Rotork plc Annual Report 2014

FY2014 Annual Report · Rotork plc
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ANNUAL REPORT AND ACCOUNTS 2014

 
 
Every day our lives are impacted by Rotork. 
When you turn on a tap or switch on a light, 
turn on a kettle or put fuel in your car, a flow 
control product is being used somewhere in 
the process of delivering that service. Rotork is 
trusted to keep the world flowing. The Company’s 
flow control products can be found in diverse 
industries such as peanut butter manufacture to 
nuclear power generation. However, the demand 
on the products is the same. Our customers 
demand quality and reliability.

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CONTROLS
GEARS
N
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FLUID
SYSTEMS

Company information
129  Ten year trading history
130  Share register information
131  Corporate directory
132  Notes

Strategic Report
01  Highlights
02	 Keeping	the	world flowing
04  Our global locations
06  Market overview
08  Business model and strategy
10  Strategic priorities
12  Strategy in action

 – A reputation for innovation
 – We’re	growing	and	 
driving	forward
16  Chairman’s statement
18	 Celebrating	Roger	Lockwood’s	

time at Rotork

20  Chief Executive’s statement
22  Business review
 – Controls
 – Fluid Systems
 – Gears
 – Instruments

30  Financial review
34  Key performance indicators
36	 How	we	manage risk
38  Principal risk and uncertainties
40  Corporate social responsibility

Directors
52  Board of Directors

Governance
54  Corporate governance
64  Director’s remuneration report
78  Report of the Directors

Financial Statements
80 

Independent auditor’s report to 
the members of Rotork plc
84  Consolidated income statement
84  Consolidated statement of 
comprehensive income
85  Consolidated balance sheet
86  Consolidated statement of 

changes in equity

87  Consolidated statement  

of cashflows

88  Notes to the group  
financial statements

122  Rotork plc company balance sheet
123  Notes to the company  
financial statements

2014 Highlights
•	 Record	order	intake,	revenue	and	profit
•  Operating margin* increased 20 bps to 26.4%
•  Continued expansion of product portfolio
•  Three acquisitions completed in the year for £81.3m
•  Full year dividend 50.1p up 4.3%

REVENUE
£594.7m +2.8%
OPERATING PROFIT*
£157.2m +3.8%
PROFIT BEFORE TAX
£141.2m +2.3%
EARNINGS PER SHARE
119.0p +3.7%

*	 References	to	adjusted	profit	throughout	this	document	are	defined	as	the	IFRS	profit,	whether	
operating	profit	or	profit	before	tax,	with	£14.9m	(2013:	£12.1m)	of	amortisation	of	acquired	
intangibles added back.

01

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014KEEPING 

THE
WORLD

FLOWING

Rotork is a leading, global designer and manufacturer of 
actuators and flow control equipment. We pride ourselves 
on keeping the world flowing. The production of virtually 
everything that contributes to our lifestyle and improved 
environment – from clean water to petrol, electricity and 
pollution free beaches – relies on Rotork’s innovative flow 
control products somewhere in the process.

Rotork is active in all the main strategic markets – power, oil 
& gas, water and waste water, marine, mining and process 
industries. However, Rotork operates in any market where 
the flow of liquids or gases needs to be controlled.

REVENUE
BY DIVISION

Controls

Fluid Systems

Gears
Controls

Instruments
Fluid Systems

Gears

Instruments

2014

2013

REVENUE 
Oil & Gas
2014
BY END-USER MARKET
Water

2013

Power
Oil & Gas

Industrial & Mining
Water

Other
Power

Industrial & Mining

2014

2013

2014

2013

Other

02

OUR DIVISIONS

ROTORK
CONTROLS

Rotork Controls design and 
manufacture electric actuators for 
valve applications and network control 
systems serving a wide variety of end-
markets. Rotork Controls has 
manufacturing facilities in the UK,  
USA, Germany, Spain, China, Malaysia 
and India.

Operating profit*
£104.7m (-0.7%)

Revenue

£324.5m
+0.8%

OUR END-USER MARKETS

ROTORK

FLUID SYSTEMS

ROTORK

GEARS

ROTORK

INSTRUMENTS 

Rotork Fluid Systems design and 

Rotork Gears design and manufacture 

Rotork Instruments design and 

manufacture pneumatic, hydraulic and 

gearboxes, adaptations and accessories 

manufacture products for flow control, 

electro-hydraulic actuators and control 

to the international valve and actuator 

pressure control, flow measurement 

systems. Our manufacturing facilities 

industry with manufacturing facilities in 

and pressure measurement wherever 

are located in Germany, Italy, Sweden, 

the UK, Netherlands, Italy, China, USA 

there is a need for high precision and 

China, UK and USA.

and India.

reliability. It has manufacturing facilities 

in the USA, Italy, Korea and UK.

Operating profit*

£31.2m (+0.5%)

Operating profit*

£13.0m (+0.3%)

Operating profit*

£14.4m (+84.3%)

Revenue

£180.3m

-3.6%

Revenue

£57.8m

+3.2%

Revenue

£46.0m

+84.4%

OIL & GAS

WATER

POWER

INDUSTRIAL & OTHER

Rotork products are used on upstream, 
midstream and downstream activities 
ranging from offshore production 
facilities through refining and 
processing to transportation of finished 
products via pipelines or vessels.

*  References to adjusted profit throughout this document 
are defined as the IFRS profit, whether operating profit 
or profit before tax, with £14.9m (2013: £12.1m) of 
amortisation of acquired intangibles added back.

Clean and dirty water treatment and 

distribution are major markets for 

As well as traditional power stations, 

applications for Rotork products are 

Other industries served by Rotork 

include surface and underground 

Rotork. With climate change affecting 

found on renewable energy generation 

processing applications for the mining 

the availability of water in many areas 

of the world, there is an increasing need 

for processes which will maximise 

such as thermal solar plants and on 

CO2 emission reduction processes 

such as flue gas desulphurisation, 

carbon capture and storage.

existing resources such  

as desalination plants and water  

re-use projects.

industry, the ship building industry, 

heating, ventilating and air 

conditioning, pulp and paper, food  

and beverage, medical equipment 

and tyre manufacturing.

STRATEGIC REPORTROTORK ANNUAL REPORT 2014 
 
 
 
ROTORK

CONTROLS

ROTORK
FLUID SYSTEMS

ROTORK
GEARS

ROTORK
INSTRUMENTS 

Rotork Controls design and 

manufacture electric actuators for 

valve	applications	and	network	control	

systems	serving	a	wide	variety	of	end-

markets. Rotork Controls has 

manufacturing facilities in the UK,  

USA, Germany, Spain, China, Malaysia 

and India.

Operating	profit*

£104.7m	(-0.7%)

Revenue

£324.5m

+0.8%

Rotork Fluid Systems design and 
manufacture pneumatic, hydraulic and 
electro-hydraulic actuators and control 
systems. Our manufacturing facilities 
are	located	in	Germany,	Italy,	Sweden,	
China, UK and USA.

Rotork Gears design and manufacture 
gearboxes, adaptations and accessories 
to the international valve and actuator 
industry	with	manufacturing	facilities	in	
the UK, Netherlands, Italy, China, USA 
and India.

Rotork Instruments design and 
manufacture	products	for	flow	control,	
pressure	control,	flow	measurement	
and	pressure	measurement	wherever	
there is a need for high precision and 
reliability. It has manufacturing facilities 
in the USA, Italy, Korea and UK.

Operating	profit*
£31.2m	(+0.5%)

Operating	profit*
£13.0m	(+0.3%)

Operating	profit*
£14.4m	(+84.3%)

Revenue

£180.3m
-3.6%

Revenue

£57.8m
+3.2%

Revenue

£46.0m
+84.4%

OIL & GAS

WATER

POWER

INDUSTRIAL & OTHER

Rotork products are used on upstream, 

midstream	and	downstream	activities	

ranging	from	offshore	production	

facilities	through	refining	and	

processing	to	transportation	of	finished	

products via pipelines or vessels.

Clean	and	dirty	water	treatment	and	
distribution are major markets for 
Rotork.	With	climate	change	affecting	
the	availability	of	water	in	many	areas	
of	the	world,	there	is	an	increasing	need	
for	processes	which	will	maximise	
existing resources such  
as	desalination	plants	and	water	 
re-use projects.

As	well	as	traditional	power	stations,	
applications for Rotork products are 
found	on	renewable	energy	generation	
such as thermal solar plants and on 
CO2 emission reduction processes 
such	as	flue	gas	desulphurisation,	
carbon capture and storage.

Other industries served by Rotork 
include surface and underground 
processing applications for the mining 
industry, the ship building industry, 
heating, ventilating and air 
conditioning, pulp and paper, food  
and beverage, medical equipment 
and tyre manufacturing.

03

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportO
U
R

GLOBAL
LOCATIONS

Knowing	how	to	attract	new	customers	and	service	
and support our existing customers is key to our 
continued success. We realise that remaining close 
to our customers, and focusing on their needs, drives 
innovation. To enable closer customer ties Rotork 
has	always	been	committed	to	a	global	presence,	
supporting operations in some of the most remote 
and challenging environments across the globe.

GREEN
LAND

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ICELAND

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N

N
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W
A
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N
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W
A
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RUSSIA

GERMANY
NETHERLANDS
FRANCE BELGIUM
AUSTRIA

POLAND

EUROPE

CROATIA

SWITZERLAND
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A
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L
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C
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G
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ITALY

S
P
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S
P
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FRANCE
FRANCE
S
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A
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A

M
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C
C
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A
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G
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A
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MAURITANIA
A
MALI
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BURKINA
 FASO

S
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N
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G
A
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GUINEA
SIERRA
 LEONE

G
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GHANA

LIBERIA

E
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P
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.

.

C
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B

C
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CAMEROON
GABON
CONGO

LIBYA
LIBYA
AFRICA
NIGERIA C
H
A
DZAIRE
ZAIRE
A
N
G
O
L
A
SOUTH 
AFRICA
SOUTH 
AFRICA

S
U
D
A
N
UGANDA
RWANDA
RWANDA
ZAMBIA
ZAMBIA
ZIMBABWE
ZIMBABWE
BOTSWANA

N
A
M
B
A

I

I

USA

CANADA
AMERICA
UNITED 
STATES

U
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A

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M
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GUATEMALA
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PANAMA
PANAMA

C
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A

CUBA DOMINICAN 

REPUBLIC

E
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VENEZUELA
GUYANA

C
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B
A

C
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LATIN 
B
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P
AMERICA
E
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UBOLIVIAB
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AMERICAS

During	the	year	we	opened	two	
offices,	one	in	Denver	(USA)	and	set	
up	a	new	subsidiary	in	Santiago	
(Chile).	In	2015	we	plan	to	open	one	
new	office	and	expand	an	existing	
one.

MANUFACTURING
FACILITIES

8

EMPLOYEES

809

OFFICES

14

04

STRATEGIC REPORTROTORK ANNUAL REPORT 2014 
 
 
 
 
Customers	buy	our	products	in	the	knowledge	
that	the	Rotork	service	network	will	provide	
world-class	support	whether	life-of-plant	
maintenance, repairs or upgrade services from a 
local	facility	wherever	they	are	in	the	world.

Rotork recognises the contribution of the 3,500 
employees in maintaining our high reputation 
for excellence in innovation and quality of 
products and services.

Planning, developing and delivering actuation 
facilities	across	the	globe,	Rotork	now	has	27	
established manufacturing facilities in 11 
countries	which,	together	with	our	own	global	
network	of	local	offices,	regional	Centres of 
Excellence and agents, provide over 800 Rotork 
outlets	worldwide.

RUSSIA

RUSSIA RUSSIA RUSSIA 
RUSSIA RUSSIA
MONGOLIA

CHINA

RUSSIA
RUSSIA

RUSSIA
RUSSIA

POLAND

EUROPE

CROATIA

ASIACHINA

C
H
N
A

C
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A

I

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C
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A

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K
O
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A

NEPALB
B
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B
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V
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CAMBODIA

SINGAPORE

H
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K
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J
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P
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P
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K
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A
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GEORGIA GEORGIA

KAZAKHSTAN
UZBEKISTAN
TURKMENISTAN
A
F
G
H
A
N
S
T
A
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MIDDLE
EAST
SAUDI  
ARABIA

T
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I
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A
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S
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IRAN

I

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AFRICA

E
G
Y
P
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LIBYA

C

H

A

D

SOUTH 

AFRICA

S
U
D
A
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UGANDA
RWANDA
RWANDA
ZAMBIA
ZAMBIA
ZIMBABWE
ZIMBABWE
BOTSWANA

SOUTH 
AFRICA

M
O
Z
A
M
B
Q
U
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Y
E
M
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N

I

DJIBOUTI
S
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A
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ERITREA
E
T
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KENYA
T
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OMAN
UAE

M
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MALAYSIA
INDONESIA

PAPUA
NEW
GUINEA

AUSTRALIA
AUSTRALIA
AUSTRALIA
AUSTRALIA
AUSTRALIA
AUSTRALIA
AUSTRALIA

N
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W
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A
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A
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EUROPE, MIDDLE  
EAST & AFRICA

MANUFACTURING
FACILITIES

Following	the	acquisitions	made	in	2014,	we	
have	two	additional	manufacturing	sites	in	
Valduggia	(Italy)	and	Wolverhampton	(UK),	
and	a	new	factory	in	Leeds	(UK).	Two	new	
offices	were	opened	in	Irkutsk	and	
Volgograd	(Russia),	one	in	Gliwice	(Poland)	
and	we	expanded	the	Spanish	office	in	
Bilbao.	In	2015	we	plan	to	move	into	a	new	
factory	in	Lucca	(Italy)	and	open	three	new	
offices	and	expand	one	facility.

14

OFFICES

24

EMPLOYEES

1,793

GROUP REVENUE
BY END USER DESTINATION

N. America
exc. Mexico

Asia Pacific /
Far East

E. Europe

Europe

Latin America

Middle East /
Africa

UK

2014

2013

ASIA & AUSTRALIA

With the acquisition of Young Tech Co. 
(YTC)	in	Seoul	(Korea),	the	number	of	
manufacturing sites has increased by 
one	to	stand	at	five.	New	offices	in	Xi’an	
(China)	and	Newcastle	(Australia)	were	
opened	as	well	as	the	expansion	of	our	
office	in	Upper	Thomson	(Singapore).	In	
2015	we	plan	to	open	three	new	offices.

MANUFACTURING 
FACILITIES

5

EMPLOYEES

867

OFFICES

27

05

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic Report 
 
 
 
STRATEGIC REPORT

MARKET

OVERVIEW

Rotork’s products are used in many structural 
growth	markets	with	long-term	investment	cycles	
which	provide	infrastructure	to	the	global	
economy.	Growing	populations	require	water,	food	
and	energy	all	of	which	require	new	infrastructure,	
with	an	increased	focus	on	automation,	to	drive	
improved productivity and better decision-making 
systems to protect and secure assets.

OUR MARKET SHARE

Rotork addressable market
£3.6bn

Flow	control	market
£40bn

Addressable 
Market

Controls
Instruments
£1,754m £960m £300m £553m

Fluid Systems

Gears

Market Share 

by Division 18.5% 18.8% 15.3% 7.9%

Opportunities 
for	Growth

•  Water,	power	and	
industrial markets
•  Eastern Europe and 

•  Marine market
•  New	product	
introduction

Latin America
•  Midstream and 
downstream	 
oil & gas market

•  Rotork Site Services

•  Geographic expansion
•  New	facility	in	Italy

•  Increased R&D 
investment
•  Product range 

expansion

•  Geographic expansion

•  Global manufacturing 

expansion
•  Sales channel 
development
•  Rotork synergies

Market share based on competitors’ revenue, published market reports and Rotork internal data. 

06

ROTORK ANNUAL REPORT 2014

MARKET DRIVERS

SHARE OF END-USER MARKET

Growth	may	be	driven	by	investment	in	new	
infrastructure to support urbanisation, 
automation or refurbishment of existing plants. 
Population	growth,	the	exploitation	of	new	
technologies and the desire to extract natural 
resources from ever more challenging locations 
are also drivers in some of our markets.

Urbanisation
Rapid urbanisation in emerging markets, and 
growth	of	urban	areas	in	developed	economies,	
will	be	the	biggest	driver	of	infrastructure	
spending	over	the	next	few	decades.	That	
growth	is,	in	turn,	creating	huge	demand	for	
private and public sector infrastructure 
development	such	as	power	stations,	electricity	
grids,	water	supply	and	water	treatment	plants.

Automation
Automation advances in industry continue to 
demand high-value customer alerts and 
real-time monitoring, to provide greater 
efficiency	with	improved	safety	and	
performance.

Population growth
The	world’s	population	is	growing	and	placing	
stress	on	the	world’s	supply	of	water,	food	and	
energy.	We	need	water	to	grow	food	and	
generate	energy	and	we	need	energy	to	move	
and	treat	water	and	process	food.

Oil & Gas

Water

•  Onshore	&	offshore	production
•  Refining	&	petrochemicals
•  Distribution & storage
•  Pipelines
•  LNG	liquefaction	&	regasification

•  Sludge	&	sewage	treatment
•  Water treatment, desalination & re-use
•  Environmental control
•  Dams, reservoirs & irrigation

Group
Revenue

56.9% 

10.4% 

Group
Revenue

New technologies
The	‘new	normal’	requires	efficiency	built	on	
technological innovations enabling businesses 
and organisations to simultaneously drive cost 
savings, improve productivity and reliability.

Power 

Industrial & Other

•  Fossil fuels
•  Nuclear energy
•  Concentrating	solar	power
•  Geothermal	and	other	renewables

•  Chemicals
•  Pulp & paper
•  Mining
•  Marine

•  HVAC
•  Industrial
•  Tunnels
•  Food & beverage

16.3% 

Group
Revenue

16.4% 

Group
Revenue

07

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportBUSINESS
 MODEL 

& STRATEGY

VISION
Rotork’s vision is to be the leader in our targeted 
segments	of	the	global	flow	control	market.

SITE
SERVICES

INDUSTRY
KNOW-HOW

QUALITY
CONTROL

INNOVATE

PRODUCT
ASSEMBLY

SALES
PROJECT
MANAGEMENT

SOURCING
PARTNERSHIPS

BUSINESS MODEL

As	a	recognised	leader	in	the	flow	control	
market, Rotork is committed to continuing to 
harness the collective strength of our global 
presence	to	satisfy	the	growing	global	demand	
for	innovative	products;	offering	improved	
performance and reducing environmental 
impact to support our customers’ needs around 
the	world.	Rotork’s	products	are	employed	in	
mission-critical	environments	where	safety	is	
paramount	and	so	we	constantly	strive	to	
improve quality and performance. In pursuit of 
excellence, Rotork continues to innovate 
through its products, technology and people 
seeking to enhance our core capabilities and 
expand market leadership.

Rotork	has	a	‘family’	culture	where	we	seek	to	
pursue	excellence	together,	working	as	a	global	
team to respond rapidly to changing business 
environments,	introduce	new	technologies,	

pioneer	new	markets	and	identify	business	
opportunities.	Our	global	network	of	offices	
and manufacturing sites expands each year to 
ensure our support is local to our customers. 
The Rotork culture of respect and excellence is 
a	core	philosophy	which	we	share	with	new	
offices	and	acquired	businesses,	which	
themselves have often been purchased from an 
owner-manager,	to	ensure	our	customers	
receive consistently high quality service 
throughout	the	world.	We	operate	an	
asset-light	business	model,	with	most	of	our	
manufacturing sites purchasing components in 
a	finished	form	and	then	assembling	to	order.

