gas

 

 

 

 

£m

H1 2024

H1 2023

Change

OCC3 Change

Revenue

£170.2m

£146.1m

+16.5%

+20.4%

Adjusted operating profit

£38.8m

£31.3m

+23.7%

+28.7%

Adjusted operating margin

22.8%

21.4%

+140bps

+150bps

 

 

The recovery in oil & gas sector activity which started in the second half of 2021 continued through the first half. Large project activity returned to more typical levels having been elevated in the first half of 2023. Most sectors saw higher customer spend, targeting increased output, improved productivity, electrification and decarbonisation (including carbon capture and storage and hydrogen). The industry's electrification initiative continued with increased activity in the pipeline sector and in well completion.

 

Divisional revenue was ahead 16.5% year-on-year and 20.4% year-on-year (OCC). All sectors grew with the midstream and downstream sectors growing particularly strongly. Downstream sales represented 53% of the total (49% in the 2023 full year); upstream 24% (27%) and midstream 23% (24%). Downstream sector sales were double-digit higher year-on-year benefiting from increased  refinery and storage activity. EMEA sales grew strongly year-on-year and the region was the fastest growing, with Middle East / Africa growing robustly and the upstream and midstream electrification sector particularly active. Americas sales were ahead mid single-digit whilst APAC sales grew double-digit driven by strong sales growth in India.

 

The division's adjusted operating profit was £38.8m, up 23.7% year-on-year. Increased deliveries more than offset higher people costs and investment in the division's commercial teams and resulted in adjusted operating margins rising 140 basis points to 22.8%. The division's reported operating profit was £38.3m.

 

Oil & Gas' focus on target segments during the period delivered notable successes in electrification, Asia infrastructure, decarbonisation and Rotork Site Services. Notable wins in the upstream included Rotork IQTF electric actuators for North American upstream wellhead choke valve control and the reduction of incomplete flaring, and electric actuators for upstream production process control applications for a project in Australasia. Oil & Gas also received first orders for electric actuators for well completion applications. In the midstream the division received follow-on orders from a major liquefaction project in Texas, several pipeline electrification projects mainly in Asia Pacific and North America. Downstream successes included major refinery automation / modernisation projects in EMEA and South America.

 

 

Chemical, Process & Industrial ("CPI")

£m

H1 2024

H1 2023

Change

OCC3 Change

Revenue

£100.9m

£110.4m

-8.7%

-6.1%

Adjusted operating profit

£23.7m

£25.0m

-5.1%

-3.1%

Adjusted operating margin

23.5%

22.7%

+80bps

+70bps

 

 

CPI is a supplier of specialist actuators and instruments for niche critical applications in the broad chemical, process industry and industrial sectors. The division serves a wide range of end markets including specialty and other chemicals, metals & mining, critical HVAC, pharmaceutical, steel and cement. The automation, electrification, digitalisation and decarbonisation megatrends are important growth drivers. Rotork has historically been under-represented in several of these markets and has the opportunity to win market share in the years ahead.

 

Divisional revenues were 8.7% lower year-on-year and 6.1% lower year-on-year on an OCC basis, with the decline largely the result of reduced mining sector large project activity and following three years of strong sales growth. By destination, EMEA sales grew mid-teens, with all sub-regions higher and the Middle East / Africa particularly strong. Asia Pacific sales were modestly lower despite good growth in India. China sales declined mid single-digit, largely due to a slowdown in battery value chain related activity. Americas sales were lower due to reduced deliveries to mining customers.

 

The division's adjusted operating profit was £23.7m, 5.1% lower than the prior year. Adjusted operating margins rose 80 basis points to 23.5%. Higher margins reflected positive price/mix and improved labour productivity. The division's reported operating profit was £22.9m.

 

Rotork's electric and fluid power actuators and instruments are selected by leading customers across the chemical, critical HVAC, mining and decarbonisation sectors for automation and electrification projects. During the period CPI won several important projects in the Chemical sector, particularly in Asia Pacific. Critical HVAC activity was strong globally driven by the tunnel ventilation sector as well as increasing demand for specialty HVAC technology across various industries. Decarbonisation remains a high potential future sector for CPI. Decarbonisation activity in the period included deliveries to green ammonia, methanol and hydrogen projects as well as to battery plants and a solar material plant in EMEA.

 

 

Water & Power

 

 

 

 

£m

H1 2024

H1 2023

Change

OCC3 Change

Revenue

£90.3m

£78.1m

+15.6%

+20.2%

Adjusted operating profit

£24.3m

£17.0m

+42.8%

+50.4%

Adjusted operating margin

26.9%

21.8%

+510bps

+550bps

 

 

Water & Power is a supplier of premium actuators, predominantly electric, and gearboxes for applications in the water, wastewater and treatment and power generation sectors. Rotork has significant growth opportunities including through helping solve customers' water quality and water scarcity challenges as well as the automation, electrification and digitalisation trends. Water and wastewater contributed 68% of divisional sales in the half year.

 

Divisional sales in the half year were ahead 15.6% year-on-year and 20.2% ahead year-on-year (OCC), with both water and power sector sales growing at similar rates. Asia Pacific sales were ahead mid-teens year-on-year (OCC), with the 'Water for All' initiative driving very strong revenue growth in India. Americas sales grew robustly year-on-year with Latin America particularly strong. EMEA was Water & Power's fastest growing geographic region in the period.

 

The division's adjusted operating profit was £24.3m, 42.8% higher year-on-year. Water & Power is the division with the highest proportion of electric actuator sales and in the prior period was most impacted by circuit board shortages. Availability was much improved in the first half. Higher deliveries, together with improved labour productivity, resulted in adjusted operating margins increasing 510 basis points to 26.9%. The division's reported operating profit was £24.2m.

 

In the water sector, Rotork is focused on helping to ensure access to water and sanitation to all. Growth of the water sector is driven by the tailwinds of network automation, aging infrastructure, urbanisation and climate change as well as water scarcity, quality and affordability challenges. The division made good progress in its target segments of water infrastructure (including irrigation), water and wastewater treatment, desalination and alternative energy during the year. Rotork is supplying electric and fluid power actuators to a number of desalination projects around the world which will provide potable water, including new order wins in the Middle East and in South America. Rotork's sales force expansion and earlier realignment, product positioning and Rotork Site Services' offering have significantly improved the division's competitive positioning in recent years.

 

By order of the Board

Kiet Huynh

Chief Executive

5 August 2024

 

 

 

Financial Key Performance Indicators (KPIs)


H1 2024

H1 2023

FY 2023

Revenue growth

8.0%

19.5%

12.0%

Adjusted operating margin

21.2%

19.5%

22.9%

Cash conversion

106.3%

116.4%

120.3%

Return on capital employed

36.9%

32.7%

33.9%

Adjusted EPS growth

18.0%

21.9%

14.8%

 

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 (Cash and cash equivalents less Interest-bearing loans and borrowings) and less the pension fund surplus net of related deferred tax liability (note 2d).

·    Adjusted EPS growth is defined as the increase 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 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.

 

 

£m

H1 2024 Reported results

Amortisation

Business Transformation cost

Other costs

H1 2024

Adjusted

 results

H1 2023

 Adjusted

 results


 





 

Operating profit

66.9

1.3

7.6

0.7

76.5

65.3

Profit before tax

69.7

1.3

7.6

0.7

79.3

66.1

Tax

(17.7)

(0.3)

(1.9)

(0.2)

(20.1)

(16.2)

Profit after tax

52.0

1.0

5.7

0.5

59.2

49.9

 

 

 

Financial position

The balance sheet remains strong and we ended the period with net cash of £119.3m (Dec 2023: £134.4m). Net cash comprises cash balances of £131.2m less lease liabilities of £11.9m.

 

Net working capital (note 2e) has decreased by £5.3m since the year end to £190.9m; this was largely driven by trade receivables. December 2023 trade receivables were higher due to sales being weighted towards the end of the year, and this has unwound driving the reduction which has in part been offset by an increase in inventory. In total, net working capital as a percentage of sales was 26.4% compared with 27.3% in December 2023 and 25.9% in June 2023. The movement in working capital has resulted in cash conversion of 106.3% of adjusted operating profit into operating cash. This is down from 116.4% in the first half of 2023 principally due to higher employee bonuses being paid out in H1 2024 relative to H1 2023.

 

Taxation

The estimated effective tax rate used for the year ending 31 December 2024 is 25.3% (2023 actual rate: 24.7%). Removing the impact of the adjusted items provides a more comparable measure and, on this basis, the adjusted effective tax rate is 25.3% (2023: 24.5%).

 

Retirement benefits

The Group operates defined benefit pension schemes in the US and UK, the larger of which is in the UK. Both the schemes are closed to future accrual and during 2023 a bulk annuity covering the UK scheme's existing pensioner liabilities was purchased. During the period, the pension scheme surplus increased to £12.8m from £9.3m at 31 December 2023 principally due to company contributions into the UK scheme.