The majority of our business in Controls and 
Fluid	Systems	is	focused	on	winning	projects.	
These projects are tracked, sometimes for 
years, as they evolve from an outline plan 
through to a fully detailed and costed set of 

tender	packages	against	which	the	valvemakers	
quote.	We	talk	with	the	end-user,	design	
consultant and EPC all through this process 
selling	the	benefits	of	a	Rotork	solution.	In	these	
larger projects actuators are usually sold in 
combination	with	the	valve	and	Rotork	sells	to	
the valvemaker. Whilst Gears and Instruments 
have some project sales, they more often sell 
direct to end-user or in some cases through 
distribution	channels.	In	each	case,	only	when	we	
receive	an	order	which	is	a	contractual	
commitment	do	we	report	this	as	order	intake.	
Our orderbook at any point in time represents 
the	sum	of	order	intake	which	has	not	yet	been	
satisfied	by	a	delivery	of	the	required	product	or	
service. Once the product or service is delivered 
it is recognised as revenue and then removed 
from the order book.

08

STRATEGIC REPORTROTORK ANNUAL REPORT 2014I

Innovation
Work	with	our	customers	and	provide	
them	with	the	benefits	of	innovative,	
technically advanced, high quality 
products and associated services.
Read more on page 11

Growth
Further develop our global sales and 
service	network	providing	local	support	to	
our	customers	around	the	world.	Grow	the	
Company both organically and through 
acquisitions,	whilst	maintaining	the	focus	
on	profitability	and	return	on	sales.
Read more on page 10

N
N
O
GROWTH
V
SUSTAIN  BILITY
A
T
O
N

Sustainability
Be a fair, equal opportunities employer 
with	high	ethical	standards	aiming	to	
provide	safe	working	conditions	across	
our	businesses	worldwide.	Be	a	good	
corporate citizen, supporting the local 
community,	acting	with	integrity	and	
honesty	whilst	always	considering	ways	of	
improving our operational impact on the 
environment.
Read more on page 10

Operational Excellence
Rotork has operated an outsourced 
manufacturing model for many years. 
In	our	newly	acquired	businesses	our	
preference is also to outsource the 
low	value	add	processes	but	we	
review	each	situation	and	decide	on	a	
case-by-case basis.
Read more on page 11

I

OPERATIONAL
EXCELLENCE

COMPETITIVE STRENGTHS

Technological Leadership
Our innovative company is built on talented 
people	who	drive	our	technological	leadership	
with	passion	to	ensure	we	continue	to	
reinforce our core competencies in technical 
and	performance	standards,	and	develop	new	
technologies to provide solutions to our 
customers’ most pressing needs.

Global Footprint
Rotork’s	worldwide	geographic	footprint	
provides a resilient business portfolio. 
Expanding our brand’s global presence and 
strengthening	our	local	partnerships	with	
customers are key to our continued business 
success.	In	many	countries	around	the	world,	
Rotork is considered a local company by our 
customers.	Local	relationships	with	customers	
not only means that Rotork has clear sight of 
value generation in the long-term, but also the 
ability to recognise customers’ evolving 
requirements.	Our	global	footprint	allows	us	to	
closely	follow	and	manage	complex	global	
projects,	which	account	for	the	majority	of	our	
sales	and	to	support	customers	in	the	field.

Rotork	Site	Services	work	with	our	customers	
by installing and commissioning our actuators 
and by meeting their service requirements.

Diverse End-Market Exposure
Our broad market exposure and participation 
in	diverse	industries	means	that	wherever	
fluids	or	gases	are	being	moved	and	the	
process requires automation, or to operate 
failsafe	controls,	Rotork	actuators	and	flow	
control products are required. Our actuators 
and	flow	control	instrumentation	are	used	
most	intensively	in	the	oil	&	gas,	power	and	
water	markets,	but	we	are	proud	to	serve	
many other markets.

Breadth of Product Portfolio
Through product development and 
acquisitions	we	have	built	up	the	broadest	
range of actuators on the market. We are also 
expanding	our	range	of	flow	control	devices.	
This	ensures	we	have	the	appropriate	product	
for	the	widest	range	of	applications	within	a	
site or project.

Asset-Light Business Model
Over 85% of our products are built using an 
outsourced	manufacturing	model,	with	our	
workforce	assembling	components	and	
configuring	products	to	match	customer	
orders.	We	have	developed	a	global	network	of	
suppliers	who	manufacture	the	components	
to our designs. Leveraging our agile and 
international	supply	chain	allows	us	to	achieve	
and	maintain	profitable	growth	while	
supporting	new	market	entry.

Quality
Rotork stands for technological excellence, 
quality	and	reliability:	meeting	or	exceeding	
international technical and performance 
standards. Our products are used in 
demanding environments and can be 
employed in mission-critical applications 
where	consistency	of	performance	and	safety	
is paramount. Customers expect Rotork 
products to be reliable and our demanding 
quality	control	procedures,	which	extend	to	
cover our supply chain, are central to 
delivering this.

09

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportSTRATEGIC

PRIORITIES

Based on a customer-centric approach and 
understanding,	we	seek	to	deliver	a	high	return	on	
capital	with	strong	and	sustainable	margins	and	
consistent	year-on-year	growth	in	revenues	and	profit	
which	combined	with	our	asset-light	model	will	
continue to deliver strong cash generation.

To	provide	short-term	focus,	we	agree	an	annual	set	of	key	objectives.	The	
progress against these during the year and objectives for the coming year are 
shown	below.

GROWTH

Strategic Priorities

Achievements 2014

Objectives 2015

Organic Sales Growth
Deliver	profitable	sales	growth	by	focusing	on	
the customer, increasing our international 
coverage, continuing to broaden our 
end-markets	and	growing	the	global	sales	of	
our recent acquisitions.

Acquisitions
Acquisitions	are	a	core	part	of	our	growth	
strategy.	Each	acquisition	will	deliver	a	new	
product,	a	new	geographic	market	or	a	new	
market sector or some combination of these.

Service Growth
Expand our global service coverage and 
capability including the Client Support 
Programme	(CSP).

Moved	into	the	new	factory	in	Leeds	(UK)	and	
opened	new	offices	in	Chile,	Denver	(USA),	
Russia, China, Australia and Poland and 
expanded	existing	offices	in	Singapore	and	
Spain.

Introduce a regional management structure to 
explore market opportunities including the 
establishment of a direct presence. Drive 
revenue synergies from recent acquisitions 
using our extensive salesforce.

Acquired	YTC	(March),	Rotork	Midland	(July),	
which	expands	Instruments	product	portfolio,	
and	Masso	(December)	which	adds	to	Fluid	
Systems product range and brings access to the 
marine market.

Launched	the	CSP	which	offers	tailor-made	
service of planned preventative maintenance 
aimed	at	the	prevention	of	breakdowns	and	
failures.	New	workshops	were	opened	in	Poland	
and	Chile	and	we	increased	the	number	of	
service engineers by 7%. Introduced a regional 
service management team.

Execute	acquisition	plan	of	identified	
opportunities.

Continue to develop the sales channels for 
delivering service support and further expand 
the	service	team.	Establish	new	workshops	
where	there	is	customer	demand.

SUSTAINABILITY

Strategic Priorities

Achievements 2014

Objectives 2015

Employee Development
We	will	invest	in	our	people	and	encourage	
internal development to support our future 
growth	plans.	We	recognise	the	benefits	of	
diversity	amongst	our	employees	and	will	
promote this both through external 
appointments and internal development.

Corporate Social Responsibility (CSR) 
Communicate best practice throughout the 
Group,	training	those	responsible	and,	where	
appropriate, verifying adoption in each 
subsidiary.

We have increased gender diversity at all levels 
of the organisation through the year. We have 
introduced	a	new	leadership	training	programme	
and expanded our online training courses 
delivered through the Group.

Continue the rollout of the leadership training 
programme and further expand the training 
opportunities throughout the Group. 
Continue to promote diversity.

Our CSR sub-committees continued to promote 
improvements in health and safety, monitor 
initiatives to reduce CO2 emissions and provide 
training on ethical behaviour and our employees 
gave their time and money to many charities 
around	the	world.	

Continue to drive safety improvement and 
deliver the CSR strategy. The CSR report is on 
pages 40 to 51 of this report.

10

STRATEGIC REPORTROTORK ANNUAL REPORT 2014OPERATIONAL EXCELLENCE

Strategic Priorities

Achievements 2014

Objectives 2015

Manufacturing Excellence
Continue	to	develop	world-class	
manufacturing.

Significant	progress	was	made	throughout	the	
course	of	the	year	in	implementing	new	business	
processes to achieve improved delivery, 
reliability and productivity.

In	conjunction	with	the	development	of	a	
manufacturing version of our global business 
system,	we	will	carry	out	a	review	of	our	
procedures in order to share best practice 
within	the	Group.

Supply Chain Management
Rotork’s outsourced manufacturing model 
means that material costs are the most 
significant	component	of	direct	costs.	Managing	
these costs has been a key driver to improve 
margins across all our manufacturing sites.

Global Business Systems
We	are	moving	from	having	a	wide	range	of	
systems	around	the	world	to	adopting	a	global	
standard ERP system.

Sourcing initiatives succeeded in both improving 
the performance of local suppliers and driving 
down	costs	of	components	during	the	year.

Continue to look for opportunities to take 
cost out of all our products through sourcing 
or product development. Our proven sourcing 
capabilities	will	be	supported	with	increased	
resources	as	we	focus	on	recently	acquired	
businesses.

Rollout and enhancement of our sales and service 
office	system	progressed	during	the	year	and	
development of the manufacturing system has 
moved to the next phase of the project.

Continue the rollout through the sales and 
services	offices	and	continue	development	of	
the manufacturing system.

INNOVATION

Strategic Priorities

Achievements 2014

Objectives 2015

New Product
Capitalise	on	our	industry	knowledge	to	
develop and introduce solutions to customer 
problems.

There	were	a	number	of	product	launches	and	
expansion	of	product	ranges	/	certifications	
during the year in all divisions. Spend on R&D 
increased 18% in the year to £9.9m.

A number of product launches are scheduled 
this	year	in-line	with	the	product	roadmap	
established for each division. Development 
continues in other areas, including nuclear and 
within	the	recently	acquired	businesses.

ROTORK STRATEGY

• Providing high quality and innovative products and 

• Achieving	consistent,	sustainable	and	profitable	growth

services	to	control	the	flow	of	fluids	and	gases

• Meeting customer needs through global expertise 

delivered locally

• Being the employer of choice

11

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportSTRATEGIC REPORT

A REPUTATION
FOR

INNOVATION

INNOVATION

At every stage in the Company’s history, Rotork’s engineers have 
focused	on	solving	customer	challenges,	and	developing	new	
solutions	-	with	levels	of	engineering	skill	and	creativity	that	satisfy	
our customers’ requirements. Our products are often mission-
critical devices that require high quality and reliable solutions. 
Customer	approval	and	industry	certification	is	also	necessary	for	
some applications.

12

ROTORK ANNUAL REPORT 2014CASE STUDY
Pakscan™	wireless	is	perfect	fit	for	tank	farm	automation

The	Rotork	Pakscan	wireless	network	control	
system	establishes	a	secure	wireless	mesh	
network	used	to	control	actuators	and	other	
field	devices	throughout	the	plant,	gathering	
important operating data for asset 
management and preventative maintenance.

To provide robust on-site communications, the 
wireless	option	operates	a	meshing	system	
which	ensures	that	all	nodes	have	the	facility	of	
at	least	two	routes	back	to	the	master	station. 	
This	means	that	if	the	normal	traffic	route	is	
blocked,	the	network	will	find	another	way	to	
route	the	messages. The	security	of	data	is	
ensured by using encryption facilities.

In 2011, a client began building a single product 
tank farm consisting of six 100,000 barrel tanks 
and four booster pumps to serve nearby truck 
and ship loading terminals. Originally, the facility 
was	designed	for	a	single	hydrocarbon	product	
and	the	specification	did	not	require	any	
automated valves to isolate the individual 
storage tanks.

The client then decided to upgrade and introduce 
the	capability	to	handle	a	second	product,	which	
necessitated the requirement of isolating the 
tanks to avoid cross-contamination. To achieve 
this,	they	specified	Rotork	electric	valve	
actuation under centralised control. The 
explosionproof Rotork IQ non-intrusive 
intelligent	actuators	were	supplied	and	are	
monitored and controlled by a Rotork Pakscan P3 
digital system. This Rotork proprietary system is 
designed	specifically	for	valve	actuation	duties	
and	the	environments	associated	with	hazardous	
area petrochemical plants.

Shelley Pike, Rotork’s Systems Sales Manager, 
explains:	“The	customer	didn’t	want	to	add	a	lot	
of	new	conduit	and	wiring	to	control	the	
actuators,	so	the	wireless	Pakscan	system	was	a	
perfect	fit.

“The	installation	consists	of	16	Rotork	IQ40	
non-intrusive intelligent actuators, one Pakscan 
P3	wireless	master	station	and	three	network	
repeaters,	which	are	used	to	overcome	radio	
black spots and ensure the redundancy of the 
network.	As	far	as	start-ups	go,	this	was	by	far	
the easiest of any type of control system.

For	this	project,	the	client	was	able	to	take	
advantage of additional functionality and 
benefits	through	the	introduction	of	Pakscan	
with	a	wireless	field	network.	Wireless	Pakscan	
eliminates	virtually	all	the	costs	associated	with	
the	installation	of	network	cabling,	whilst	
enabling an increased level of information from 
the actuators to be communicated over the 
wireless	network.

Some	pre-commissioning	of	the	wireless	
system	was	performed	at	the	Rotork	factory	
prior	to	delivery	and,	once	in	the	field,	the	
engineer	installed	the	wireless	antennas	on	
each actuator and gave each unit its unique 
address.	The	master	station	was	powered	up	
and	all	sixteen	actuators	populated	the	network	
within	a	few	minutes.	The	customer	was	very	
impressed.”

13

GovernanceDirectorsFinancial StatementsCompany InformationStrategic ReportROTORK ANNUAL REPORT 2014STRATEGIC REPORT

GROWING

WE’RE
AND DRIVING 
FORWARD

GROWING

Our	acquisition	strategy	remains	unchanged:	we	continue	to	look	for	
opportunities	to	grow	through	acquisition.	Our	target	companies	will	
be	in	the	field	of	flow	control	and	are	tested	against	our	criteria.	They	
should	satisfy	at	least	one	of	the	following	criteria;	enhance	our	
position in an end-user market, enhance or extend our product 
offering	or	enhance	our	position	in	a	geographic	market.

14

ROTORK ANNUAL REPORT 2014CASE STUDY
Young	Tech	Co.	leads	the	way	in	tough	applications

Process industries often depend on high 
performance valve actuation in harsh 
environments.	Despite	the	difficult	
surroundings, process plants demand the latest 
technology,	such	as	smart	positioners,	which	
allow	technicians	to	use	auto-calibration	and	
simple diagnostics to commission and monitor 
their entire system at the push of a button. In 
many cases, the valve, actuator and smart 
positioner package is exposed to extreme 
temperatures, dirty conditions and other 
challenges such as high vibration.

Young	Tech	Co.	(YTC)	has	developed	two	smart	
positioner products that thrive under these 
harsh	conditions	and	which	have	paved	the	way	
to	expansion	and	growth	in	tough	process	
control applications.

Remote sensing unit positioners
The YT-3301 introduced the concept of 
isolating and detaching the sensing feedback 
portion of the positioner from the main control 
housing. The sensing unit accurately detects 
the position of the valve stem and provides a 
feedback signal to the main housing. This dual 
unit	design	allows	the	operator	to	locate	the	
precision electronics elements at a considerable 
distance from the valve environment, providing 
the	best	of	both	worlds	–	precision	engagement	
at the point of valve movement and a clean, dry 
and ambient temperature for the electronics. 
This also facilitates mounting multiple control 
housings in close proximity for convenient and 
time saving monitoring and adjustment of 
valves in the plant.

Triple module remote positioners
Remotely mounting the sensing unit provides 
dramatically improved reliability and 
performance,	but	at	longer	distances	between	
the sensing unit and the control housing 
pneumatic signal loss may occur. In extreme 
situations this could lead to hunting and 
oscillation of the electronics and reduced valve 
and actuator positional stability.

To assure superior performance in these 
difficult	applications,	in	2014	YTC	developed	the	
YT-3302 positioner. With this product, a third 
module, housing the driving components of the 
pilot valve and torque motor assembly, is 
mounted	at	an	intermediate	location	between	
the remote sensing unit and the main control 
unit.	This	configuration	delivers	higher	
performance	with	dramatically	increased	
positional accuracy.

Added	benefits	include	the	ease	of	maintenance	
for each of the modules and the ability to gang 
mount modules at convenient locations. 
Standardisation of modules and components 
also	facilitates	spare	part	simplification	and	
inventory cost reduction.

The	flexibility	of	modular	smart	positioners	 
will	enable	the	Instruments	business	to	grow	 
by	offering	more	user	friendly	solutions	and	
simplifying end-users’ valve control and 
maintenance tasks. The increasing requirement 
for	smart	positioners	in	the	markets	that	we	
serve	mean	that	we	are	well	placed	to	increase	
our presence in this market.

3COMPANIES ACQUIRED 

IN	2014:
YTC, KOREA  
ROTORK MIDLAND, UK
MASSO, ITALY

15

GovernanceDirectorsFinancial StatementsCompany InformationStrategic ReportROTORK ANNUAL REPORT 2014CHAIRMAN’S

STATEMENT

2014	was	another	successful	year	for	Rotork.	We	continued	to	
grow	by	implementing	our	strategy	of	broadening	our	product	
portfolio, end-market exposure and geographic coverage 
whilst	remaining	focused	on	our	targeted	segments	of	the	
flow	control	market.

Roger Lockwood
Chairman

30.9p

PER SHARE FINAL DIVIDEND
MAKING A 4.3% INCREASE  
IN THE TOTAL DIVIDEND  

16

Financial Highlights
Currency	remained	a	headwind	throughout	the	
year. On an organic constant currency basis, 
order	intake	grew	by	4.0%	and	revenue	grew	by	
3.8%.	Adjusted*	operating	profit	was	5.7%	
higher resulting in a record margin of 26.7%, 50 
basis	points	higher	than	2013.	We	still	showed	
growth	on	a	reported	basis	on	all	these	
measures as the positive contribution from the 
acquisitions	made	in	the	year	went	someway	to	
offset	the	impact	of	currency.

Rotork has a strong track record of making 
acquisitions and then taking these businesses to 
their	next	phase	of	growth.	This	year	we	acquired	
the	Korean	based	Young	Tech	Co.	(YTC)	in	March	
and	a	UK	subsidiary	of	Xylem	Inc,	which	we	have	
renamed Rotork Midland, in July. Both of these 
businesses	now	sit	within	the	Instruments	division	
and bring additional products that enhance 
Rotork’s product portfolio. Integration of both 
businesses is progressing as planned and they 
made	a	good	contribution	in	their	first	year	in	
Rotork.	In	December	we	acquired	Masso	Ind	s.p.a.,	
a small Italian designer and manufacturer of 
pneumatic and hydraulic actuators and control 
systems for use in the marine industry and in 
February 2015 the sales and service operations of 
our former agent in Turkey.

I	would	like	to	thank	all	of	our	employees	for	
their continued high level of commitment and 
professionalism. It is as a result of their hard 
work	that	we	have	been	able	to	deliver	a	record	
set of results once again.