 

Currency

Overall, currency headwinds decreased revenue by £14.3m (3.8%) compared with the first half of 2023. The average US dollar rate was $1.27 (H1 2023: $1.23) and the average Euro rate was €1.17 (H1 2023: €1.14), whilst the rates at 30 June 2024 were $1.26 and €1.18 respectively (30 June 2023: $1.27 and €1.16).

 

Share buyback programme

The share buyback programme that was announced on 5 March 2024 commenced during the period. By 30 June 2024 shares totalling £18.1m had been purchased and cancelled by the Group.

 

Dividend

The Board has declared an interim dividend of 2.75p (H1 2023: 2.55p) per ordinary share. The interim dividend will be paid on 23 September 2024 to ordinary shareholders on the register at the close of business on 16 August 2024. The last date for ordinary shareholders to elect for the Dividend Reinvestment Plan ('DRIP') is 2 September 2024.

 

Principal risks and uncertainties

The Group has an established risk management process as part of the corporate governance framework set out in the 2023 Annual Report and Accounts. The principal risks and uncertainties facing our businesses are monitored on an ongoing basis in line with the prevailing Corporate Governance Code. The risk management process is described in detail on pages 68 to 79 of the 2023 Annual Report and Accounts. The Group's principal risks and uncertainties were reviewed by the Board and the Board has 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 71 to 79 of the 2023 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 2023 Annual Report and Accounts, the following developments have been observed:

·    Geopolitical instability risk remains at an elevated level. The Group continues to monitor potential impacts and put in place mitigations to reduce the impact in those underlying risks, for example in relation to supply chain strategies.

·    Supply chain disruption remains one of our key risks. Management actions to secure the supply of key components have mitigated the risk during the first half.

·    Health and safety risk continues to be a priority for the business. Our ongoing continuous improvement actions reflect our commitment to having a safe workplace.

·    Cybersecurity external threats are increasingly sophisticated and we continue to respond to the threat by investing in our cyber strategy.

 

Emerging risks and opportunities

We continue to monitor and review emerging risks and opportunities, as described in the 2023 Annual Report and Accounts on page 71. Emerging risks and opportunities are those where severity is hard to determine. Risks under review include those in relation to geopolitical 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

5 August 2024

 

 

 

Independent Review Report to Rotork plc

 

Conclusion

 

We have been engaged by Rotork plc ("the Company") to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2024 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 the related explanatory notes. 

 

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 2024 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").   

 

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 ("ISRE (UK) 2410") issued for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.  

 

Conclusion 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 that causes us to believe 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 have not been appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the Group to cease to continue as a going concern, and the above conclusions are not a guarantee that the Group will continue in operation.  

 

Directors' Responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with UK-adopted international accounting standards.

 

The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

 

In preparing the condensed set of financial statements, 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 Group or to cease operations, or have no realistic alternative but to do so.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.  Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

 

The purpose of our review work and to whom we owe our responsibilities

 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 reached.

 

 

Huw Brown

for and on behalf of KPMG LLP 

Chartered Accountants 

66 Queen Square

Bristol

BS1 4BE

5 August 2024

 

 

 

Condensed consolidated Income Statement

 


 

First half

First half

Full year


 

2024

2023

2023


Notes

£000

£000

£000


 

 



Revenue

3

361,434

334,691

719,150

Cost of sales

 

(187,545)

(182,890)

(380,054)

Gross profit

 

173,889

151,801

339,096

Other income

 

529

929

1,405

Distribution costs

 

(3,179)

(2,922)

(6,314)

Administrative expenses

 

(104,277)

(90,265)

(184,630)

Other expenses

 

(109)

(144)

(790)

Operating profit

3

66,853

59,399

148,767

Finance income

5

3,731

3,235

5,301

Finance expense

5

(922)

(2,388)

(3,430)

Profit before tax

 

69,662

60,246

150,638

 

 

 


 

Income tax expense

6

(17,626)

(14,749)

(37,150)

 

 

 



Profit for the period

 

52,036

45,497

113,488

 

Attributable to:

 

 



Owners of the parent

 

51,709

45,687

113,135

Non-controlling interests

 

327

(190)

353


 

52,036

45,497

113,488


 




Basic earnings per share

8

6.0p

5.3p

13.2p

Diluted earnings per share

8

6.0p

5.3p

13.2p


 




Operating profit

Adjustments:

 

 

66,853

 

59,399

 

148,767

 

-     Amortisation of acquired intangible assets

 

1,334

618

2,110

-     Other adjustments

4

8,292

5,277

13,598

Adjusted operating profit

 

76,479

65,294

164,475


 