Board Composition
I am announcing today that I intend to retire as 
Chairman at the close of the Annual General 
Meeting	in	April	after	working	with	Rotork	for	27	
years,	17	of	which	as	Chairman.	It	has	been	a	
great privilege to play a part in the Group’s 
strong progress over that period and see it truly 
flourish.	We	are	also	announcing	today	that	
Martin	Lamb	will	take	over	as	Chairman	when	I	
retire.	Martin	was	appointed	a	non-executive	
director	in	June	2014	and	brings	a	wealth	of	
relevant experience from his 33 years at IMI plc. I 
wish	him	every	success	in	the	role.

We	were	pleased	to	welcome	two	new	
non-executive directors during the year. As 
mentioned above Martin Lamb joined in June 
and Lucinda Bell joined the Board in July. 
Lucinda is the Finance Director of The British 
Land	Company	plc	and	her	financial	experience	
in	an	unrelated	industry	brings	a	different	
perspective to the Board.

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Reviewing	the	strategy	for	achieving	growth	in	
the current economic climate, the evolution of 
the internal control environment, risk 
assessment processes, succession planning 
and	talent	development	within	the	executive	
management are among the key areas for the 
coming	year.	Overall,	I	am	satisfied	that	there	is	
an appropriate balance of skills, experience, 
independence	and	knowledge	of	the	Company	
to enable the directors to discharge their duties 
and	responsibilities	effectively.

Corporate Governance
The Board is committed to high standards of 
governance,	which	we	view	as	central	to	delivering	
increasing shareholder value over the long-term. 
The Board considers all the aspects of the 
business necessary to provide good governance 
and these are set out in the Corporate 
Governance Report. I am pleased to be able to 
confirm	that	Rotork	complies	with	all	aspects	of	
the 2012 UK Corporate Governance Code.

Dividend
The	Board	recommends	a	final	dividend	of	30.9p	
per	share,	a	3.0%	increase	over	the	2013	final	
dividend.	Taken	with	the	2014	interim	dividend,	
the	total	dividend	is	50.1p	per	share	(2013:	
48.05p),	representing	a	4.3%	increase	in	the	
total	dividend	on	2013.	The	final	dividend	will	be	
payable on 18 May 2015 to shareholders on the 
register on 10 April 2015.

Outlook
In	the	year	ahead	we	will	continue	to	invest	for	
growth,	increasing	our	international	sales	
network	and	expanding	our	product	portfolio	
both organically and by acquisition to 
strengthen	our	presence	in	the	wider	flow	
control market.

Whilst our end-markets in the upstream oil & 
gas sector may become more challenging in the 
near term, our other global markets remain 
active. Our geographic reach, end-market 
exposure and diverse product portfolio provide 
the	Board	with	confidence	of	achieving	further	
progress in the coming year.

Roger Lockwood
Chairman
2 March 2015

*	

References	to	adjusted	profit	throughout	this	
document	are	defined	as	the	IFRS	profit,	whether	
operating	profit	or	profit	before	tax,	with	£14.9m	
(2013:	£12.1m)	of	amortisation	of	acquired	
intangibles added back.

OCC  Organic constant currency results are the 2014 

figures	restated	at	2013	exchange	rates	and	with	the	
incremental contribution from acquisitions removed.

Last	April	we	announced	that	Graham	Ogden,	
Group	Research	&	Development	Director,	would	
retire	at	the	end	of	this	month.	I	would	like	to	
thank Graham personally for his contribution 
since joining Rotork in 1985 and his 
appointment as an executive director in 2005. 
During this period Graham has been closely 
involved and latterly led the team in many key 
product developments including all three 
evolutions	of	the	award-winning	IQ	series.

The	Board	is	compliant	with	the	Corporate	
Governance	Code	at	the	present	time	and	will	
remain	so	following	the	changes	noted	above.	
At	the	close	of	the	AGM	there	will	be	three	
executive directors, four independent non-
executive directors and Martin Lamb as 
Chairman. In addition, 25% of the Board are 
women	compared	with	11%	at	the	same	time	
last year.

Board Performance
The	evaluation	of	Board	effectiveness	was	once	
again conducted by a third party this year. The 
process	of	appointing	new	non-executive	
directors,	a	new	Chairman	and	new	auditors	
were	all	considered	in	the	evaluation	and	overall	
comments	received	were	generally	positive.	The	
strong	feeling	of	mutual	respect	and	trust	which	
have been consistent characteristics of the 
Board	was	found	to	be	undiminished.	The	
directors	remain	aware	of	the	challenges	the	
growth	of	the	business	brings	and	the	
importance of managing the change carefully in 
order to preserve the strengths of the business 
and to continue to deliver shareholder value. 
The	Board	was	broadly	united	in	its	views	on	all	
the matters raised in the process and, crucially, 
in its focus for 2015 and beyond.

Water treatment 
plant in Spain

17

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic Report   TURNOVER	(£m)

		 PRE-TAX	PROFIT	(£m)

   CORE DIVIDEND   

		 ADDITIONAL	DIVIDEND	PAID	(pence)

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2000

2001

1988
Roger	Lockwood	joins	
the Rotork Board.

1993
Launch	of	the	first	IQ	
non-intrusive, 
intelligent electric 
actuator; 
commissioning 
without	removing	
electrical covers.

1995
Dedicated	Fluid	Power	
division launched. 
Operating from the 
UK, USA and 
Singapore.

1998
Roger	Lockwood	
becomes Chairman of 
Rotork’s Board.

1999
Rotork acquires 
Fluid System Srl, 
situated in the heart of 
the Italian valvemaking 
industry at Lucca.

2000
The IQ Mark 2 actuator 
launched, keeping 
Rotork at the Vanguard 
of intelligent valve 
actuation and the 
Skilmatic 
electro-hydraulic 
product range is 
acquired.

18

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Roger	joined	the	Board	in	1988	as	one	of	two	non-executive	directors.	In	the	subsequent	27	years	
Roger	has	seen	Rotork	grow	and	establish	itself	as	a	global	leader	in	flow	control	equipment.

In	1988	Rotork’s	turnover	was	£34.1m	and	had	
an	operating	profit	of	£4.5m.	The	business	was	
operating in 12 countries and had 584 
employees. During the subsequent 10 years in 
Roger’s term as a non-executive director, the 
Group	grew	substantially,	initially	under	the	
leadership of Tom Eassie as CEO and then under 
Bill Whiteley.

In	1998	Roger	was	asked	to	become	Chairman.	
At	this	time	the	Board	composition	was	similar	
to	1988,	with	two	non-executive	directors	and	
three executive directors. In 1997 revenue had 
increased	to	£92.8m	and	the	operating	profit	
was	£20.4m	with	812	staff	in	19	countries.

As Chairman, Roger has been a central part of 
the team that has continued to drive Rotork 
forward,	making	it	the	Company	it	is	today.	
Roger has set high standards and is passionate 
about the culture, style, and integrity of the 
business and its people. He has promoted 
diversity and Board performance, and the Board 
has	been	strengthened	during	his	tenure.	It	now	
comprises	five	independent	non-executive	
directors, four executive directors and the 
Chairman. Roger leaves the Group in a strong 
position,	both	financially	and	operationally.	In	
2014 the Group had direct operations in 37 
countries	with	3,469	staff,	revenue	of	£594.7m	
and	operating	profit	of	£142.2m.

Roger	will	retire	from	the	Company	at	the	
conclusion of the AGM on 24 April. In the history 
of Rotork there have only ever been four CEOs 
and	Roger	has	worked	with	three	of	them.	On	
behalf of them, the Board and Rotork employees 
past	and	present,	I	would	like	to	wish	him	the	best	
for	the	future	and	on	a	personal	note,	I	would	like	
to thank Roger for the guidance and support he 
has given me over the years.

Peter France
Chief Executive

8
7
5

8
3
1

5
9
5

1
4
1

.

1
8
4

.

1
0
5

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0
3
2

4
2
1

2
1
5

3
1
1

8
4
4

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0
3
4

.

3
7
3

1
9

4
5
3

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4
8
2

0
2
3

6
7

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1
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2

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2
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1

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2

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1

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3
1

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1

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4
1

1
3

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5

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1
5
1

5
7
1

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3

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5
1

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0
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4

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9

.

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7
1
2

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2003
Fluid Systems 
relocates in Lucca to 
factory four times 
larger than the 
previous one.

2004
The IQT quarter-turn 
version of the IQ 
launched. Dramatic 
growth	prevalent	in	
electric actuator 
business.

2006
IQPro, third generation 
intelligent actuator 
and Rotork Site 
Services created to 
provide lifetime 
support for all Rotork 
and other 
manufacturers’ 
products.

2008
Launch of the CVA 
actuator, born out of 
IQ technology and 
offering	expansion	into	
new	process	industry	
sectors and Smart 
Valve	Monitoring	(SVM)	
technology added to 
Fluid Systems product 
range.

2010
Wireless version of 
Pakscan launched, 
keeping the product at 
the forefront of valve 
control technology.

2012
Introduction of IQ3, 
third generation 
intelligent actuator, 
maintaining Rotork 
predominance of 
non-intrusive actuator 
technology. Launch of 
CMA, compact 
modulating electric 
actuator 
complementing the 
successful CVA range 
of process valve 
actuators.

19

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportCHIEF EXECUTIVE’S
STATEMENT

The continued expansion of our product portfolio, 
international sales channels and our broad end-market 
exposure enabled us to achieve record results in 2014.

Peter France
Chief Executive

“Excluding the impact of acquisitions and 
currency, the adjusted* operating margin 
was 26.7%.”

Oil	refinery	in
The Netherlands

20

Order	intake	for	the	year	was	£595.6m,	up	2.9%	on	
the	prior	year.	Currency	was	a	headwind	during	the	
year	and	on	an	organic	constant	currency	(OCC)	
basis	order	intake	was	4.0%	ahead	of	2013.

As	in	prior	years,	the	fourth	quarter	was	a	record	in	
terms	of	shipments.	Revenue	for	the	full	year	was	
£594.7m, up 2.8% on the prior year and up 3.8% on 
an OCC basis. The adjusted*	operating	profit	margin	
was	26.4%,	a	20	basis	point	improvement	on	2013.	
Excluding the impact of acquisitions and currency, 
the	adjusted*	operating	margin	was	26.7%.

During the year, through both organic 
development	and	acquisitions,	we	have	expanded	
our	international	presence	and	now	have	27	
manufacturing	sites,	65	national	offices	and	85	
regional	locations	in	37	countries.	In	total	we	have	
over 800 sales channels in 99 countries. Building a 
strong	international	sales	network	to	support	our	
customers remains a key element of our strategy.

In	2014,	we	invested	£81.3m	in	acquisitions	to	drive	
further	growth	and	strengthen	our	market	
position. Through the acquisitions of YTC, Midland, 
Masso and the operations of our sales agent in 
Turkey,	acquired	in	February	2015,	we	extended	our	
product range in attractive segments and 
increased and strengthened our geographic reach. 
We	will	continue	to	pursue	acquisition	
opportunities in 2015 to enhance and expand our 
offering	to	customers.	We	also	opened	seven	new	
sales	and	service	offices	during	the	year,	
completed the expansion of our facilities in 
Singapore and relocated to larger premises in 
Spain.	In	addition,	we	opened	a	new	world-class	
factory	in	Leeds	(UK)	and	purchased	a	larger	
factory	in	Lucca	(Italy)	which	we	will	move	into	
during	2015.	These	key	investments	will	ensure	
that	Rotork	continues	to	be	best	placed	to	benefit	
from	the	anticipated	growth	of	the	global	flow	
control market.

Our Markets
The	world	economy	is	being	shaped	by	long-term	
global	trends	that	include	population	growth,	
urbanisation and automation. These trends are 
driving	heightened	demand	for	flow	control	
products and services to deliver cleaner energy, 
greater	fuel	efficiency	and	improved	resource	
utilisation.	The	Group	benefits	from	market-
leading	flow	control	expertise	and	remains	well	
positioned	to	support	these	growth	opportunities.

Another positive trend is the increased focus by our 
customers on cost reduction and stricter 
environmental	regulations.	As	a	result,	we	are	seeing	
good	demand	for	energy	efficient	products	across	
all our end-markets. As manufacturers focus on 
improved operational performance and cost 
efficiencies,	they	are	investing	in	automation	 
and	more	complex	processes.	Flow	control,	 

STRATEGIC REPORTROTORK ANNUAL REPORT 2014and valves in particular, are key elements of this 
investment process. Given our broad geographic 
exposure, participation in diverse industries and 
broad	product	and	service	offering,	Rotork	is	best	
placed to meet our customers’ needs as they make 
these	investments.	Whilst	our	actuators	and	flow	
control instruments are used most intensively in the 
oil	&	gas,	power	and	water	markets,	the	expansion	of	
our	product	portfolio	means	that	we	are	increasingly	
able	to	address	a	widening	range	of	end-markets.

The long-term global trends described above and 
opposite	are	all	positive	for	Rotork,	however	during	
the latter part of 2014, global energy markets 
experienced a sharp decline in the oil price. Whilst 
we	have	yet	to	see	any	noticeable	impact	in	
customer	order	activity,	we	believe	that	the	
increased	uncertainty	created	by	this	decline	will	
present	Rotork	with	a	more	challenging	market	
backdrop in the oil & gas sector. Oil & gas 
represents	57%	of	Group	revenue	with	
downstream	the	largest	element	at	27%	and	
upstream and midstream both at 15%.

We remain focused on responding quickly to any 
changes in activity in our oil & gas related business 
but	we	are	confident	that	our	resilient	competitive	
position, broad end-market exposure, and global 
sales	and	servicing	coverage	will	continue	to	
provide	us	with	opportunities	to	grow.

Research and Development (R&D)
Our investment in R&D increased further in the 
year, up 18.3% to £9.9m. All divisions introduced 
new	products	or	extended	product	ranges	to	
expand our product portfolio. Our design teams 
have	been	working	with	the	business	development	
teams on future products and developing product 
road maps, and these activities support continued 
investment in our infrastructure and engineers. 
Projects	to	which	we	dedicated	significant	
development time during the year included the 
nuclear product range and the introduction of the 
Centork electric actuator.

Rotork Site Services (RSS)
We launched our Client Support Programme 
(CSP)	in	2014	which	offers	a	tailor-made	service	
of planned preventative maintenance aimed at 
the	prevention	of	breakdowns	and	failures.	The	
primary goal of our CSP is to prevent the failure of 
equipment before it occurs. This includes 
equipment	checks,	replacement	of	worn	
components and partial or complete overhauls at 
specified	periods.

Planned preventative maintenance is a much 
better alternative to risking a potentially damaging 
breakdown	of	equipment,	and	enables	our	
customers to realise the full potential of their 
business by ensuring the maximum reliability  
and availability of our products. Wherever our 

customers	are	in	the	world,	Rotork	is	able	to	
support	them.	We	have	workshops	strategically	
located	around	the	world,	with	trained	staff	and	full	
test and maintenance facilities.

As part of the CSP, customers have 24/7 access to 
the	Rotork	Support	Centres,	with	priority	technical	
assistance,	backed	by	comprehensive	website	
resources	and	priority	software	support.	With	over	
370 directly employed engineers and more service 
technicians	employed	by	our	agents	worldwide,	
we	have	the	infrastructure	required	to	effectively	
support all of our customers’ needs.

Corporate Social Responsibility
Creating	a	growing	and	successful	company	
takes	more	than	just	delivering	financial	results,	
which	is	why	we	pay	particular	attention	not	just	
to	what	we	do,	but	how	we	do	it.	Rotork’s	
success	depends	upon	being	a	company	with	
whom	our	customers	want	to	do	business	and	
for	whom	our	employees	want	to	work.	As	such,	
Rotork places key importance on our reputation, 
ethical conduct and our approach to health, 
safety and environmental matters.

We	want	to	continue	to	be	a	business	that	our	staff	
are	proud	to	work	for	and	that	serves	our	customers	
well	over	the	short,	medium	and	long-term.	We	do	
this in part through the social and economic 
contribution our business makes, and through our 
commitment to act responsibly day to day.

During	the	year	we	supported	two	global	charities	
and donated £60,000 to both Wateraid and 
Sightsavers. I am also very pleased by the fact that 
many of our employees are involved in charitable 
endeavours in their local communities. The Group 
has contributed a further £175,000 to support 
these causes bringing the total Group 
contributions	to	£295,000	(2013:	£254,000).

For	more	information	of	the	work	carried	out	by	the	
CSR committee please refer to pages 40 to 51.

Our People
Rotork	is	recognised	by	the	majority	of	staff	as	a	
great	place	to	work.	We	foster	an	open	and	honest	
culture based on employee involvement. Our 
annual	employee	satisfaction	survey	was	
completed by the highest number of employees in 
its history although the response rate slightly 
declined from the high of last year 79% to 75% 
this year. The overall satisfaction score remained 
the same as last year at 3.6. The global results 
showed	that	people	continue	to	value	the	quality	
of our products and services; our approach and 
concern	for	their	wellbeing	in	terms	of	health	and	
safety, our open culture and ability to discuss 
issues	with	management	and	job	security.

The	Rotork	family	continues	to	grow	and	during	
2014	our	staff	numbers	increased	by	412	to	3,469.	
191 joined us as part of the YTC, Midland and 
Masso	acquisitions	and	the	rest	were	recruited	as	
part	of	our	organic	growth	in	various	locations	
around	the	world.

During the year there have been a number of 
changes to our management team. Unfortunately 
Alex	Busby,	Divisional	Managing	Director	(DMD)	
for	Rotork	Fluid	Systems	(RFS),	who	has	been	
instrumental	in	the	growth	of	the	division	over	the	
last	few	years,	had	to	step	down	from	his	role	on	
health	grounds.	Everyone	at	Rotork	wishes	him	
well	as	he	focuses	on	returning	to	full	health.	David	
Littlejohns has been appointed as DMD for RFS. 
David joined Rotork in 1986 and has most recently 
been in charge of the Gears division. Pamela 
Bingham	will	take	over	from	David	as	DMD	Gears.	
Pamela joined the company in 2012 as Group 
Business Development Director and has been 
heavily involved in a number of acquisitions since 
joining.	David	and	Pamela	will	continue	to	be	
members of the Rotork Management Board.

Last	year	we	also	announced	that	Graham	Ogden	
would	be	retiring	in	March	after	30	years	of	service.	
Graham	was	the	first	electronics	manager	
employed	by	Rotork	and	was	instrumental	in	the	
development of the electric actuator and 
especially in the introduction of the IQ range of 
electric actuators that revolutionised the market. 
In	the	last	few	years	Graham	was	a	member	of	the	
Rotork Management Board and a PLC director. His 
contribution to the success of the Company 
cannot be underestimated and he has left a strong 
legacy and a highly capable team to carry on his 
work.	On	behalf	of	all	the	staff	I	would	like	to	thank	
Graham for his contribution to the Company and 
wish	him	all	the	best	in	retirement.

The success of Rotork continues to be driven by 
the	dedication	and	hard	work	of	our	staff.	I	would	
like to take this opportunity to personally thank 
each of them for their contribution and for making 
Rotork	the	world-class	company	it	is.

Peter France
Chief Executive
2 March 2015

*	

References	to	adjusted	profit	throughout	this	document	
are	defined	as	the	IFRS	profit,	whether	operating	profit	or	
profit	before	tax,	with	£14.9m	(2013:	£12.1m)	of	
amortisation of acquired intangibles added back.

OCC	 Organic	constant	currency	results	are	the	2014	figures	

restated	at	2013	exchange	rates	and	with	the	
incremental contribution from acquisitions removed.

21

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportControls	delivered	another	year	of	growth	in	
2014.	On	an	organic	constant	currency	(OCC)	
basis,	order	intake	grew	7.1%,	revenue	by	6.4%	
and	adjusted*	operating	profit	by	5.6%.	
Acquisitions made only a small contribution to 
the division during the year. The much greater 
effect	on	the	reported	results	came	from	
currency,	which	was	felt	throughout	the	year,	and	
which	resulted	in	a	headwind	equating	to	around	
6%	of	order	intake,	revenue	and	profit.	This	
meant reported order intake increased by 1.3% 
to £320.4m, revenue by 0.8% to £324.5m and 
adjusted*	operating	profit	declined	by	0.7%	to	
£104.7m. Adjusted* operating margin reduced 
by 30 basis points to 32.5% on an OCC basis and 
a further 20 basis points as a result of currency.

Over the course of 2014 some of the division’s 
end-markets	were	challenging	but	we	
responded by enhancing our global capability 
and further strengthening our customer 
relationships. Looking at the end destination of 
our products, North America and Latin America 
both	showed	strong	growth.	Whilst	the	Far	East	
declined	in	total,	within	this	region	China	
performed	very	well	but	Australia	was	lower	
following	a	strong	comparable	period	of	activity	
last	year	when	we	delivered	a	number	of	coal	
bed methane projects. In North America and 
Latin America oil & gas remains our largest 
end-market,	with	downstream	the	largest	
sub-sector.	This	contrasts	with	the	Far	East	
where	our	exposure	is	much	more	balanced	and	
power,	led	by	China,	is	larger	than	oil	&	gas.

BUSINESS 
REVIEW:
CONTROLS

Grant Wood
Managing Director 
Rotork Controls

“Over the course of 2014 some of the 
division’s end-markets were challenging but 
we responded by enhancing our global 
capability and further strengthening our 
customer relationships.”

REVENUE
(£m)

2014

2013

2012

2011

2010

ADJUSTED* OPERATING PROFIT
(£m)

2014

2013

2012

2011

2010

22

324.5

321.9

104.7

105.5

293.2

278.0

243.4

94.8

92.1

78.8

STRATEGIC REPORTROTORK ANNUAL REPORT 2014The division continues to pursue geographic 
expansion, capitalising on our core competences 
and	the	strength	of	our	brand	to	move	into	new	
markets. We are focused on delivering long-term 
profitable	growth	which	we	will	achieve	by	
expanding	and	deploying	our	market	leading	flow	
control	expertise	in	end-markets	where	we	can	
achieve	leading	positions	and	where	there	is	
long-term demand for our products and services. 
Even in our more mature markets the increased 
drive	towards	automation,	with	a	requirement	for	
increased asset management information, 
provides	opportunities	to	grow.

During	the	year	we	invested	in	a	number	of	
facilities,	the	largest	of	which	was	the	new	factory	
in	Leeds	(UK).	This	multi-division	site	houses	the	
headquarters	of	our	UK	sales	subsidiary,	where	
our northern UK service team is based. We also 
relocated	our	sales	subsidiary	in	Bilbao	(Spain)	to	
a	new	larger	facility	having	outgrown	the	previous	
one	due	to	the	growth	of	our	retrofit	and	factory	
fit	activities.	In	Poland	we	opened	a	new	office	
and	workshop	to	serve	and	grow	our	customer	
base	in	Eastern	Europe	and	towards	the	end	of	
the	year	we	set	up	a	small	subsidiary	in	Chile.	
Both	these	new	offices	are	in	locations	where	we	
have previously operated through an agent but 
where	we	have	now	decided	that	the	time	is	right	
to have a direct presence.

Meanwhile,	we	continued	to	focus	on	
technological advancements and innovation. 
During	the	year	we	launched	our	new	Centork	
product	range,	Rotork’s	specialist	offering	for	the	
water,	industrial	and	power	markets.	The	product	
range features modularity, easy selection, setting 
and mounting. We continue to anticipate strong 
growth	in	the	water	and	waste	water	industries,	
driven by increased urbanisation in developing 
countries and increased environmental and 
scarcity concerns globally.

We expect the recent fall in the oil price to 
mainly	affect	the	upstream	sector	of	the	oil	&	
gas industry. Whilst 51% of the division’s sales 
are into the oil & gas industry, our market 
exposure	is	diversified	across	various	sub-
sectors:	large	numbers	of	our	actuators	are	
supplied	into	both	midstream	and	downstream	
applications,	which	have	been	more	shielded	
from the recent soft pricing environment. A 
significant	proportion	of	our	supply	is	also	
retrofit,	upgrade	or	replacement	work,	where	
spend is less sensitive to oil spot prices.

CASE STUDY
Rotork	IQ3	valve	actuators	were	selected	to	replace	actuators	
from	another	manufacturer	after	a	chamber	flooded	with	hot	
water	at	the	Metropolitan	Copenhagen	Heating	Transmission	
Company	(CTR).

Although	the	problem	was	quickly	rectified,	all	
the electric valve actuators installed in the 
chamber had been completely submerged in 
the	water.	Subsequent	inspection	revealed	
that the robust double-sealed design of the 
installed Rotork IQ actuators had protected 
them from any damage and maintained the 

integrity of their standard IP68 temporarily 
submersible	enclosure	specification.	By	
comparison, the actuators from the other 
manufacturer had been badly damaged by the 
effects	of	the	hot	water	reaching	internal	
electric and electronic components.

OPPORTUNITIES

•  Water,	power	&	industrial	markets
•  Eastern Europe & Latin America
•  Midstream	and	downstream	 

oil & gas market

•  Rotork Site Services

23

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportFollowing	three	years	of	double	digit	growth,	
2014	was	a	year	of	consolidation	at	Rotork	Fluid	
Systems	(RFS).	There	were	no	major	acquisitions	
during the year but the integration of recent 
acquisitions, product development and a drive on 
key component sourcing initiatives all made good 
progress.	The	work	we	have	undertaken	on	
sourcing	was	one	of	the	key	factors	behind	the	70	
basis point improvement in adjusted* operating 
margin	we	achieved	in	2014.

Revenue	was	£180.3m,	3.6%	lower	than	2013	on	
a	reported	basis.	However,	reversing	the	5.4%	
currency	headwind	and	adjusting	for	the	part	
year contribution from acquisitions in 2013, this 
decline is reduced to 0.7% on an organic constant 
currency	(OCC)	basis.	Order	intake	was	similarly	
impacted,	with	the	£184.6m	being	4.7%	below	
2013	or	1.8%	below	the	prior	year	excluding	
currency and acquisitions. Although the currency 
headwind	was	even	greater	on	profit,	the	
benefits	of	sourcing	initiatives	and	an	improved	
product mix resulted in reported adjusted* 
operating	profit	of	£31.2m	compared	with	
£31.0m in 2013. This gave a margin of 17.3%, 
which	was	70	basis	points	higher	than	last	year.	
On	an	OCC	basis,	this	difference	increased	to	130	
basis points and a 17.9% margin.

BUSINESS 
REVIEW:
FLUID SYSTEMS

David Littlejohns
Managing Director 
Rotork Fluid Systems

“Whilst oil & gas is the largest end-market, it 
has diminished 5% compared with 2013 as 
our exposure to water, general industrial and 
particularly the power end-markets has 
increased.”

REVENUE
(£m)

2014

2013

2012

2011

2010

180.3

187.0

160.9

132.6

106.8

ADJUSTED* OPERATING PROFIT
(£m)

31.2

31.0

24.6

17.1

14.9

2014

2013

2012

2011

2010

24

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Oil & gas remains the largest end-market for RFS, 
representing 72% of the division’s revenue in the 
year	with	the	overall	split	between	upstream,	
midstream	and	downstream	relatively	even.	This	
is	spread	across	many	different	applications	
within	oil	&	gas	and	across	many	geographic	
regions, ranging from shale in North America to 
gas condensate projects in Central Asia. We 
continued to see good business in the year on 
safety systems for tank storage applications in 
the	downstream	market.	Whilst	oil	&	gas	is	the	
largest end-market, it has diminished 5% 
compared	with	2013	as	our	exposure	to	water,	
general	industrial	and	particularly	the	power	
end-markets has increased. The acquisition of 
Masso,	based	in	Valduggia	(Italy),	in	December	
2014 introduces a further element of 
diversification	to	RFS.	Masso	designs	and	
manufactures hydraulic actuators and control 
systems for use in shipboard applications and 
brings	with	it	a	range	of	products	and	customers	
new	to	the	division.

Mexico continued to be an important market 
where	we	won	several	significant	orders.	We	
received a large order in June for the next phase 
of	the	SCADA	pipeline	project,	the	first	phase	of	
which	was	won	in	2013.	In	addition,	K-Tork,	based	
in	Dallas	(USA),	won	a	large	power	project	for	
their Type K damper drive application. Both these 
orders have multi-year delivery periods. Overall, 
Latin	America	was	the	end	destination	which	
reported	the	strongest	growth	within	RFS,	partly	
due	to	the	completion	of	deliveries	on	the	first	
phase of the SCADA project. In contrast, Eastern 
Europe	was	the	region	which	reported	the	
sharpest	decline	and	this	was	driven	by	a	
combination of project timing and, in the latter 
part of the year, the impact of sanctions and the 
weaker	rouble	on	Russian	business.	The	£6m	
impact	we	reported	in	the	third	quarter	is	higher	
than	the	expected	ongoing	impact	but	this	will	
remain	a	headwind	into	2015.

We also continued to invest in our regional 
infrastructure	to	ensure	that	we	provide	
support	locally	to	our	customers,	with	upgraded	
facilities	in	Leeds	(UK),	and	Bilbao	(Spain),	and	
the	new	offices	in	Poland	and	Chile	all	having	an	
RFS	capability.	We	also	invested	in	a	new	factory	
in	Lucca	(Italy),	near	our	existing	leased	facility.	
Not	only	will	this	recently	purchased	facility	
provide	us	with	security	of	tenure	for	the	future	
but	it	will	also	allow	us	to	modify	our	production	
processes	and	bring	greater	efficiency	to	our	
largest factory.

OPPORTUNITIES

•  Marine market
•  New	product	introduction
•  Geographic expansion
•  New	facility	in	Italy

We achieved an improved margin this year 
mainly as a result of a number of sourcing 
initiatives	across	the	world.	Volumes	within	the	
division	have	risen	rapidly	in	recent	years	which	
has	now	made	sourcing	from	low	cost	regions	
viable for some of our components. For 
example,	we	reviewed	the	supply	chain	of	our	
small scotch yoke actuators manufactured in 
Sweden	and	the	rack	and	pinion	range	we	
acquired	with	GTA	as	they	are	able	to	share	
certain components. Similar initiatives in the 
USA	and	Italy	have	already	delivered	benefits	
and	they	will	continue	to	do	so	in	2015.

We continued to invest in R&D and this is 
reflected	in	the	launch	of	our	third	generation	of	
the SI actuator planned for 2015, aimed at 
safety	related	Emergency	Shutdown	(ESD)	and	
Remotely	Operated	Shutoff	Valve	(ROSoV)	
duties.	We	also	worked	on	extending	the	K-Tork	
range	ready	for	launch	in	2015	and	together	with	
the	GT	and	RC	ranges	this	has	widened	our	
portfolio	aimed	at	the	industrial,	power	and	
petrochemical	industries.	We	look	forward	to	
further penetration of these markets in 2015.

CASE STUDY
Mining presents some of the most arduous valve actuation 
applications.	Slurry	pipelines	transporting	tailings	–	waste	
product from ore processing – are particularly challenging. These 
environments suit the balanced design of Rotork RHQ heavy duty 
rack and pinion actuators.

An RHQ actuator on a 36 inch severe service 
ball	valve	helps	to	provide	critical	flow	control	
on the tailings pipeline pump station at a 
copper mine in the Andes. The actuator is 
operated	by	an	HPU	(Hydraulic	Power	Unit)	
manufactured	by	Flow-Quip.	The	HPU	
incorporates local controls and stored energy 

to	operate	the	actuator	when	electrical	power	
is	not	available.	Precise	flow	control	is	
essential, if the abrasive slurry moves too 
quickly it can destroy the pipeline from the 
inside.	If	it	moves	too	slowly	it	can	separate	
out and cause a blockage.

25

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportGears made good progress in order intake, 
revenue	and	profit	throughout	the	year.	Our	
performance continues to demonstrate the 
benefit	of	our	industry-leading	expertise,	gained	
over	several	decades	working	at	the	forefront	of	
manual and motorised gear technology for the 
valve industries in the many market sectors that 
we	serve.

Revenue	of	£57.8m	was	3.2%	higher	than	2013	
despite	a	4.3%	currency	headwind.	On	an	
organic	constant	currency	(OCC)	basis	revenue	
grew	by	5.0%	with	the	acquisition	of	Renfro	in	
2013	accounting	for	2.5%	of	the	growth.	Order	
intake	was	similarly	affected	by	currency	with	
reported	growth	of	0.2%,	which	at	constant	
currency	and	with	the	benefit	of	the	acquisition	
increased	to	1.9%.	Adjusted*	operating	profit	
was	£13.0m,	0.3%	ahead	of	2013	which	resulted	
in a 60 basis point reduction in operating margin 
to	22.5%.	On	an	OCC	basis	the	growth	in	
adjusted*	operating	profit	was	4.1%	and	the	
margin 22.9%. Each of the Gears factories 
improved	margins	in	the	year,	with	the	
exception	of	the	Leeds	(UK)	operation,	which	
was	affected	by	the	costs	of	moving	into	the	
new	facility	and	an	increase	in	more	competitive	
larger	project	sales	had	a	negative	effect	on	
margins in the period.

BUSINESS 
REVIEW:
GEARS

Pamela Bingham
Managing Director 
Rotork Gears

“Central to our successful long-term track 
record are our world-class sales and 
engineering teams, who provide our 
customers with the latest innovative gearing 
technology using leading-edge design 
methods.”

REVENUE
(£m)

2014

2013

2012

2011

2010

57.8

56.0

52.9

46.6

39.2

ADJUSTED* OPERATING PROFIT
(£m)

2014

2013

2012

2011

2010

26

13.0

13.0

12.1

10.3

9.2

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Central to our successful long-term track record 
are	our	world-class	sales	and	engineering	teams,	
who	provide	our	customers	with	the	latest	
innovative gearing technology using leading-
edge design methods. The sales process in Gears 
differs	from	Controls	and	Fluid	Systems	and	
whilst	there	are	project	sales,	often	in	
conjunction	with	other	Rotork	divisions,	more	
typically	we	sell	directly	to	the	valvemaker	on	an	
ongoing basis. Accordingly, our objective is to 
build	a	relationship	with	the	valvemaker	so	that	
they	use	our	gearboxes	in	conjunction	with	their	
valves	when	the	package	is	not	being	automated.

This	year,	following	strong	growth	in	the	Far	
East,	there	was	a	reasonably	even	spread	of	
revenue across the key regions of the Americas, 
Far East and Western Europe, although Western 
Europe remained the largest, accounting for 
37% of sales. Our factories are located in these 
areas	so	that	we	are	close	to	our	customers.	The	
Middle	East	and	Africa	was	the	only	region	to	
report	a	marked	reduction	in	sales	but	this	was	
after an unusually strong performance in 2013. 
The end-market exposure of Gears is, like the 
Group	as	a	whole,	weighted	to	oil	&	gas,	which	
accounts for 57% of sales, but these are spread 
across all segments of this market. Water and 
waste	water	is	the	second	largest	end-market,	
where	small	manual	valves	account	for	the	
majority of sales.

In	line	with	our	aim	to	become	our	customers’	
preferred	partner,	we	have	a	strong	commitment	
to	improving	the	efficiency	of	our	operations	and	
those of our customers and suppliers. That aim 
was	a	key	factor	in	our	move	to	a	new	state-of-
the-art manufacturing facility in Leeds during the 
year. The larger facility has given us the 
opportunity to increase the dedicated research 
and	development	team	who	are	engaged	in	every	
aspect	of	new	product	design	and	development,	
from concept to customer.

CASE STUDY
Rotork’s IB bevel gearboxes have been installed at Malaysia’s 
Pengerang	Terminal	to	help	operate	gate	valves	on	flow	control	
applications at the import jetty and storage tank facilities.

The	five	million	cubic	metre	capacity	terminal	
is a part of the country’s Economic 
Transformation Programme. With the 
completion of Phase 1A of the project, 274 
explosionproof	IQ3	actuators	fitted	with	the	IB	
bevel gearboxes have been installed.

The actuators are monitored and controlled by 
eight Pakscan P3 120-channel hot/standby 
master stations, situated on-site in three 
cabinets	and	linked	to	a	centralised	Yokogawa	
SCADA system.

Gears provides innovative solutions that meet 
the individual requirements of our valve gearbox 
and	valve	accessory	customers	by	drawing	upon	
our unrivalled range of market-leading products. 
During	the	year	we	strengthened	our	wide	
portfolio	of	gearboxes	with	the	launch	of	our	
new	manual	HOB	multi-turn	product	range.	This	
range	offers	our	customers	a	more	
comprehensive solution for multi-turn manual 
applications.	Our	new	Leeds	facility	also	has	
extensive test facilities, including a 
comprehensive set of test rigs for testing 
multi-turn and quarter-turn gearboxes across a 
wide	range	of	torques.	Our	R&D	remains	
focused	on	developing	cost	effective	and	
innovative	solutions	that	will	continue	to	provide	
Gears	with	access	to	new	customers	and	new	
market sectors.

OPPORTUNITIES

•  Increased R&D investment
•  Product range expansion
•  Geographic expansion

27

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportThis	was	a	year	of	strong	growth	for	the	
Instruments	division,	which	saw	the	number	of	
businesses	double	in	2014	following	the	
completion	of	two	important	acquisitions.	We	
focused	on	delivering	our	key	priorities:	
continuing	to	widen	our	offering	in	flow	control	
and pressure control products by acquiring or 
developing	new	technologies	close	to	the	
actuator; the integration of acquisitions; 
leveraging global sales synergies; and delivering 
cost reduction and productivity improvements.
In	March	we	acquired	Young	Tech	Co.	(YTC),	a	
Korean based manufacturer of valve positioners 
and	accessories	mainly	associated	with	
pneumatic	valve	actuation.	YTC	has	a	wide	
range of positioners and smart positioners 
which	are	complementary	to	Rotork’s	existing	
portfolio of products. This acquisition not only 
enlarged our range of instrumentation products 
and our addressable market but also provided 
Instruments	with	a	platform	and	sales	channels	
in	the	important	Asia-Pacific	market.

In	July	we	acquired	Xylem	Flow	Control	based	in	
Wolverhampton	(UK).	This	added	the	
established brands of Midland-ACS, Alcon and 
Landon	Kingsway	into	Instruments,	under	what	
we	now	call	Rotork	Midland.	This	business	
brought	with	it	a	strong	reputation	for	delivering	
innovative	solutions	for	a	wide	range	of	
applications, including control systems for 
pneumatic and hydraulic control valves, 
electro-pneumatic and electro-hydraulic 
actuators, local control panels, manifolds and 
components such as solenoid valves, level 
controls,	gas	detection	and	firefighting	
equipment.

BUSINESS 
REVIEW:
INSTRUMENTS

Alan Paine
Managing Director 
Rotork Instruments

“YTC has a wide range of positioners and 
smart positioners which are complementary 
to Rotork’s existing portfolio of products.”