 



Adjusted basic earnings per share

2

6.9p

5.8p

14.6p

Adjusted diluted earnings per share

2

6.8p

5.8p

14.6p

 

 

 



 

 

 

 

Condensed consolidated Statement of Comprehensive Income and Expense


 

First half

First half

Full year

 

2024

2023

2023

 

£000

£000

£000

 

 

 


Profit for the period

52,036

45,497

113,488

 

 

 

 

Other comprehensive income and expense

 

 

 

Items that may be subsequently reclassified to the income statement:

 

 

 

Foreign currency translation differences

(11,271)

(22,669)

(20,271)

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

335

1,250

1,397

 

(10,936)

(21,419)

(18,874)

Items that are not subsequently reclassified to the income statement:

 

 

 

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

(53)

(5,340)

(7,722)

Income and expenses recognised directly in equity

(10,989)

(26,759)

(26,596)

 

 

 

 

Total comprehensive income for the period

41,047

18,738

86,892

Attributable to:

 


 

Owners of the parent

40,661

18,995

86,609

Non-controlling interests

386

(257)

283

 

41,047

18,738

86,892

 

 

 

Condensed consolidated Balance Sheet




30 June

30 June

31 Dec

 


 

2024

2023

2023

 


Notes

£000

£000

£000

 

Goodwill

 

224,363

219,292

231,703

 

Intangible assets

 

30,810

21,022

31,126

 

Property, plant and equipment

 

74,197

70,260

74,411

 

Derivative financial instruments

15

273

-

206

 

Deferred tax assets

 

12,348

15,277

15,454

 

Other receivables

 

-

9

-

 

Defined benefit scheme surplus

10

12,830

9,317

9,144

 

Total non-current assets

 

354,821

335,177

362,044

 

 

 

 



 

Inventories

9

93,916

91,088

83,963

 

Trade receivables

 

137,399

125,019

152,842

 

Current tax

 

4,362

8,272

4,187

 

Derivative financial instruments

15

1,037

913

673

 

Other receivables

 

25,271

43,924

23,701

Cash and cash equivalents

 

131,225

105,307

146,372

Total current assets

 

393,210

374,523

411,738


 

 



Total assets

 

748,031

709,700

773,782

 

 

 



Issued equity capital

11

4,279

4,304

4,306

Share premium

 

21,278

20,267

21,004

Other reserves

 

2,497

10,917

13,465

Retained earnings

 

578,360

536,487

581,813

Equity attributable to owners of the parent

 

606,414

571,975

620,588

Non-controlling interests

 

1,819

1,167

1,707

Total equity

 

608,233

573,142

622,295


 

 



Interest-bearing loans and borrowings

12

8,366

5,280

8,826

Employee benefits

10

4,686

3,994

4,197

Deferred tax liabilities

 

3,058

4,101

3,872

Derivative financial instruments

15

29

21

15

Provisions

 

1,249

1,331

1,371

Total non-current liabilities

 

17,388

14,727

18,281


 

 



Interest-bearing loans and borrowings

12

3,558

2,254

3,131

Trade payables

 

40,429

42,605

40,585

Employee benefits

 

18,229

14,239

29,754

Current tax

 

11,359

12,684

12,387

Derivative financial instruments

15

271

616

538

Other payables

 

44,160

45,352

42,536

Provisions

 

4,404

4,081

4,275

Total current liabilities

 

122,410

121,831

133,206


 

 



Total liabilities

 

139,798

136,558

151,487


 

 



Total equity and liabilities

 

748,031

709,700

773,782


 

 



 

 

 

Condensed consolidated Statement of Changes in Equity

 

 

 

 

Issued equity

capital

£000


Share

premium

£000

Capital

redemption

reserve

£000

 

Hedging reserve

£000

 

Retained earnings

£000

Attributable to owners of the parent

£000

Non-controlling interest

£000

Total

£000

Balance at 31 December 2023

4,306

21,004

11,151

1,716

598

581,813

620,588

1,707

622,295

Profit for the period

-

-

-

-

-

51,709

51,709

327

52,036

Other comprehensive (expense)/income










Foreign currency translation differences

-

-

(11,330)

-

-

-

(11,330)

59

(11,271)

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

459

-

459

-

459

Actuarial gain on defined benefit pension plans

-

-

-

-

-

872

872

-

872

Tax in other comprehensive (expense)/income

-

-

-

-

(124)

(925)

(1,049)

-

(1,049)

Total other comprehensive (expense)/income

-

-

(11,330)

-

335

(53)

(11,048)

59

(10,989)