REVENUE
(£m)

2014

2013

2012

2011

2010

1.4

24.9

16.4

46.0

ADJUSTED* OPERATING PROFIT
(£m)

14.4

7.8

5.1

2014

2013

2012

2011

0.4

2010

28

STRATEGIC REPORTROTORK ANNUAL REPORT 2014The	financial	results	for	the	year	were	heavily	
influenced	by	these	acquisitions,	both	of	which	
performed	in	line	with	our	expectations.	
Reported revenue increased by 84.4% despite a 
5.1%	currency	headwind	but	on	an	organic	
constant	currency	(OCC)	basis	the	increase	was	
still	8.6%.	The	results	for	order	intake	were	very	
similar,	in	what	is	generally	a	short	lead-time	
division,	with	the	headline	increase	of	83.0%	
reduced to 8.7% for Fairchild and Soldo at 
constant	currency.	Adjusted*	operating	profit	
rose 84.3% to £14.4m, a margin of 31.4%, the 
same as 2013. Unlike the other divisions, 
currency improved reported margins for 
Instruments because prior to the acquisition of 
Midland the division had no sterling costs. Whilst 
acquisitions	were	accretive	in	total,	OCC	
adjusted* operating margin declined to 29.6%, a 
180 basis point reduction. This is largely due to 
the expansion of the divisional executive team 
which	has	been	required	to	support	this	pace	of	
growth	and	to	ensure	that	the	benefits	of	the	
acquisitions are delivered.

The	Midland	product	range,	now	within	
Instruments, complements the high-precision 
pneumatic control devices and motion control 
equipment manufactured by Fairchild, the Soldo 
range of control accessories for valve 
automation, and YTC’s market leading range of 
valve positioners and accessories. We also have 
Instruments companies located in Europe, the 
USA,	and	the	Far	East,	and	we	are	integrating	
our	international	sales	networks	to	support	
sales of products of all four companies. By 
training	our	sales	forces	on	all	of	the	new	
products and by using cross-selling techniques 
with	customers,	we	have	been	successful	in	
penetrating	new	geographic	markets	with	our	
growing	product	portfolio.

OPPORTUNITIES

•  Global manufacturing 

expansion
•  Sales channel 
development
•  Rotork synergies

Similarly,	we	have	been	using	our	strategically	
located facilities to ensure local assembly and 
inventory management for the entire range of 
our products, ensuring fast, on-time delivery for 
our	customers.	For	instance,	we	are	now	using	
our Soldo facility in Italy as the European hub for 
YTC	products,	whilst	our	Fairchild	facility	is	
ensuring access to the USA market for the 
Soldo and YTC product ranges. Work to qualify 
the full range of products to meet various 
national	and	international	certification	
standards	is	underway	and	2015	will	see	
completion of this for the key products. This not 
only supports our third party customers but also 

allows	us	to	support	the	local	Rotork	offices	and	
factories	where	there	are	opportunities	to	use	a	
wide	range	of	Instruments’	products	in	
automating pneumatic and hydraulic actuators.
Each	of	the	businesses	have	their	own	product	
development	plans	and	work	has	started	to	align	
these and create a single divisional plan. Each 
business	brings	a	level	of	expertise	in	its	own	
product lines and often complementary skills. 
During	the	year	each	business	has	launched	new	
variants of products and extensions to existing 
ranges, either broadening the range of materials 
for a product or the industries and applications 
for	which	it	can	be	used.

CASE STUDY
A Rotork Midland custom designed and built dual regulation 
manifold	has	eliminated	severe	corrosion	problems	suffered	by	
instrumentation equipment previously used for an arduous 
offshore	application.
The end-user manufactures umbilical reeling 
equipment	for	offshore	subsea	applications	
including ROV operations and cable laying. 
Existing air preparation units that feed air to 
pneumatic	powered	gear	motors	were	found	
to	be	corroding	badly	in	offshore	conditions,	
leading to reliability problems.

Due to the resultant short operational life of 
these units, the end-user sought a stainless 
steel solution from Rotork Midland’s customer.

29

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportFINANCIAL
REVIEW

Jonathan Davis
Finance Director

“The acquisition in March of Young Tech Co. 
(YTC) for up to £64m is Rotork’s largest 
single acquisition to date.”

This	year	we	have	achieved	growth	in	order	intake,	
revenue	and	profit,	all	of	which	increased	both	on	a	
reported	and	an	organic	constant	currency	(OCC)
basis and a record adjusted* operating margin.

Our	2014	results	were	heavily	influenced	by	the	
strength	of	sterling	compared	with	2013.	Whilst	
the	currency	headwind	diminished	in	the	second	
half,	revenue	was	£33.0m	or	5.7%	lower	than	it	
would	have	been	at	2013	exchange	rates.	
Acquisitions	had	a	positive	effect,	adding	£27.4m	
to	revenue	and	partially	offsetting	the	currency	
impact.	Reported	revenue	of	£594.7m	was	2.8%	
higher than the comparable period and 3.8% 
higher on an OCC basis.

Adjusted*	operating	profit	grew	ahead	of	the	rate	
of revenue, up 3.8% to £157.2m delivering a 
margin	of	26.4%	compared	with	26.2%	last	year.	
Growth	on	an	OCC	basis	was	5.7%.	Divisional	mix	
was	a	positive	influence	on	Group	margins,	with	
the	higher	margin	divisions	growing	and	Fluid	
Systems revenue declining, albeit delivering 
improved margins. On an OCC basis the margin 
was	a	further	30	basis	points	higher	at	26.7%	as	
currency	had	a	dilutive	effect	on	margins	due	to	
the higher proportion of sterling costs than 
revenues	within	the	Group.	The	effect	of	
acquisitions	on	margin	was	negligible	as	the	
average	margin	of	the	acquired	businesses	was	
close to the Group average.

30

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Return on Capital Employed (ROCE)
Our	asset-light	business	model	and	high	profit	
margins mean Rotork generates a high ROCE. Our 
definition	of	ROCE	is	based	on	adjusted*	
operating	profit	as	a	return	on	the	average	net	
assets excluding net cash and the pension scheme 
liability net of the related deferred tax. This means 
that	as	we	make	acquisitions	our	capital	base	
grows	when	the	associated	intangible	assets	and	
goodwill	are	recognised.	During	the	year	
intangibles	and	goodwill	increased	by	a	net	£63m	
in	total	which,	after	allowing	for	the	related	
deferred tax, accounts for more than 60% of the 
increase	in	capital	employed,	which	rose	35%	to	
£379m. As a result of this, ROCE reduced to 47.6% 
despite	the	improved	profit	margin	and	growth	in	
revenue this year.

Taxation
This	year	the	Group’s	effective	tax	rate	reduced	
from	27.9%	to	26.9%.	The	mix	of	where	profits	are	
generated	from	within	the	37	countries	in	which	
we	have	a	presence	has	a	major	impact	on	the	
Group	effective	tax	rate.	Where	we	pay	tax	the	
national	effective	rates	vary	from	17%	to	35%.	
There	are	also	changes	to	tax	within	some	
jurisdictions	which	are	large	enough	to	impact	the	
Group	effective	rate.	The	reduction	of	Chinese	
withholding	tax	rates,	from	10%	to	5%	was	one	
such	influence	in	the	year,	as	was	the	impact	of	the	
patent	box	reliefs	in	the	UK.	These	two	items	
accounted	for	a	reduction	of	120	basis	points	with	
geographic mix accounting for a 20 basis point 
increase. Our approach to tax continues to be to 
operate on the basis of full disclosure and 
co-operation	with	all	tax	authorities	and,	where	
possible,	to	mitigate	the	burden	of	tax	within	the	
local legislation.

The	net	finance	charge	reduced	by	£0.2m	to	
£1.1m.	The	effect	of	the	higher	level	of	loans	
required	during	the	year	following	the	acquisitions	
was	offset	by	a	reduction	in	the	interest	charge	
related to the pension schemes. The impact of 
this	and	the	lower	effective	tax	rate	meant	
earnings	per	share	increased	by	3.7%	or,	when	
based	on	adjusted*	profit,	by	5.4%	to	131.6p.

Acquisitions
We spent more on acquisitions in 2014 than in any 
previous year. The acquisition in March of Young 
Tech	Co.	(YTC)	for	up	to	£64m	is	Rotork’s	largest	
single acquisition to date. The purchase of Xylem’s 
UK	based	flow	control	subsidiary,	now	renamed	
Rotork Midland, in July and Masso Ind. s.p.a. in 
December increased the total spend in the year to 
£81.3m. In addition, there is a further potential 
£4.4m contingent consideration in relation to the 
three acquisitions made in 2014. Rotork has a 
strategy	of	growing	through	a	combination	of	
organic	expansion	and	acquisitions	and	we	expect	
this to continue. Acquisitions are made on the basis 
that	they	will	provide	a	new	product,	improve	our	
access to a geographic or end-user market or some 
combination of these objectives. Each of this year’s 
acquisitions met one or more of these criteria.

Taking all three acquisitions together, £32.4m of 
the	consideration	was	attributed	to	intangible	
assets	which	will	be	amortised	and	£45.1m	is	
goodwill	which	will	be	subject	to	an	annual	
impairment	review.	The	increased	value	of	
acquisitions this year and last year has led to a rise 
in the amortisation charge related to acquired 
intangible	assets	to	£14.9m	(2013:	£12.1m).	In	
order	to	adjust	the	income	statement	to	show	a	
like-for-like period for each acquisition, 2014 
revenue has to be reduced by £27.4m and 
adjusted*	operating	profit	by	£7.6m.	The	profit	
margin	in	the	acquired	business	was	slightly	
accretive	in	aggregate,	at	28.0%,	with	YTC	the	key	
contributor to this.

Currency
The relative strength of sterling throughout the 
year	led	to	a	marked	headwind	for	the	reported	
results.	The	impact	was	most	significant	in	the	
first	half	of	the	year	with	revenue	reduced	by	
£20.4m	(7.4%)	compared	with	a	£12.6m	(4.2%)	
reduction	in	the	second	half.	This	was	partly	driven	
by	the	comparatives,	as	the	US	dollar	weakened	
progressively	through	that	year.	In	2014	whilst	the	
US dollar reversed the trend of 2013, and 
strengthened	from	mid-year	onwards,	it	was	the	
euro’s	turn	to	weaken	steadily	through	the	year.	
The	average	rate	for	both	US	dollar	and	euro	was	
5.3%	weaker	than	2013	but	by	year-end	the	US	
dollar	was	6.2%	stronger	than	it	had	started	2014	
whilst	the	euro	was	6.3%	weaker.	These	two	
currencies	had	the	most	significant	impact	on	our	
results	with	US	dollar	representing	41%	of	
revenue	and	the	euro	31%.	Sterling	was	11%	of	
revenue and various other currencies made up the 
remaining 17%. Amongst the other 19 currencies 
that are home currencies for one of our subsidiary 
offices,	9	weakened	by	more	than	10%	when	the	
average	rate	is	compared	with	that	for	2013.

The impact of currency is both in the form of 
translation	and	transaction	differences.	Given	the	
locations	in	which	we	have	operations	and	the	
international nature of our supply base and sales 
currencies,	the	impact	of	transaction	differences	
can	be	very	different	from	the	translation	impact.	
We are able to partially mitigate the transaction 
impact	through	matching	supply	currency	with	
sales	currency	but	ultimately	we	are	still	net	
sellers of both US dollar and euros. It is the net 
sale	of	these	currencies	which	we	principally	
address through our hedging policy, covering up 
to 75% of trading transactions in the next 12 
months	and	up	to	50%	between	12	and	24	
months. Net of these mitigating actions 
operating	profit	was	£10.6m	(7.0%)	lower	than	it	
would	have	been	at	2013	rates.

In order to estimate the impact of currency, at the 
current	exchange	rates	we	consider	the	effect	of	a	
1 cent movement versus sterling. A 1 euro cent 
movement	now	results	in	approximately	a	
£325,000	adjustment	to	profit	and	for	US	dollar,	
and dollar related currencies, a 1 cent movement 
equates to approximately a £550,000 adjustment.

31

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportFINANCIAL

REVIEW CONTINUED

Organic Business Growth

£m

Revenue 
Cost of sales 

Gross	profit	
Overheads 

Adjusted	operating	profit*	
Net	financial	expenses	

48.0%
21.6%

26.4%

Adjusted	profit	before	tax*	

26.2%

2014 as 
reported

594.7
(309.2)

285.5
(128.3)

157.2
(1.1)

156.1

Constant 
currency 
adjustment

2014 at 2013 
exchange 
rates

Remove 
acquisitions

33.0
(16.1)

16.9
(6.4)

10.5
-

10.5

48.2%
21.5%

26.7%

26.6%

627.7
(325.3)

302.4
(134.7)

167.7
(1.1)

166.6

(27.4)
16.4

(11.0)
3.4

(7.6)
-

(7.6)

48.5%
21.8%

26.7%

26.5%

* Adjusted is before the amortisation of acquired intangible assets.

Organic 
business 
at 2013 
exchange 
rates

600.3
(308.9)

291.4
(131.3)

160.1
(1.1)

159.0

2013 as 
reported

578.4
(304.0)

274.4
	 (123.0)	

151.4
(1.3)

150.1

47.4%
21.2%

26.2%

26.0%

Cash Generation
Net	cash	balances	finished	the	year	at	£46.8m,	
£22.1m	lower	than	the	start	of	the	year.	The	three	
largest	categories	of	cash	expenditure	were,	
£81.3m on acquisitions, £43.0m of tax paid and 
£42.7m of dividends paid. The increase in 
acquisition	spend,	from	£43.5m	last	year,	was	the	
largest	increase	and	was	partly	funded	by	a	
£19.4m net increase in loans during the year. 
Capital	expenditure	was	higher	than	the	previous	
year	with	the	completion	of	the	Leeds	(UK)	site	
project	and	the	purchase	of	a	new	factory	in	Lucca	
(Italy)	being	the	two	largest	items.	The	Lucca	
factory	cost	£3.4m	and	will	be	developed	during	
2015 for the business to move into late in the year.

Our	cash	generation	KPI	shows	a	conversion	of	
97.4%	of	operating	profit	into	operating	cash.	
Control	of	working	capital	is	key	to	this	
performance	and	this	year	working	capital	
increased	to	28.5%	of	revenue	compared	with	
24.7%	in	December	2013.	The	weighting	of	
revenue	to	the	last	quarter	of	the	year,	which	
culminated in December 2014 being a record 
monthly revenue, led to a £22.5m increase in 
trade	receivables	between	balance	sheet	dates	
of	which	acquisitions	accounted	for	£6.0m.	
Looking at this as days’ sales outstanding, this 
measure increased by 4 days to 60 days. The 
high revenue had a positive impact on inventory 
which	only	increased	£2.2m	on	an	OCC	basis	
but	with	a	further	£4.8m	from	acquisitions	
year-end	inventory	was	£81.1m	which	
represented 13.6% of annual revenue compared 
with	13.0%	in	2013.

Credit Management
The Group’s credit risk is primarily attributable 
to	trade	receivables,	with	the	risk	spread	over	a	
large number of countries and customers, and 
no	significant	concentration	of	risk.	Credit	
worthiness	checks	are	undertaken	before	
entering into contracts or commencing trade 
with	new	customers.	The	majority	of	our	trade	
receivables are insured, so the authorisation 
process	operates	in	conjunction	with	the	
insurer, taking advantage of their market 
intelligence.	Where	appropriate,	we	use	trade	
finance	instruments	such	as	letters	of	credit	to	
mitigate	any	identified	risk.

Treasury
The Group operates a centralised treasury 
function managed by a Treasury Committee 
chaired by the Group Finance Director and also 
comprising the Chief Executive, Group Legal 
Director, Group Financial Controller and Group 
Treasurer. The Committee meets regularly to 
consider foreign currency exposure, control 
over deposits, funding requirements and cash 
management. The Group Treasurer monitors 
compliance	with	the	treasury	policies	and	is	
responsible for overseeing all the Group’s 
banking relationships. A Subsidiary Treasury 
Policy restricts the actions subsidiaries can take 
and the Group Treasury Policy and Terms of 
Reference	define	the	responsibilities	of	the	
Group Treasurer and Treasury Committee.

The	Group	uses	financial	instruments	where	
appropriate	to	hedge	significant	currency	
transactions,	principally	forward	exchange	
contracts	and	swaps.	These	financial	instruments	
are	used	to	reduce	volatility	which	might	affect	
the Group’s cash or income statement. In 
assessing	the	level	of	cash	flows	to	hedge	with	
forward	exchange	contracts,	the	maximum	cover	
taken	is	75%	of	forecast	flows.	The	Board	
receives	monthly	treasury	reports	which	
summarise the Group’s foreign currency hedging 
position, distribution of cash balances and any 
significant	changes	to	banking	relationships.

During	the	year	we	spent	£81.3m	on	
acquisitions. In order to fund these acquisitions 
we	restructured	our	borrowing	facilities.	We	
started	the	year	with	one	facility	for	up	to	£75m	
although	only	£15m	of	the	facility	was	being	
utilised	at	that	time.	Mid-year	this	facility	was	
renewed	and	the	expiry	date	extended	from	
January 2015 to June 2016. An additional one 
year	committed	facility	for	£20m	was	also	
entered into in May 2014.

32

STRATEGIC REPORTROTORK ANNUAL REPORT 2014*	

References	to	adjusted	profit	throughout	this	
document	are	defined	as	the	IFRS	profit,	whether	
operating	profit	or	profit	before	tax,	with	£14.9m	
(2013:	£12.1m)	of	amortisation	of	acquired	
intangibles added back.

OCC	 Organic	constant	currency	results	are	the	2014	figures	
restated	at	2013	exchange	rates	and	with	the	
incremental contribution from acquisitions removed.

Dividends
The Board is proposing a 3.0% increase in the 
final	dividend	to	30.9p	per	share.	When	taken	
together	with	the	19.2p	interim	dividend	paid	in	
September, this represents a 4.3% increase in 
dividends over the prior year. This gives dividend 
cover	of	2.4	times	(2013:	2.4	times).	Our	
dividend	policy	is	to	grow	core	dividends	in	line	
with	earnings	and	supplement	core	dividends	
with	additional	dividends	when	the	Board	
considers it appropriate to do so having 
considered the near-term expected cash 
requirements of the Group.

Share Capital
Given the rise in the Company’s share price over 
recent years, the Directors consider that it is 
now	appropriate	to	sub-divide	the	shares	into	
smaller units. At the forthcoming AGM in April 
the Board is proposing a sub-division of the 
Company’s share capital to make the 
Company’s shares more accessible, particularly 
to	small	shareholders	and	our	own	employees.	A	
sub-division may also improve the liquidity and 
reduce	the	bid/offer	spread	of	the	Company’s	
ordinary shares. Therefore a 10 for 1 share split 
will	be	proposed	at	the	AGM	which	will	mean	the	
existing	5	pence	ordinary	shares	will	become	0.5	
pence ordinary shares.

Retirement Benefits
The Group accounts for post-retirement 
benefits	in	accordance	with	IAS19	Employee	
Benefits.	The	balance	sheet	reflects	the	net	
deficit	of	these	schemes	at	31	December	2014	
based on the market value of the assets at that 
date, and the valuation of liabilities using year 
end AA corporate bond yields. We have closed 
both	the	main	defined	benefit	pension	schemes	
to	new	entrants;	the	UK	scheme	in	2003	and	the	
US one in 2009, in order to reduce the risk of 
volatility of the Group’s liabilities.