Total comprehensive income

-

-

(11,330)

-

335

51,656

40,661

386

41,047

Transactions with owners, recorded directly in equity










Equity settled share-based payment transactions

-

-

-

-

-

1,524

1,524

-

1,524

Tax on equity settled share-based payment transactions

-

-

-

-

-

(305)

(305)

-

(305)

Shares issued to satisfy employee awards

-

274

-

-

-

-

274

-

274

Own ordinary shares acquired

-

-

-

-

-

(1,347)

(1,347)

-

(1,347)

Own ordinary shares awarded under share schemes

-

-

-

-

-

3,049

3,049

-

3,049

Share buyback programme

(27)

-

-

27

-

(18,149)

(18,149)

-

(18,149)

Dividends

-

-

-

-

-

(39,881)

(39,881)

(274)

(40,155)

Balance at 30 June 2024

4,279

21,278

(179)

1,743

933

578,360

606,414

1,819

608,233

 

 

 

 

 

 

Issued equity

capital

£000


Share

premium

£000


Translation

reserve

£000

Capital

redemption

reserve

£000

 

Hedging reserve

£000

 

Retained earnings

£000

Attributable to owners of the parent

£000

Non-controlling interest

£000

Total

£000

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


 

 

Condensed consolidated Statement of Cash Flows

 


 

First half

First half

Full year


 

2024

2023

2023


Notes

£000

£000

£000

Cash flows from operating activities

 

 



Profit for the period

 

52,036

45,497

113,488

Adjustments for:

Amortisation of acquired intangible assets

 

 

1,334

 

618

2,110

Other adjustments

4

8,292

5,277

13,598

Amortisation and impairment of other intangible assets

 

1,864

1,082

2,352

Depreciation

 

6,697

6,169

13,533

Equity settled share-based payment expense

 

3,987

3,125

5,670

Net profit on sale of property, plant and equipment

 

(75)

(582)

(342)

Finance income

 

(3,731)

(3,235)

(5,301)

Finance expense

 

922

2,388

3,430

Income tax expense

 

17,626

14,749

37,150


 

88,952

75,088

185,688

(Increase)/decrease in inventories

 

(11,215)

(2,962)

5,490

Decrease/(increase) in trade and other receivables

 

9,529

(2,551)

(10,488)

Increase in trade and other payables

 

3,504

7,621

1,399

Cash impact of other adjustments

 

(7,920)

(4,662)

(13,496)

Difference between pension charge and cash contribution

 

(3,400)

(23,490)

(26,628)

Increase/(decrease) in provisions

 

62

(498)

216

(Decrease)/increase in employee benefits

 

(9,558)

(685)

15,538

Operating cash flow

 

69,954

47,861

157,719

Income taxes paid

 

(17,100)

(12,758)

(32,825)

Net cash flows from operating activities

 

52,854

35,103

124,894

 

Investing activities

 

 



Purchase of property, plant and equipment

 

(5,784)

(3,435)

(7,306)

Purchase of intangible assets

 

(1,241)

(140)

(2,089)

Development costs capitalised

 

(1,650)

(889)

(2,411)

Sale of property, plant and equipment

 

87

1,306

1,883

Acquisition of business (net of cash acquired)

 

-

-

(18,399)

Settlement of hedging derivatives

 

1,315

886

937

Interest received

 

2,212

1,936

3,927

Net cash flows from investing activities

 

(5,061)

(336)

(23,458)

 

Financing activities

 

 



Issue of ordinary share capital

 

245

308

1,047

Own ordinary shares acquired

 

(1,347)

(1,694)

(2,444)

Share buyback programme

 

(18,149)

-

-

Interest paid

 

(599)

(283)

(936)

Repayment of lease liabilities

 

(1,822)

(1,661)

(3,699)

Dividends paid on ordinary shares

 

(39,881)

(36,926)

(58,820)

Dividends paid to non-controlling interest

 

(274)

-

-

Net cash flows from financing activities

 

(61,827)

(40,256)

(64,852)


 

 



Net (decrease)/increase in cash and cash equivalents

 

(14,034)

(5,489)

36,584


 

 



Cash and cash equivalents at 1 January

 

146,372

114,770

114,770

Effect of exchange rate fluctuations on cash held

 

(1,113)

(3,974)

(4,982)

Cash and cash equivalents at end of period

 

131,225

105,307

146,372

 

 

 

Notes to the Half Year Report

 

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

 

General information

 

Rotork plc is a company domiciled in England and Wales, its ordinary shares have a commercial companies (equity shares) category listing on the London Stock Exchange.