The most recent triennial valuation for the UK 
scheme	took	place	as	at	31	March	2013	and	was	
adversely	affected	by	the	lower	yield	on	
long-dated	gilts	at	that	date,	which	is	the	key	
driver behind the value of the scheme’s 
liabilities. As a result, despite better than 
expected investment returns and the agreed 
past	deficit	contributions,	the	funding	level	was	
lower	than	at	the	previous	valuation.	A	recovery	
plan	has	been	agreed	with	the	Trustees	which	
will	see	past	service	contributions	from	the	
Company of £5.2m during 2014, £5.5m in 2015 
and	£5.5m	in	2016,	at	which	time	the	next	
valuation	will	take	place.

During	the	year	the	deficit	on	the	schemes	
increased from £20.2m to £36.1m and the funding 
level reduced from 87% to 81%. Although the 
company paid a total of £8.1m in contributions, 
the	gain	on	scheme	assets	and	the	lower	inflation	
rate	were	not	enough	to	offset	the	effect	from	the	
reduction in the discount rate. 

33

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportKEY PERFORMANCE
INDICATORS

FINANCIAL KPIs

Growth	of	the	business,	quality	of	earnings	and	efficient	use	of	resources	are	crucial	target	areas	for	
Rotork	and	we	employ	a	number	of	performance	measures	throughout	Rotork	to	monitor	them.	The	
KPIs	used	to	monitor	the	financial	performance	of	the	business	are	set	out	below.

Sales Revenue 
Growth
2.8%

17.7

14.3

13.0

7.6

2.8

Return on Sales

Cash Generation

26.2%

97.4%

Return on Capital 
Employed
47.6%

26.2

26.0

25.7

26.0

26.2

99.6

90.3

97.4

74.0

95.7

95.4

89.6

61.9

59.1

47.6

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Reasons for choice
This is reported in detail for 
operating segments and is a key 
driver for the business. This 
measure enables us to track our 
overall	success	in	specific	
project activity and our progress 
in increasing our market share by 
product and by region.

Reasons for choice
This measure brings together 
the	combined	effects	of	
procurement costs and pricing 
as	well	as	the	leveraging	of	our	
operating assets. It is also a 
check on the quality of revenue 
growth	but	is	heavily	influenced	
by divisional mix.

How we calculate
Increase in sales revenue 
year-on-year divided by prior 
year sales revenue.

How we calculate
Adjusted	profit	before	tax*	(after	
financing	and	interest)	shown	as	
a percentage of sales revenue.

Comments on results
The	2.8%	growth	in	revenue	was	
achieved despite our largest 
end-market, oil & gas, declining 
1.6%	compared	with	2013.	
Growth	in	the	power,	industrial	
and	other	end-markets	was	
sufficient	to	deliver	growth	
overall. On a constant currency 
basis	growth	was	8.5%	reflecting	
the	strong	currency	headwinds	
we	faced	this	year.

Comments on results
The improvement in margins 
within	Fluid	Systems,	growth	in	
Instruments	(with	margins	
higher	than	the	Group	average)	
and a positive divisional mix 
impact all contributed to the 20 
basis point improvement in the 
year, equalling the record for this 
measure set in 2010.

Reasons for choice
This is used as a measure of 
performance	where	a	target	of	
85% is regarded as a base level 
of achievement. Cash 
generation is also one of the 
constituent parts of the senior 
management	reward	system.

How we calculate
Cash	flow	from	operating	
activities	before	tax	outflows	
and the pension charge to cash 
adjustment as a percentage of 
adjusted	operating	profit*.

Comments on results
Cash conversion remained high 
despite the record monthly 
revenue	in	December	which	led	
to a rise in trade receivables at 
the year end.

Reasons for choice
Rotork has an asset-light 
business model by design and 
reporting this ratio internally 
helps management at Group 
level monitor our adherence to 
this philosophy.

How we calculate
Adjusted	operating	profit*	as	a	
percentage of average capital 
employed. Capital employed is 
defined	as	shareholders’	funds	
less	net	cash	held,	with	the	
pension	fund	deficit	net	of	
related deferred tax asset added 
back.	The	calculation	is	shown	
on page 119.

Comments on results
Average capital employed rose 
by 29% due to the 2013 and 
2014	acquisitions,	whose	value	
on our balance sheet includes 
the intangible assets associated 
with	their	acquisition.	This	KPI	
remains at sector leading levels.

References	to	adjusted	profit	throughout	this	document	are	defined	as	the	IFRS	profit,	whether	operating	profit	or	profit	before	tax,	with	
£14.9m	(2013:	£12.1m)	of	amortisation	of	acquired	intangibles	added	back.

*	

34

Earnings per Share 

Accident Frequency 

Carbon Emissions

Growth

5.4%

Rate

0.31

+7.3%

Employee 

Satisfaction

3.6

Reasons for choice

Reasons for choice

Reasons for choice

Reasons for choice

The measurement of earnings 

The Accident Frequency Rate 

This KPI compares this year’s 

The	survey	as	a	whole	enabled	

per	share	(EPS)	reflects	all	

(AFR)	is	used	as	one	measure	of	

carbon emissions stated as a 

the Group to get feedback from 

aspects of the income statement 

the	effectiveness	of	our	health	

function	of	revenue	with	last	

across	the	businesses	on	how	

including management of the 

and safety procedures.

years and is a broad measure of 

we	relate	to	our	employees	and	

Group’s tax rate.

our impact on the environment.

what	we	can	do	better.

How we calculate

Increase in adjusted basic EPS 

(based	on	adjusted	profit	after	

How we calculate

How we calculate

How we calculate

The	formula	we	have	used	for	

Energy	usage	data	(scope	1	and	

Employees scored their responses 

calculating our AFR is the 

2)	is	collected	and	converted	to	

directly into a prepared survey 

tax*)	year-on-year	divided	by	the	

number of reportable injuries 

prior year adjusted basic EPS.

divided by the number of hours 

equivalent tonnes of CO2 and 

then reported as a function of 

with	1	being	very	dissatisfied	and	

5	being	very	satisfied.

worked	multiplied	by	100,000.

millions of revenue. Further detail 

is contained in the Corporate 

Social Responsibility report.

Comments on results

Comments on results

Comments on results

Comments on results

The	lower	tax	rate	in	the	UK	and	

The investment in health and 

The	slower	revenue	growth	and	

The number of employees 

the	international	mix	of	where	

safety training, audits to monitor 

colder	winter	in	early	2014	meant	

completing the survey rose to 

our	profits	were	generated	led	to	

compliance	with	procedures	and	

a reversal of the year 1 gains. 

a further reduction in the 

initiatives	to	embed	safe	working	

Whilst	already	a	low	energy	

effective	tax	rate	and	therefore	

practices led to a further 

consumer by virtue of our 

2,386, a 75% response rate. The 

highest	scoring	questions	were	

those on employees planning on 

reduction in this KPI this year.

outsourced manufacturing model, 

staying at least another year 

EPS	growth	ahead	of	the	

underlying	profit	growth.

we	are	looking	at	ways	of	reducing	

with	Rotork	and	being	proud	of	

energy	consumption	further	with	

the	products	and	services	we	

a focus on lighting and our higher 

provide our customers. The 

energy usage locations.

latter	point	was	also	the	most	

improved score.

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Sales Revenue 

Return on Sales

Cash Generation

Return on Capital 

Growth

2.8%

26.2%

97.4%

Employed

47.6%

Earnings per Share 
Growth
5.4%

Accident Frequency 
Rate
0.31

Carbon Emissions

+7.3%

Employee 
Satisfaction
3.6

NON-FINANCIAL KPIs

We	monitor	non-financial	areas	in	our	businesses,	particularly	in	the	environmental,	health	and	
safety	and	quality	control	areas,	and	we	place	strong	emphasis	within	our	organisation	on	improving	
our performance here.

Reasons for choice

Reasons for choice

Reasons for choice

Reasons for choice

This is reported in detail for 

This measure brings together 

This is used as a measure of 

Rotork has an asset-light 

operating segments and is a key 

the	combined	effects	of	

performance	where	a	target	of	

business model by design and 

driver for the business. This 

procurement costs and pricing 

85% is regarded as a base level 

measure enables us to track our 

as	well	as	the	leveraging	of	our	

of achievement. Cash 

reporting this ratio internally 

helps management at Group 

overall	success	in	specific	

operating assets. It is also a 

generation is also one of the 

level monitor our adherence to 

project activity and our progress 

check on the quality of revenue 

constituent parts of the senior 

this philosophy.

in increasing our market share by 

growth	but	is	heavily	influenced	

management	reward	system.

product and by region.

by divisional mix.

How we calculate

How we calculate

How we calculate

How we calculate

Increase in sales revenue 

Adjusted	profit	before	tax*	(after	

Cash	flow	from	operating	

year-on-year divided by prior 

financing	and	interest)	shown	as	

activities	before	tax	outflows	

Adjusted	operating	profit*	as	a	

percentage of average capital 

year sales revenue.

a percentage of sales revenue.

and the pension charge to cash 

employed. Capital employed is 

adjustment as a percentage of 

defined	as	shareholders’	funds	

adjusted	operating	profit*.

less	net	cash	held,	with	the	

pension	fund	deficit	net	of	

related deferred tax asset added 

back.	The	calculation	is	shown	

on page 119.

17.5

0.46

0.46

19.2

19.2

3.6

3.6

3.6

13.6

14.3

0.38

0.33

0.31

17.9

3.5

3.5

9.6

5.4

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Reasons for choice
The measurement of earnings 
per	share	(EPS)	reflects	all	
aspects of the income statement 
including management of the 
Group’s tax rate.

Reasons for choice
The Accident Frequency Rate 
(AFR)	is	used	as	one	measure	of	
the	effectiveness	of	our	health	
and safety procedures.

Reasons for choice
This KPI compares this year’s 
carbon emissions stated as a 
function	of	revenue	with	last	
years and is a broad measure of 
our impact on the environment.

Reasons for choice
The	survey	as	a	whole	enabled	
the Group to get feedback from 
across	the	businesses	on	how	
we	relate	to	our	employees	and	
what	we	can	do	better.

How we calculate
Increase in adjusted basic EPS 
(based	on	adjusted	profit	after	
tax*)	year-on-year	divided	by	the	
prior year adjusted basic EPS.

How we calculate
The	formula	we	have	used	for	
calculating our AFR is the 
number of reportable injuries 
divided by the number of hours 
worked	multiplied	by	100,000.

How we calculate
Energy	usage	data	(scope	1	and	
2)	is	collected	and	converted	to	
equivalent tonnes of CO2 and 
then reported as a function of 
millions of revenue. Further detail 
is contained in the Corporate 
Social Responsibility report.

How we calculate
Employees scored their responses 
directly into a prepared survey 
with	1	being	very	dissatisfied	and	
5	being	very	satisfied.

Comments on results

Comments on results

Comments on results

Comments on results

The	2.8%	growth	in	revenue	was	

The improvement in margins 

Cash conversion remained high 

Average capital employed rose 

achieved despite our largest 

within	Fluid	Systems,	growth	in	

despite the record monthly 

by 29% due to the 2013 and 

end-market, oil & gas, declining 

Instruments	(with	margins	

revenue	in	December	which	led	

2014	acquisitions,	whose	value	

1.6%	compared	with	2013.	

higher	than	the	Group	average)	

to a rise in trade receivables at 

on our balance sheet includes 

Growth	in	the	power,	industrial	

and a positive divisional mix 

the year end.

the intangible assets associated 

with	their	acquisition.	This	KPI	

remains at sector leading levels.

and	other	end-markets	was	

sufficient	to	deliver	growth	

impact all contributed to the 20 

basis point improvement in the 

overall. On a constant currency 

year, equalling the record for this 

basis	growth	was	8.5%	reflecting	

measure set in 2010.

the	strong	currency	headwinds	

we	faced	this	year.

Comments on results
The	lower	tax	rate	in	the	UK	and	
the	international	mix	of	where	
our	profits	were	generated	led	to	
a further reduction in the 
effective	tax	rate	and	therefore	
EPS	growth	ahead	of	the	
underlying	profit	growth.

Comments on results
The investment in health and 
safety training, audits to monitor 
compliance	with	procedures	and	
initiatives	to	embed	safe	working	
practices led to a further 
reduction in this KPI this year.

Comments on results
The	slower	revenue	growth	and	
colder	winter	in	early	2014	meant	
a reversal of the year 1 gains. 
Whilst	already	a	low	energy	
consumer by virtue of our 
outsourced manufacturing model, 
we	are	looking	at	ways	of	reducing	
energy	consumption	further	with	
a focus on lighting and our higher 
energy usage locations.

Comments on results
The number of employees 
completing the survey rose to 
2,386, a 75% response rate. The 
highest	scoring	questions	were	
those on employees planning on 
staying at least another year 
with	Rotork	and	being	proud	of	
the	products	and	services	we	
provide our customers. The 
latter	point	was	also	the	most	
improved score.

35

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportHOW WE

MANAGE RISK

Managing Business Risks
The assessment and management of risk is the 
responsibility of the Board, and the 
development and execution of a comprehensive 
and robust system of risk management is a high 
priority in Rotork. Managing the risks to our 
business is essential to the long-term success 
and sustainability of the Group and our 
approach to risk is intended to protect the 
interests of shareholders and all interested 
parties. The risk management process is an 
established	way	of	identifying	and	managing	
risk,	first	at	divisional	board	level,	and	then	for	
the	Group	as	a	whole	and	it	works	within	our	
governance	framework	set	out	in	our	Corporate	
Governance Statement, see page 54.

The Board’s role in risk management involves 
promoting a culture that emphasises integrity 
at all levels of business operations. This includes 
ensuring that risk management is embedded 
within	the	core	processes	of	the	Group,	
determining the principal risks, communicating 
these	effectively	across	the	businesses	and	
setting the overall policies for risk management 
and control. The geographic spread of our 
activities makes communication of these 
policies and standards a key part of ensuring 
consistency across all of our operations.

The Group Finance Director is responsible for 
risk	management	within	the	Group	and	leads	
the development of the risk management 
process and the tools used. The Board approves 
risk appetite for the Group and considers the 
consequential actions in terms of mitigation 
where	possible	and	appropriate.

Rotork plc Board

Audit Committee

Integrated Business Risk Management incorporating 
review by the Management Team

Controls
Division

Fluid
Systems
Division

Gears
Division

Instruments 
Division

Corporate

Overall responsibility 
for maintaining the 
risk management 
process and 
determining risk 
appetite.

Audit Committee 
provides oversight of 
the internal control 
framework.

Executive and senior 
management 
consider risk 
management for the 
Group as a whole.

Detailed risk 
assessment
and consideration of 
mitigation is carried 
out at the divisional 
level.

36

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Determining Risk Appetite
The Board is responsible for determining the 
nature	and	extent	of	the	risks	it	is	willing	to	take	
in achieving its strategic objectives. This risk 
appetite is not only considered during the risk 
review	meetings	but	also	during	a	number	of	
other Board discussions during the year. These 
include strategy discussions, consideration of 
insurance coverage, setting of scope and timing 
of the internal audit, health and safety audit 
programmes and amendments to Group 
policies and procedures in areas such as 
whistleblowing	and	bribery	and	corruption.	The	
remuneration committee of the Board considers 
risks	related	to	staff	retention	and	the	
nomination committee considers the risk 
around	succession	planning.	In	addition	where	
specific	risks	are	identified	during	the	year	these	
are	identified	in	the	written	reports	received	by	
the Board each month.

Risk Management Process
The	major	risks	affecting	the	Group	are	first	
identified	and	considered	by	the	divisional	
boards during their regular meetings. Once a 
risk	has	been	identified,	it	is	allocated	to	one	of	
the directors to ensure the risk is appropriately 
considered and the risk is managed. Risks are 
categorised	on	a	matrix	reflecting	likelihood	and	
impact on the business. The assessment of 
likelihood	is	considered	after	allowing	for	the	
effect	of	mitigation	whilst	the	impact	is	
measured	before	allowing	for	mitigation	such	as	
insurance recoveries. The impact scale is 
determined	as	a	function	of	annual	profit	so	that	
each division has an appropriate benchmark. 
Once the assessment matrix is completed by 
each division, the risks are then aggregated and 
re-evaluated	in	relation	to	the	Group	as	a	whole	
using an appropriate Group impact scale.

Identified	risks	are	discussed	and	the	progress	
reviewed	at	both	Rotork	Management	Board	and	
Divisional Board meetings during the year. 
Senior	management,	in	association	with	the	full	
Board	of	Directors,	meets	twice	a	year	to	
consider the Group risk matrix and progress 
with	mitigating	actions.	The	external	auditor	is	
invited to attend one of the meetings each year.

This is an ongoing process involving regular 
assessment	of	the	risks,	with	clear	and	
consistent procedures for monitoring, updating 
and implementing appropriate controls to 
manage	the	identified	risks.	We	are	therefore	
confident	that	we	have	a	methodology	for	
ensuring that the Group’s approach to dealing 
with	individual	risks	is	robust	and	timely.

Classification of Key Risks
We	identify	three	main	risk	types:

Strategic	–	Risks	that	potentially	could	affect	
the strategic aims of the business, or those 
issues	that	could	affect	the	strategic	objectives	
that the Group is addressing;

Operational – Risks arising out of the 
operational activities of the Group relating to 
areas such as logistics, procurement, product 
development	and	interaction	with	commercial	
partners; and

Financial	–	Issues	that	could	affect	the	finances	
of the business both externally from matters 
initially outside of our control, and from the 
perspective of internal controls and processes.

The risks considered during the process cover 
all aspects of the Group’s activities and cover a 
far	wider	range	of	areas	including	
environmental, reputational and ethical risks as 
well	as	product,	competitor	or	financial	risks,	
but not all of these areas are represented in the 
top	10	risks	which	are	listed	on	pages	38	and	39.	
These are categorised by the three main risk 
areas	identified	above.	Mitigation,	where	
possible,	is	shown	for	each	risk	area	identified.

Consider the overall
eﬀectiveness of the
control environment

Identify and assess
individual risks

Report any incidence
of control failings

Review previously
identiﬁed risks and
the eﬀectiveness
of mitigation

Test the controls
through management
review and internal audit

Design of controls to
mitigate identiﬁed risks

37

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportPRINCIPAL

RISKS AND UNCERTAINTIES

STRATEGIC RISKS

Description

Potential Impact

Mitigation

Competition on price as a result 
of an existing competitor 
moving to manufacture in a 
lower cost area of the world.

Where a competitor decides to use cost savings to 
reduce their selling prices, this could lead to a reduction 
in the general market price. Rotork might need to 
respond	to	a	change	in	market	price	levels	whilst	still	
maintaining the price premium currently enjoyed for 
some products. This could impact our market share 
and	would	impact	our	ability	to	grow	the	Group	
revenue.

Rotork already has a direct presence, in terms of 
production,	sales	and	service	support,	in	many	low	cost	
locations	and	regularly	reviews	opportunities	in	other	
countries. There is a constant drive to maintain 
differentiation	from	the	competition	both	in	terms	of	
the	quality	of	our	products	and	of	the	service	we	
provide and thus ensure that price is not the only 
means of gaining a competitive advantage.

Not having the appropriate 
products, either in terms of 
features or costs.

In order to be able to compete on a project, our 
products	must	meet	both	the	necessary	specification	
and pricing level. A failure on either count could harm 
our	competitive	position	and	result	in	us	not	winning	
the project.

Development of products, or acquisition of companies 
with	products,	to	meet	the	required	market	driven	
specifications	and	broaden	our	product	portfolio	is	an	
ongoing activity as is the drive to take cost out of our 
products to meet target pricing levels.

Lower investment in Rotork’s 
traditional market sectors.

A reduction in capital or maintenance expenditure in 
one	of	Rotork’s	key	market	sectors	would	result	in	a	
smaller	addressable	market,	which	in	turn	could	lead	to	
a reduction in revenue from that sector.

Identification	of	potential	new	end-markets	or	ones	
which	are	becoming	more	active	takes	place	in	each	
location and is coordinated at divisional level. This is 
supported by product development and innovation to 
address	new	markets	and	new	applications	in	existing	
markets. At a Group level our geographic and end-
market	diversification	provides	resilience	to	a	reduction	
in any one area or market.

38

STRATEGIC REPORTROTORK ANNUAL REPORT 2014OPERATIONAL RISKS

Description

Potential Impact

Mitigation

Major in field product failure 
arising from a component 
defect or warranty issue which 
might require a product recall.

Replacement of defective components or complete 
units	would	give	rise	to	a	direct	financial	cost	and	there	
could also be a reputational risk. This in turn could 
impact our ability to achieve premium pricing.

Failure of a key supplier or a 
tooling failure at a supplier 
causing disruption to planned 
manufacturing.

Where customer delivery expectations are not met, 
this	could	lead	to	financial	penalties	and	damage	
customer relationships.

Failure of an acquisition to 
deliver the growth or synergies 
anticipated, due to incorrect 
assumptions or changing 
market conditions, or failure to 
integrate an acquisition to 
ensure compliance with 
Rotork’s policies and 
procedures.

Failure of IT security systems to 
prevent penetration by 
unauthorised people and 
access to commercially 
sensitive data.

Whilst	growth	opportunities,	cost	savings	and	
synergies	are	identified	prior	to	completion,	these	may	
not	always	be	delivered	at	the	levels	anticipated	or	to	
the	timetable	expected	following	the	acquisition.	
Although	these	benefits	are	usually	not	priced	into	the	
purchase	consideration,	a	significant	
underperformance could lead to an impairment of the 
associated intangible assets.

Sensitive data is stored and transmitted electronically 
around	the	world.	The	Group	is	therefore	exposed	to	
the risk of data loss by cyber attack. This data might 
contain technically or commercially sensitive 
information	which	would	provide	a	competitor	with	an	
advantage.

FINANCIAL RISKS

A comprehensive set of quality control procedures 
operates over suppliers. These include supplier visits, 
audits and a scorecard system to measure their 
performance. In some markets legislation determines 
that this risk is entirely passed to the end-user. Our 
global service coverage ensures that any product 
failure	issues	could	be	dealt	with	quickly	and	efficiently	
to minimise any reputational impact.

Dual	sourcing	for	key	components	wherever	possible	
provides the best mitigation for key suppliers. Regular 
monitoring and replacement of tooling at all suppliers 
reduces the risk of a tooling failure. Inventory levels are 
maintained	at	a	sufficient	level	to	protect	against	
short-term disruption.

During the due diligence process a 100 day plan is 
prepared to manage the important initial stages of 
integration. Consideration is given to the composition 
and	skills	of	the	management	team	with	the	necessary	
training and support provided by a variety of Rotork 
personnel.	This	should	ensure	an	effective	integration	
and communication of Rotork’s policies and 
procedures,	whilst	monitoring	delivery	of	the	financial	
plan.

Rotork has a range of measures in place to monitor and 
mitigate this risk.

Description

Potential Impact

Mitigation

Volatility of exchange rates 
would impact Rotork’s reported 
results and competitive 
position.

Significant	fluctuations	in	exchange	rates	could	have	an	
adverse impact on Rotork’s reported results and 
adversely	affect	the	pricing	point	of	our	products	in	
other currencies.

A clear treasury hedging policy addresses short-term 
risk	and	this	works	together	with	the	natural	hedging	
provided by the geographical spread of operations, 
sourcing	and	customers.	Whilst	this	will	protect	against	
some of the transaction exposure our reported results 
would	still	be	impacted	by	the	translation	of	our	
non-UK operations.

Political instability in a key 
end-market.

Disruption	of	normal	business	activity	would	impact	
our sales in that country and might ultimately lead to 
loss	of	any	assets	located	in	that	country	as	well.

The	wide	geographic	spread	of	Rotork’s	operations	and	
customers diminishes the impact of any one market on 
the	results	of	the	Group	as	a	whole.

Growth of the defined benefit 
pension scheme deficit.

The	amount	of	the	deficit	may	be	adversely	affected	by	
a number of factors including investment returns, 
long-term	interest	rates,	price	inflation	and	members’	
longevity. This in turn might lead to a requirement for 
the Company to increase cash contributions to the 
schemes.

Both	defined	benefit	schemes	are	closed	to	new	
members,	with	the	UK	scheme	closed	in	January	2003.	
The Group and trustees monitor the performance of 
the scheme regularly, taking actuarial and investment 
advice	as	appropriate.	The	results	of	these	reviews	are	
discussed by the Board.

39

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportCORPORATE  
SOCIAL 
RESPONSIBILITY

EMPLOYEES 
WORLDWIDE

3,469

DIRECT PRESENCE IN

37

COUNTRIES

40

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Rotork believes that being a responsible business leads to being the 
best	business,	which	can	benefit	operational	effectiveness,	develop	
industry	leading	products,	grow	the	business	and	build	on	the	trust	
of stakeholders.

Sustainability lies at the heart of our business and 
Rotork is dedicated to making a positive impact 
around	the	world	to	ensure	the	Group	continues	to	
be successful in the long-term. The ongoing 
commitment to embed Corporate Social 
Responsibility	(CSR)	across	all	processes	and	the	way	
it operates is something that Rotork is proud of.

This report sets out our policies, procedures and 
systems	on	how	we	manage	our	impact	on	the	
environment,	how	we	conduct	our	business,	how	
we	provide	a	safe	working	environment	and	how	we	
work	with	the	local	community	in	which	we	operate.

The Group’s approach is focused around four main 
themes:

The Environment
Rotork is fully committed to reducing its impact on 
the environment by preventing pollution in all 
territories	in	which	it	operates,	and	to	make	sure	it	
is	compliant	with	any	relevant	legal	or	regulatory	
requirements. By complying it contributes to help 
sustain the environment, and it brings cost 
savings by reducing the consumption of energy, 
water,	waste	and	recycling.	The	environmental	
programme is described in more detail on pages 
42 to 45.

Ethics and Values
Ethics	and	values	are	fundamental	to	the	way	
in	which	we	do	business.	Respecting	
internationally proclaimed human rights, 
promoting an open and honest culture, 
having a zero tolerance approach to bribery 
and	corruption	worldwide,	and	selecting	
suppliers	with	sound	reputations	in	the	
marketplace are important aspects for the 
Group to adhere to. More details of the 
Group’s ethics and values can be found on 
pages 46 to 47.

Health and Safety
The health and safety of all employees and 
contractors is of paramount importance in 
providing	a	safe	working	environment.	Our	
fundamental principle, ‘if you cannot do a job 
safely,	we	will	not	do	the	job’,	is	actively	
promoted to everyone. This ensures that our 
people	remain	safe	and	we	enhance	the	
effectiveness	of	our	workforce	by	reducing	the	
risk	of	injury	and	costs	associated	with	injury	
or illness. The Group’s approach to health and 
safety can be found on pages 48 to 49.

Community Involvement
The Group considers it important to contribute 
and engage positively in the communities it 
operates in, to be a good community neighbour 
around	the	world	and	as	a	corporate	entity,	
community involvement is part of that 
responsibility. One of our corporate values is to 
produce	a	positive	and	beneficial	impact	in	the	
areas	in	which	we	operate	and	more	details	on	
community involvement can be found on pages 
50 to 51.

The Group understands that shareholders are 
becoming increasingly focused on CSR issues so 
we	take	into	account	the	Guidelines	on	Social	
Responsibility issued by the Association of British 
Insurers. The Group has been a member of the 
UN Global Compact since 2003 and continues to 
be included in the FTSE4Good index.

Rotork believes that the approach it takes to 
CSR helps to meet the expectations of our 
stakeholders and contributes to the success of 
our corporate strategy by promoting an 
effective	and	sustainable	business.

The Chief Executive chairs the CSR Committee 
and reports progress to the Board. The CSR 
Committee	is	a	management	committee,	which	
has	four	sub-committees	with	each	
representing one of the aspects of CSR 
described	below.	Presentations	are	given	by	the	
Chairmen of the four sub-committees to the 
Board on activity and progress in their areas of 
CSR during the year.

The	diagram	below	sets	out	our	CSR	structure.

Corporate Social Responsibility Committee

Ethics 
Committe

Social Issues
Committee

Environmental 
Committee

Health & Safety
Committee

41

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportENVIRONMENT

Introduction
Rotork is fully committed to the prevention of 
pollution,	to	comply	with	all	relevant	legal	or	
regulatory requirements and to reduce our 
environmental footprint by targeting key areas 
such	as	energy	consumption,	water	
consumption	and	waste.	We	continue	with	our	
assembly only philosophy in the majority of our 
business	units	where	we	utilise	specialist	
suppliers for most of our manufactured 
components and assemblies. This philosophy 
has	resulted	with	the	majority	of	our	energy	
being used on lighting, heating and cooling and 
IT systems, and a small amount of energy is 
used on machining processes. As a responsible 
global	entity	we	continue	to	influence	the	
environmental performance of our supply chain 
through our supplier assessment programme.

Corporate Objectives
There is a corporate objective of a 3% reduction 
in tonnes of CO2 generated in Scope 1 and 
Scope 2 emissions per £m turnover. Scope 1 and 
Scope 2 emissions have increased from 
17.9tnCO2e in 2013 to 19.21tnCO2e in 2014, an 
increase of 7.3%. This increase is due to 
electricity	and	gas	consumption	at	our	new	
acquisitions and additional consumption at our 
existing facilities.

Progress
The baseline year remains at 2012. A number of 
new	acquisitions	occurred	during	2013	and	2014	
that	have	affected	overall	energy	consumption	
but	like-for-like	figures	have	been	published	to	
show	the	underlying	trends	in	the	organisation.

CORPORATE
SOCIAL

RESPONSIBILITY CONTINUED

Leeds	(UK)	charity	race	to	raise	money	for	Jane	Tomlinson	appeal.

42

STRATEGIC REPORTROTORK ANNUAL REPORT 2014ENVIRONMENT

Energy Consumption
Due	to	the	growth	of	the	organisation	during	
2014 absolute electricity consumption 
increased	12.7%	on	the	2013	figures	and	was	
also a 12.6% increase on the baseline year. 
Absolute	gas	consumption	showed	a	slight	
increase	of	1.1%	on	the	previous	year	but	was	a	
significant	increase	of	29.5%	on	the	baseline	
year.	This	can	be	directly	linked	to	weather	
conditions	which	have	driven	up	gas	usage	in	the	
USA since 2012. Absolute Liquid Petroleum Gas 
(LPG)	consumption	showed	a	decrease	of	
55.5% on 2013 and a decrease of 14.3% on the 
baseline year.

On	sites	excluding	new	acquisitions,	during	
2014	electricity	showed	an	increase	of	4.4%	
based on 2013 but a 2% decrease on the 
baseline	year.	Gas	showed	a	4.7%	decrease	on	
2013 but a 13.9% increase on the baseline year. 
LPG	showed	a	22%	decrease	on	2013	and	a	15%	
decrease on the baseline year.

There are a number of energy related projects 
that	are	currently	underway	or	have	recently	
been	completed	which	will	start	to	show	
benefits	in	2015.	Some	of	the	energy	projects	
include	installing	energy	efficient	lighting	in	our	
Nottingham	(UK),	Melle	(Germany)	and	
Rochester	(USA)	facilities.	The	changes	will	
reduce our energy consumption by 
approximately	50%	per	fixture.	This	has	allowed	
some of our more energy intensive sites, such 
as	Rochester	(USA)	to	cut	electricity	
consumption by up to 30%. Projects like this not 
only	offer	reduced	energy	consumption	and	the	
associated reduction in carbon emissions, but 
also provide a reduction on operating costs for 
the lighting and reduced maintenance costs.

As	we	develop	new	sites	or	upgrade	our	existing	
sites	we	will	be	introducing	energy	efficient	
solutions	into	the	building	design.	This	will	help	
to reduce the environmental impact of our 
business in the future.

ELECTRICITY CONSUMPTION (MWh)
(ABSOLUTE)

ELECTRICITY CONSUMPTION (MWh)
(EXCLUDING NEW ACQUISITIONS)

11,193

11,184

12,605

11,193

10,498

10,961

2012

2013

2014

2012

2013

2014

GAS CONSUMPTION (kwh)
(ABSOLUTE)

GAS CONSUMPTION (kwh)
(EXCLUDING NEW ACQUISITIONS)

760,628 769,310

594,094

710,277

676,624

594,094

2012

2013

2014

2012

2013

2014

LPG CONSUMPTION (lt)
(ABSOLUTE)

LPG CONSUMPTION (lt)
(EXCLUDING NEW ACQUISITIONS)

760,628

394,478

338,178

394,478

430,065

335,505

2012

2013

2014

2012

2013

2014

Houston	(USA)	donates	funds	and	non-perishable	items	to	the	local	food	bank.

43

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportCORPORATE
SOCIAL

RESPONSIBILITY CONTINUED

ENVIRONMENT

Water Consumption
Absolute	water	consumption	across	the	Group	
has increased by 11.1% on 2013’s consumption 
and 12.2% on the baseline year. On like-for-like 
sites the consumption remained fairly static 
with	a	1%	increase	on	2013	consumption	but	a	
5% decrease on the baseline year. The majority 
of	water	consumption	is	for	domestic	purposes	
only, though there are some additional 
requirements	related	to	process	water	in	a	small	
number of our sites. Any reduction in these 
processes	are	not	expected	to	have	a	significant	
impact	on	the	overall	water	consumption.

Waste and Recycling
There are a number of local programmes in 
place	to	promote	recycling	and	reduce	waste.	
Our	facility	at	Houston	(USA)	ran	an	event	in	
November	to	separate	different	types	of	scrap	
metals, this has improved our recycling and 
given	a	higher	return	from	the	waste	that	was	
produced. Similar projects have yielded an 
overall recycling rate of 76.6% during 2014, 
compared to a recycling rate of 71.4% in 2013 
and 73.6% in 2012.

SCOPE 1 AND 2 EMISSIONS (TnCO2e)
(ABSOLUTE)

11,412

9,844

10,341

54%

51%

55%

45%

49%

46%

2012

2013

2014

Scope 1

Scope 2

WATER CONSUMPTION (m3)
(ABSOLUTE)

WASTE RECYCLING (%)

SCOPE 1 AND 2 EMISSIONS (TnCO2e)
(EXCLUDING NEW ACQUISITIONS)

35,471

35,822

39,801

74

71

77

2012

2013

2014

2012

2013

2014

WATER CONSUMPTION (m3)
(EXCLUDING NEW ACQUISITIONS)

35,471

33,365

33,778

2012

2013

2014

Environmental Incidents
There have been no reportable environmental 
incidents during 2014. Systems are in place to 
address any environmental incident that occurs 
at our facilities and the robustness of these 
emergency systems are included as part of our 
internal audit system.

Greenhouse Gas Reporting
In January 2015 EEF undertook an assurance 
audit	of	the	Greenhouse	Gas	Emissions	(GHG)	
report. The business reports on GHG Emissions 
in	line	with	the	GHG	Emissions	Protocol	
developed jointly by the World Business Council 
for Sustainable Development and the World 
Resource	Institute.	Highlights	from	the	audit	will	
be detailed in the Annual Environmental Report 
that	will	be	published	during	2015	and	available	
on Rotork.com.

9,844

9,850

10,321

53%

51%

53%

47%

49%

47%

2012

2013

2014

Scope 1

Scope 2

Greenhouse gas is measured across three 
different	scopes:

Scope 1: Emissions that are direct GHG 
emissions	from	sources	that	are	owned	or	
controlled by Rotork, these include emissions 
from fossil fuels burned on site, emissions from 
owned	or	leased	vehicles,	and	other	direct	
sources.

Scope 2: Emissions are indirect GHG emissions 
resulting from the generation of electricity, 
heating and cooling, or steam generated 
off-site	but	purchased	for	heating.

Scope 3: Emissions include indirect GHG 
emissions	from	sources	not	owned	or	directly	
controlled by the entity but related to the 
entity’s activities. Scope 3 GHG emission 
sources currently required for GHG reporting 
include	transmission	and	distribution	(T&D)	
losses	associated	with	purchased	electricity	and	
steam	and	well-to-tank	emissions	for	all	energy,	
business travel and transport.

44

STRATEGIC REPORTROTORK ANNUAL REPORT 2014There has been an increase of absolute 
emissions across scopes 1 and 2 by 10.4% on 
2013’s rates and an increase of 15.9% on the 
absolute emissions in the baseline year. When 
excluding	new	acquisitions	scope	1	and	2	
emissions increase by 3.8% on 2013 and 3.8% 
on the baseline year.

Summary of progress
Though the emissions have increased as the 
size of the business has increased there are a 
number	of	projects	that	will	start	to	show	
benefit	through	2015.	The	like-for-like	sites	
have remained fairly static in electricity 
consumption and decreases in gas and LPG 
consumption based on last year.

Years	2012	and	2013	were	utilised	to	understand	
the	data	that	was	available	to	the	business.	In	
2014	projects	were	formulated	and	started	to	
be implemented and during 2015 should start to 
show	a	reduction	in	our	GHG	emissions.	Further	
projects are planned during 2015 to assist in the 
reduction of GHG emissions.

Changes in temperature can account for some 
of the increase in utility consumption. Changes 
in the ‘GHG Conversion Factors for Company 
Reporting’	which	is	published	by	the	
Department of Energy and Climate Change 
(DECC)	can	account	for	some	of	the	increase	in	
GHG emissions. In some regions that Rotork 
operates	there	was	an	increase	of	10%	on	the	
emission factors compared to the previous year.

2015 Targets
A	number	of	projects	will	be	targeted	at	our	
highest	GHG	emission	sites	whilst	some	
behavioural	projects	will	be	rolled	out	across	the	
business to assist in achieving a target of a 3% 
reduction in Scope 1 and 2 GHG emissions 
normalised by turnover.

CASE STUDY
NEW MANUFACTURING FACILITY IN LEEDS
Energy	saving	is	paramount	within	Rotork’s	facilities,	and	the	
Rotork UK site in Leeds is a prime example of this consideration.

Lighting	provides	a	significant	saving	
opportunity, so throughout the factory and 
offices	the	new	facility	has	been	fitted	with	
occupancy sensing luminaires that dim 
automatically as natural light levels increase. 
Fresh	air	supplied	to	the	office	is	tempered	by	
energy recovered from the extracted air; 
saving	energy	in	both	winter	and	summer.

Natural ventilation in the factory utilises 
automatic	roof	and	wall	louvres	to	provide	
cooling air movement in summer months. All 
these are controlled by a Building Management 
System for optimal comfort and minimum 
energy use.

45

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportCORPORATE
SOCIAL

RESPONSIBILITY CONTINUED

Bath	(UK)	took	part	in	‘It’s	a	Knockout’	to	raise	money	for	WaterAid.