 

The condensed consolidated interim financial statements for the six months ended 30 June 2024 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 2023 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2023 were approved by the Board on 4 March 2024 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 2023 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 2024 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 2023, which have been prepared in accordance with international accounting standards in conformity with UK adopted international accounting standards (UK Adopted IFRS).

 

Going concern

 

The directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements.

 

In forming this view, the macroeconomic conditions and the impact of geopolitical instability on the Group have been considered. The directors have reviewed: the current financial position of the Group, which has net cash of £119m and unused uncommitted overdraft facilities of £33m 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 a period of not less than 12 months from the date of this report, 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 2023.

 

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 2023, except for the adoption of new standards effective as of 1 January 2024 and Income taxes as explained in note 6. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

New accounting standards and interpretations

 

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


2024

2023

2023


£000

£000

£000

Profit before tax

69,662

60,246

150,638

Adjustments:

 



Amortisation of acquired intangible assets

1,334

618

2,110

Gain on disposal of property

-

(723)

(723)

Business Transformation costs

7,556

5,925

13,097

Other costs

736

75

1,224

Adjusted profit before tax

79,288

66,141

166,346

 

 

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


 

2024

 

2023

2023


£000

£000

£000


 



Net profit attributable to ordinary shareholders

51,709

45,497

113,488

Adjustments:

 



Amortisation of acquired intangible assets

1,334

618

2,110

Gain on disposal of property

-

(723)

(723)

Business Transformation costs

7,556

5,925

13,097

Other costs

736

75

1,224

Tax effect on adjusted items

(2,428)

(1,488)

(3,567)

Adjusted net profit attributable to ordinary shareholders

58,907

49,904

125,629

 

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 8).

 

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


2024

2023

2023


£000

£000

£000

Adjusted operating profit

 



As reported

-

-

164,475

Rolling 12 months

175,660

155,236

-

 

 



Shareholders' funds

608,233

573,142

622,295

Cash and cash equivalents

(131,225)

(105,307)

(146,372)

Interest-bearing loans and borrowings

11,924

7,534

11,957

Pension (surplus) net of deferred tax

(9,610)

(7,254)

(6,904)

Capital employed

479,322

468,115

480,976

Average capital employed

476,1381

474,5511

485,5072

Return on capital employed

36.9%

32.7%

33.9%

 

1 Defined as the average of the capital employed at June 2023, December 2023 and June 2024 (2023: June 2022, December 2022, and June 2023).

2 Defined as the average of the capital employed at December 2022 and December 2023.

 

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 2024 half-year results are restated using the average exchange rates applied for the 2023 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.

 

Key headings in the income statement are reconciled to OCC as follows:


First half

2024

 

Currency adjustment

 

Acquisition adjustment

 

OCC First

half 2024

First half

2023


 

 




Revenue

361,434

14,311

(2,184)

373,561

334,691

Cost of sales

(187,545)

(7,713)

731

(194,527)

(182,890)

Gross profit

173,889

6,598

(1,453)

179,034

151,801


 

 


 


Adjusted operating profit

76,479

4,445

(1,098)

79,826

65,294

Adjusted operating margin

21.2%



21.4%

19.5%


 

 


 


Adjusted profit before tax

79,288

4,487

(1,089)

82,686

66,141

Adjusted basic earnings per share

6.9p

 


7.3p

5.8p

 

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 half 2024

£000

First half 2023

£000

Full year 2023

£000

Adjusted operating cash flow

 



Operating cash flow

69,954

47,861

157,719

Operating cash flow impact of other adjustments

7,920

4,662

13,496

Difference between pension charge and cash contribution

3,400

23,490

26,628

Adjusted operating cash flow

81,274

76,013

197,843

Adjusted operating profit

76,479

65,294

164,475

Cash conversion

106.3%

116.4%

120.3%

 

 

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 2024


 

 

 

Oil & Gas

 

£000

Chemical, Process & Industrial
£000

Water & Power


£000

 

 

Unallocated

 

£000

 

Group

£000

Revenue

 

 

170,243

100,853

90,338

-

361,434


 

 

 

 

 

 

 

Adjusted operating profit

 

 

38,761

23,722

24,339

(10,343)

76,479

Amortisation of acquired intangible assets

(460)

(778)

(96)

-

(1,334)

Segment result before other adjustments

38,301

22,944

24,243

(10,343)

75,145

Other adjustments

 

 

 

 

 

 

(8,292)

Operating profit

 

 

 

 

 

 

66,853

Net financing income

 

 

 

 

 

 

2,809

Income tax expense

 

 

 

 

 

 

(17,626)

Profit for the period

 

 

 

 

 

 

52,036

 

Half year to 30 June 2023

 


 

 

 

Oil & Gas

 

£000

Chemical, Process & Industrial
£000

Water & Power


£000

 

 

Unallocated

 

£000

 

Group

£000

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 intangible 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

 

Full year to 31 December 2023

 




 

Oil & Gas

 

£000

Chemical, Process & Industrial

£000

 

Water & Power
£000

 

Unallocated

 

£000

 

Group

£000

Revenue



328,391

213,712

177,047

-

719,150









Adjusted operating profit



83,627

51,253

46,445

(16,850)

164,475

Amortisation of acquired intangible assets

(1,100)

(848)

(162)

-

(2,110)

Segment result

82,527

50,405

46,283

(16,850)

162,365

Other adjustments







(13,598)

Operating profit







148,767

Net financing income







1,871

Income tax expense







(37,150)

Profit for the year







113,488

 

Revenue by location of subsidiary


First half

First half

Full year


2024

2023

2023


£000

£000

£000


 



UK

42,801

34,501

75,568

Italy

35,006

34,073

65,553

Rest of Europe

54,876

47,911

105,293

USA

66,577

72,808

141,046

Other Americas

29,234

24,770

59,419

China

52,718

50,522

102,133

Rest of World

80,222

70,106

170,138


361,434

334,691

719,150

 

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


2024

2023

2023


£000

£000

£000


 



Gain on disposal of properties

-

723

723

Business Transformation costs

(7,556)

(5,925)

(13,097)

Other costs

(736)

(75)

(1,224)


(8,292)

(5,277)

(13,598)

 

 

 

Business Transformation costs

During the period £7,556,000 (2023: £5,925,000) of costs were incurred on Business Transformation. The multi-year transformation programme includes the implementation and integration of common systems and processes throughout the Group, including a new cloud-based ERP system. This brings the total expensed under the programme to £52,476,000. These costs were expensed as they do not meet the capitalisation criteria under IAS 38. Costs include an allocation of personnel expenses in respect of employees directly involved in the programme. Over the next 2.5 - 3 years the Group will deploy the Business Transformation programme, including the new ERP system, across all other Group entities at an estimated further cost of £40,000,000 to £45,000,000.

 

Income statement disclosure

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 and expense


First half

First half

Full year


2024

2023

2023


£000

£000

£000


 



Interest income

2,314

2,163

4,203

Interest income on pension scheme liabilities

260

-

352

Foreign exchange gains

1,157

1,072

746

Finance Income

3,731

3,235

5,301

 

 


First half

First half

Full year


2024

2023

2023


£000

£000

£000


 



Interest expense

419

386

807

Interest expense on lease liabilities

278

191

495

Interest charge on pension scheme liabilities

-

102

-

Foreign exchange losses

225

1,709

2,128

Finance Expense

922

2,388

3,430

 

 

6.         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 2024 is 25.3% (2023 actual: 24.7%).

 

The estimated adjusted effective tax rate for the year ending 31 December 2024, based on the adjusted profit before tax, is 25.3% (2023: 24.5%). The adjusted effective tax rate has increased from 24.5% in 2023 to an estimated 25.3% principally because of increases in tax rates in jurisdictions in which Rotork operate, including the blended UK corporation tax rate which increased from 23.5% in 2023 to 25.0% in 2024.  The consequent increase in the adjusted effective tax rate has been partially offset by an adjustment to reflect recoverable withholding tax.  

 

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 UK corporation tax rate of 25.0% due to higher tax rates in overseas subsidiaries.

 

7.         Dividends


First half

First half

Full year


2024

2023

2023


£000

£000

£000

The following dividends were paid in the period per

qualifying ordinary share:

 

 



4.65p final dividend (2023: 4.30p)

39,881

36,926

36,926

2.55p interim dividend

-

-

21,894


39,881

36,926

58,820


 


The following dividends per qualifying ordinary share were

declared/proposed after the balance sheet date:

 




 



4.65p final dividend proposed

-

-

40,046

2.75p interim dividend declared (2023: 2.55p)

23,518

21,906

-


23,518

21,906

40,046

 

8.         Earnings per share

 

Earnings per share is calculated using the profit attributable to the ordinary shareholders for the period and 858.3m shares (six months to 30 June 2023: 859.0m; year to 31 December 2023: 859.3m) 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 861.8m shares (six months to 30 June 2023: 862.3m; year to 31 December 2023: 862.4m). 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.

 

9.         Inventories


30 June

2024

£000

30 June

2023

£000

31 Dec 2023

£000


 



Raw materials and consumables

64,760

71,443

67,381

Work in progress

6,452

5,408

5,687

Finished goods

22,704

14,237

10,895


93,916

91,088

83,963

 

10.       Defined benefit pension schemes

 

The defined benefit asset at 30 June 2024 of £12,830,000 (30 June 2023: £9,317,000; 31 December 2023: £9,144,000) is estimated based on the latest full actuarial valuations at 31 March 2023 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 2024 by independent actuaries to reflect updated assumptions regarding discount rates, inflation rates and asset values.

 


30 June

2024

%

30 June

2023

%

31 Dec 2023

%


 



Discount rate

5.2

5.2

4.6

Rate of inflation

3.1

3.2

3.0


 



11.       Share capital and reserves

 

The number of ordinary 0.5p shares in issue at 30 June 2024 was 855,823,000 (30 June 2023: 860,899,000; 31 December 2023: 861,201,000). All issued shares are fully paid.

 

The Group acquired 406,000 of its own shares during the period (30 June 2023: 530,000; 31 December 2023: 773,000). The total amount paid to acquire the shares was £1,347,000 (30 June 2023: £1,694,000; 31 December 2023: £2,444,000), and this has been deducted from shareholders' equity. At 30 June 2024 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 1,027,000 (30 June 2023: 1,325,000; 31 December 2023: 1,566,000). In the period 944,000 shares were released to satisfy share plan awards.

 

In respect of the SAYE scheme, options exercised during the period to 30 June 2024 resulted in 111,000 ordinary 0.5p shares being issued (30 June 2023: 127,000 shares), with exercise proceeds of £274,000 (30 June 2023: £308,000). The weighted average market share price at the time of exercise was £3.24 (30 June 2023: £3.26) per share.

 

During the period, the Group bought back and cancelled a total of 5,490,000 ordinary shares of 0.5p each for a total value of £18,149,000 including costs of £111,000. The average price paid for these repurchased shares was £3.29p. Prior to the period end an additional buyback of 504,000 ordinary shares was in process, but had not yet been fully transacted by 30 June 2024.

 

The share-based payment charge for the period was £3,987,000 (30 June 2023: £3,125,000; 31 December 2023: £5,670,000).

 

12.       Loans and borrowings

 

The following loans and borrowings were issued and repaid during the six months ended 30 June 2024:

 


Lease liabilities

£000

Preference shares

£000

Total

£000

 

 



Balance at 31 December 2023

11,917

40

11,957

Additions/drawdowns

1,751

-

1,751

Repayment

(1,822)

-

(1,822)

Exchange differences

38

-

38

Balance at 30 June 2024

11,884

40

11,924




Lease liabilities

£000

Preference shares

£000

Total

£000

 

 



Current

3,558

-

3,558

Non-current

8,326

40

8,366

Balance at 30 June 2024

11,884

40

11,924

 

 

13.       Share-based payments

 

A grant of share options was made on 21 March 2024 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

EPS condition

ROIC condition

Emissions condition






Grant date

21 March 2024

21 March 2024

21 March 2024

21 March 2024

Share price at grant date

£3.33

£3.33

£3.33

£3.33

Shares awarded under scheme

458,632

458,632

458,632

152,879

Vesting period

3 years

3 years

3 years

3 years

Expected volatility

26.0%

N/A

N/A

N/A

Risk-free rate

4.0%

N/A

N/A

N/A

Probability of ceasing employment before vesting

5% p.a.

5% p.a.

5% p.a.

5% p.a.

Fair value

£1.72

£3.37

£3.37

£3.37

 

The basis of measuring fair value is consistent with that disclosed in the 2023 Annual Report & Accounts.

 

14.       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 2023 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 2023 Annual Report and Accounts. 

 

15.       Financial instruments fair value disclosure

 

The Group held forward currency contracts designated as hedge instruments in a cashflow hedging relationship. At 30 June 2024 the fair value of these contracts was a net asset of £1,010,000 (30 June 2023: a net asset of £276,000; 31 December 2023: a net asset of £326,000). 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 their fair value. The Group had no derivative financial instruments in the current or previous year with fair values that would be classified as Level 3 in the fair value hierarchy.

 

 

Shareholder information

 

The interim report and half year results presentation is available on the Rotork website at www.rotork.com.

 

General shareholder contact numbers:

 

Shareholder General Enquiry Number (UK):

0371 384 2280

International Shareholders - General Enquiries:

(00) 44 121 415 7047

 

For enquiries 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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