46

ETHICS AND VALUES

Overview
Ethics	and	values	are	central	to	the	way	we	do	
business. The Group’s Ethics and Values 
Statement	can	be	viewed	on	our	website,	in	a	
number	of	languages,	at	www.rotork.com/en/
investors/index/ethicsvalues. Our ethics and 
values	can	be	split	into	four	strands:

Human Rights and Ethical Business
The Group is fully committed to respecting 
internationally proclaimed human rights as 
defined	in	the	International	Declaration	of	
Human Rights and the International Labour 
Organisation’s standards. The Group does not 
accept any form of child or forced labour and 
embracing the UN Global Compact principles 
throughout the business is a demonstration 
of this commitment.

The Group recognises that an open and honest 
culture	is	key	to	understanding	concerns	within	
the business and promises to uncover and 
investigate	any	potential	wrongdoing.	The	Group	
has	a	whistleblowing	policy	with	an	independent	
external	whistleblowing	hotline	to	facilitate	the	
reporting	of	any	concerns	of	wrongdoing	
confidentially.

Employees
The	Group	has	a	firm	commitment	to	all	its	
employees	regarding	wellbeing	and	development.	
Many	of	the	Group’s	offices	provide	health	checks	
for	their	employees,	as	well	as	encouraging	
participation	in	sports	teams	or	one-off	charitable	
events. More details regarding charitable activities 
can be found in the Community Involvement 
section of this CSR report.

Rotork has an objective and fair recruitment 
process	which	promotes	equal	opportunities	
across	the	Group	in-line	with	the	‘Respect	at	
Work and Equality of Opportunity’ policy. 
Rotork is committed to the principle of equal 
opportunities in employment to ensure that 
no employee or job applicant receives less 
favourable treatment on their age, race, 
nationality, ethnic origin, disability, sex, sexual 
orientation, religion, belief or marital status. All 
employees therefore have responsibilities 
to ensure that the policy is successfully 
implemented including ensuring that selection 
for	hiring,	promotion,	training	and	work	allocation	
is carried out in a non-discriminatory manner.

Employee	views	and	direct	communication	
are	part	of	our	values	and	we	run	employee	
suggestion	schemes,	an	annual	Group	wide	
Employee	Satisfaction	Survey	(ESS)	and	several	
locations	have	employee	forums	where	
employees can raise issues to be further 
considered by management.

STRATEGIC REPORTROTORK ANNUAL REPORT 2014Progress
•  A	further	16	existing	suppliers	and	all	new	
suppliers to Rotork’s Bath manufacturing 
facility	were	assessed;

•  A	FTSE4Good	score	of	3.8	out	of	5	was	

achieved;

•  Presentations relating to bribery and 
corruption	were	given	by	senior	
management and the Group’s legal 
department to Group accountants, internal 
auditors, general managers and sales 
managers;

•  The	whistleblowing	policy	was	

communicated to all employees in every 
edition	of	the	internal	Rotork	e-newsletter;	
and

•  Bribery	and	corruption	training	was	rolled	

out to relevant employees in French, Italian, 
Japanese, Portuguese, Russian and Thai, in 
addition to English, Korean, German, Spanish 
and Chinese.

2015 Targets
•  Further	increasing	awareness	of	bribery	and	
corruption issues by circulating information 
to agents in the form of a tailored booklet;

•  Continue to make progress in increasing 

diversity across the Group;

•  Ensure the Group diversity policy in its 

broadest sense is communicated across the 
Group; and

•  Continue to communicate the 

whistleblowing	policy	regularly	through	the	
Rotork	e-newsletter.

Employees are briefed by management on various 
matters including the Company’s performance at 
regular	intervals	as	well	as	the	employee	bonus	
performance	which	is	profit	related.	Most	
locations participate in the Company’s employee 
profit	linked	share	schemes.

Rotork	has	built	a	strong	partnership	with	the	
Institute	of	Mechanical	Engineers	(IMechE)	to	
support its engineers in gaining Incorporated 
and Chartered accreditation and Rotork 
continues	to	work	with	IMechE.	Leeds	has	an	
IMechE	Industrial	Liaison	team	who	support	
members of the institution and they help to 
promote	it	internally	and	to	the	wider	
engineering community.

The Group supports apprenticeship schemes for 
young	men	and	women	which	helps	to	increase	
access into all aspects of the Group’s business.

Full details of Rotork’s diversity policy and 
targets can be found in the corporate 
governance report on page 58.

Bribery and Corruption
The Group has a zero tolerance policy on bribery 
and	corruption	worldwide,	irrespective	of	
country or business culture. The Group’s Ethics 
and Values statement makes clear that our 
employees	will	never	offer,	pay	or	solicit	bribes	
in any form and is published on the Group’s 
website	in	a	number	of	languages.	The	Group	
does not make political contributions in cash or 
kind	anywhere	in	the	world.

The	Group’s	whistleblowing	policy,	which	can	be	
found	on	Rotork’s	website,	gives	whistleblowers	
a platform to alert senior management, 
anonymously	if	the	employee	wishes,	to	any	
suspected bribery or corruption, through an 
independent, external hotline if necessary. The 
Group	has	an	open	culture	which	allows	
employees to raise concerns to management in 
various	ways,	as	set	out	in	the	whistleblowing	
policy.	All	whistleblowing	concerns	however	
received are investigated and reported to the 
Audit Committee. During 2014 the hotline 
received	five	calls	covering	issues	related	to	
health and safety and employment issues. All 
were	resolved	satisfactorily.	The	ESS	for	2014	
showed	an	increased	understanding	of	how	to	
raise	a	wrongdoing	concern	using	the	
whistleblowing	hotline.	During	the	year	further	
steps	were	then	taken	to	publicise	and	promote	
the hotline.

The Group makes use of detailed background 
checks provided by specialist bribery and 
corruption due diligence consultants before 
dealing	with	unknown	third	parties	(including	
agents,	prospective	acquisitions	and	suppliers)	

operating in higher risk jurisdictions or market 
sectors. The Group makes use of objective 
guidance on country risk, such as the Corruption 
Perception Index by Transparency International. 
When	working	with	the	unknown	third	party,	and	
after the initial detailed background checks, the 
Group also continually screens these third 
parties against a large number of international 
sources	which	could	detect	unethical	behaviour	
including	watchlists,	sanctions	lists	and	the	
media using its due diligence consultants’ 
proprietary databases. These third parties are 
also subject to continual screening.

The Group has developed and delivered 
anti-bribery and corruption training including an 
assessment	to	all	employees	working	in	sales	
and	purchasing	roles	as	well	as	to	senior	
accountants, all managers and directors 
(including	executive	and	non-executive	
directors).	The	anti-bribery	and	corruption	
training is delivered as an e-learning module. 
The course has been made available in 
numerous languages and almost 100% of 
employees required to complete the course 
have	done	so	within	the	required	period,	
including	those	in	new	acquisitions.

Suppliers
The Group has continued to operate an 
outsourced manufacturing model, selecting 
suppliers	with	sound	reputations	in	the	
marketplace. Many of the suppliers have a 
long-term	working	relationship	with	the	
Company, ensuring ingrained product 
knowledge	within	the	supply	chain.
Suppliers are subject to continuous automated 
online monitoring against sanctions lists, 
watchlists,	regulatory	and	court	records	and	a	
large number of national and international 
media sources and the Company is alerted 
where	any	derogatory	information	is	uncovered.

The supplier assessment programme includes 
CSR	themed	questions	associated	with	equal	
rights and equal pay, anti-bribery and corruption 
policies, charitable giving, environmental impact 
and anti-compulsory or child labour practices. 
These surveys consider current and prospective 
suppliers. The assessments are discussed 
directly	with	the	suppliers	and	any	corrective	
action	plan	is	agreed	between	the	Company	and	
the supplier.

Rotork Controls Limited and Rotork UK Limited, 
the Group’s main UK trading companies, and 
Rotork plc, are signatories to the Prompt 
Payment Code. This ensures suppliers are paid 
according to the terms agreed and this 
encourages	good	practice	to	be	passed	down	
supply chains.

47

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportCORPORATE
SOCIAL

RESPONSIBILITY CONTINUED

HEALTH AND SAFETY

Overview
Rotork is fully committed to the health and 
safety of its employees and contractors. We 
ensure compliance to all relevant legal and 
regulatory requirements and strive to 
continuously improve our health and safety 
performance.

Policies, procedures and systems of safe 
working	are	in	place,	supported	with	training	to	
ensure	the	health,	safety	and	welfare	of	our	
employees	during	their	working	day.	The	Health	
and	Safety	Policy	was	reviewed	and	approved	in	
February of 2014 by the Chief Executive.

Fundamental Principles
As	the	business	continues	to	grow	both	
organically and through acquisition, the 
fundamental	principle	of	‘If	we	cannot	do	a	job	
safely,	we	will	not	do	the	job’	is	maintained	and	
communicated	to	all	those	who	work	for	or	on	
behalf of Rotork.

Progress
The	target	for	2014	was	to	have	an	Accident	
Frequency	Rate	(AFR)	below	0.42.	The	actual	
AFR	for	2014	was	0.31	which	is	a	decrease	of	6%	
on the previous year and a decrease of 44% 
since 2009.

ACCIDENT FREQUENCY RATE (AFR)

0.56

0.46

0.46

Dallas	(USA)		‘Toys	for	Tots’	campaign.

0.38

0.33

0.31

2009

2010

2011

2012

2013

2014

The AFR is a calculation of accidents resulting in 
over three days lost time, divided by the average 
hours	worked,	multiplied	by	100,000.

The	number	of	days	lost	due	to	workplace	
injuries decreased by 33% but the number of 
minor accidents has increased by 24% on the 
previous year.

48

STRATEGIC REPORTROTORK ANNUAL REPORT 2014  
Occupational Health
There have been no occupational diseases 
reported during 2014.

Case Study Examples
Gears – Houston
A Lean Six Sigma project introduced ‘7S’ 
standards	that	involved	a	detailed	review	of	the	
operational	workspace	that	assessed	and	made	
improvements on layouts, general housekeeping, 
cleaning routines, scheduled preventative 
maintenance and all associated training. This 
programme	will	support	other	work	that	is	
ongoing to reduce the risk of injury and help 
maintain	a	healthy	workplace.

Controls – Singapore
A	number	of	activities	to	reduce	the	risk	of	fire	
were	carried	out	including	upgrading	electrical	
systems,	fire	extinguisher	exercises	for	all	
employees, improvements in housekeeping 
standards that included a designated outside 
smoking	area	with	a	safety	bin	and	improved	
storage of combustible materials.

Awards and Recognition
To ensure high standards of health and safety 
performance,	a	number	of	businesses	within	the	
Rotork Group have gained or have maintained 
certification	to	OHSAS18001.	These	include	
facilities	in	Leeds	(UK),	Wolverhampton	(UK)	and	
Singapore.

Assurance Activities
During	2014	compliance	audits	were	conducted	
at 62 of our facilities. On equivalent sites there 
was	a	slight	decrease	in	the	score	achieved	from	
86%	to	85%,	this	is	believed	to	be	down	to	the	
interpretation	of	different	auditors.	Our	newly	
acquired	sites	scored	a	lower	average	of	80%.	
Where sections of the business do not perform 
to the required standard corrective actions are 
identified	and	tracked	to	closure.	During	2014	
there	were	no	actions	raised	that	would	require	
immediate attention by the local management 
teams.

A proposal to re-balance the audit protocol to 
ensure a greater consistency in scoring and to 
focus on risk management processes and 
control	was	agreed	by	the	CSR	committee	in	
December of 2014.

Houston	(USA)	supports	the	Court	Appointed	Special	Advocates	for	Children	(CASA).

Employee Satisfaction Survey
During	2014	75%	of	the	workforce	completed	
an employee satisfaction survey. The question, 
“I	believe	that	Rotork	cares	about	my	health	and	
safety”, had overall satisfaction of 80%, a slight 
increase of 1% on the previous year. The 
question,	“In	the	last	year,	I	have	seen	actions	
taken	to	maintain	safety	at	my	workplace”,	saw	
an increase from 77% to 79%.

Summary of Progress
Throughout	the	year	we	continued	to	keep	
health and safety as a priority for employees and 
contractors as can be seen by the positive 
results in the employee satisfaction survey. We 
must continue to learn from events, audits and 
inspections to continually improve our health 
and	safety	performance.	As	we	move	forward	
we	will	be	looking	to	improve	our	processes	and	
will	look	at	innovative	practices	to	improve	our	
health and safety performance.

2015 Targets
The method adopted to set the AFR target is 
the calculated average of the previous three 
years AFR results, this sets the AFR target for 
2015 as 0.36.

49

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportCORPORATE
SOCIAL

RESPONSIBILITY CONTINUED

CASE STUDY
SIGHTSAVERS
Rotork	is	supporting	Sightsavers’	work	to	eliminate	river	
blindness,	lymphatic	filariasis	(LF)	and	trachoma	in	Ghana	and	
help them achieve their goal of eliminating Neglected Tropical 
Diseases	(NTDs)	by	2020.

Joseph Baidoo is a 64 year old cocoa farmer 
who	lives	in	Brekrom	in	the	Juabeso	district	
of the Western Region of Ghana. Joseph lives 
close to the Bia River and during October and 
November,	when	the	rain	is	the	heaviest,	
black	flies	come	in	droves.

Joseph has been taking Mectizan® for the 
past four years to prevent and control river 
blindness.

50

COMMUNITY INVOLVEMENT

Overview
The Group considers it important to contribute to 
and	engage	positively	with	stakeholders	in	the	
communities	in	which	we	operate	and	to	be	a	good	
community	neighbour	around	the	world.	We	
regard this as part of our ongoing responsibilities 
as a corporate entity. The Group seeks to be 
regarded as a good corporate citizen. This links 
into	our	corporate	values	which	include	producing	
a	positive	and	beneficial	impact	in	the	areas	in	
which	we	operate.	One	of	the	ways	the	Group	
does this is by having local charity committees at 
each	of	our	sites	which	donate	to	local	charitable	
causes.	This	empowers	local	employees	to	decide	
how	to	distribute	the	funds	in	their	local	
communities. The Group aims to contribute 0.1% 
of	profits	to	local	charitable	causes.

Local community involvement highlights from the 
year	include:
•  Langenzenn	(Germany)	donated	towards	new	

equipment at their local primary school;
•  Falun	(Sweden)	donated	to	local	charity	

Makalosa	Foraldrar,	who	actively	support	single	
parents in Falun by organising fun activities to 
give both the children and parents a break from 
everyday life;

•  Employees from our Rochester and Winston-
Salem	(USA)	offices	raised	significant	funds	to	
support	the	charity	United	Way	who	focus	on	
education, income, and health of the local 
communities they engage in;

•  Shanghai	(China)	donated	to	the	Educational	
Development Fund of South China University 
of Science & Technology; and

•  Tulsa	(USA)	employees	produced	overwhelming	
responses to clothing and food drives in 2014. 
The food drive, hosted prior to Thanksgiving, 
resulted in turkeys and side dishes being 
donated to 10 families through the Community 
Food Bank of Eastern Oklahoma.

Apprenticeships are increasingly being 
developed	throughout	Rotork’s	global	network	
of subsidiaries. Bath’s apprenticeship scheme 
has run since the Company began nearly 60 
years ago and similar established programmes 
now	exist	at	several	Rotork	locations.	Rotork	
values its apprentices and believes in investing 
in	its	own	talent	in	order	to	succeed.	For	
example,	in	Melle	(Germany),	it	is	the	
combination of technical training at a local 
college,	with	the	valuable	experience	within	
commercial departments that makes the 
apprenticeship programme unique. As a result, 
the	apprentices	will	emerge	from	the	
apprenticeship	as	all-rounders	with	the	
capability	to	pursue	several	different	career	
paths	within	Rotork.	Other	Rotork	locations	that	
have run an apprenticeship programme during 
2014	include:	Bayswater	and	Ballarat	(Australia),	
Langenzenn	(Germany),	Losser	(The	
Netherlands),	and	Bilbao	(Spain).

STRATEGIC REPORTROTORK ANNUAL REPORT 2014In addition to local charitable and educational 
activities,	the	Group	has	supported	two	major	
charities in 2014, WaterAid and Sightsavers. A 
specific	WaterAid	project	is	supported	and	the	
Group receives regular updates throughout the 
year on the progress of this project.

WaterAid uses the Group’s support to help fund 
the Metu-Hurumu Woreda WaSH Project in 
Ethiopia, situated in the same area of Ethiopia as 
the completed Jeldu Woreda Project previously 
supported by the Group. This project targets 10 
villages	and	provides	over	128,000	people	with	
safe	water	and	sanitation.	The	project	is	a	
combination	of	water	supply	provision,	water	
resource management and livelihood 
improvement	and	it	has	been	identified	that	this	
approach is of critical importance to improve 
the	wellbeing	of	the	communities	in	the	Keber	
watershed.	Since	work	commenced	in	August	
2014, the project has provided 3,422 people 
with	water,	4,196	people	with	toilets,	and	1,913	
people	with	hygiene	education.	Rotork	will	
continue to support the development of this key 
project throughout 2015.

In addition to our ongoing support for WaterAid, 
the Group also supports Sightsavers, an 
international	charity	that	works	with	partners	in	
the	developing	world	to	combat	avoidable	
blindness.	Sightsavers	is	part	of	a	high	profile	
global	initiative	to	eliminate	the	world	of	neglected	
tropical	diseases	(NTDs)	in	the	next	10	years,	
diseases	which	currently	affect	over	1.4	billion	of	
the	world’s	poorest	people.	Rotork’s	support	is	
focused	on	Ghana,	and	is	split	between	the	
trachoma	and	lymphatic	filariasis	(LF)	/	river	
blindness programmes that helped to protect 
millions of people against these devastating 
diseases in 2014. Rotork’s support has aided 
Sightsavers	to	take	another	step	towards	their	aim	
of eliminating NTDs in Ghana by 2020.

Progress
•  £60,000 contributed by the Group to 

WaterAid;

•  £60,000 contributed to Sightsavers; and
•  Variety of donations made to charitable 

causes relevant to the local communities of 
Rotork’s operating sites.

2015 Targets
To increase donations to charitable causes. The 
Group	will:
•  Donate	0.1%	of	Group	profits	to	Rotork’s	

nominated international charity;

•  Donate	0.1%	of	Group	profits	to	charitable	
causes local to Rotork’s operating sites; and

•  To continue to support WaterAid and in 
particular the Metu-Hurumu Woreda 
WaSH Project.

CASE STUDY
WATERAID
Rotork continues to support WaterAid and the donation made in 
2014	has	helped	local	communities	in	ten	villages	with	clean	
water,	improved	sanitation	and	hygiene	wash	(WASH).

Working	in	seven	Kebeles	(villages)	of	the	
Hurumu	Woreda	(district),	in	the	Oromia	
Region of Ethiopia, WaterAid and their local 
partner	followed	an	integrated	approach	to	
WASH services - capacity building at both 
community	and	institutional	level	and	water	
resource and natural resource management 

through	conservation	of	the	area’s	wetlands.	
This has helped to combat the severe 
degradation	of	wetlands	in	the	most	
ecologically important area of Ethiopia, 
where	many	rivers	contributing	to	the	Nile	
Basin originate.

Contacts and feedback
The	Group	welcomes	and	values	feedback.	If	you	
have any comments regarding this CSR report or 
any aspect of the Group’s CSR programme, 
please contact Stephen Jones, Company 
Secretary,	by	writing	to	him	at	the	Rotork	plc	
registered	office,	full	details	of	which	can	be	
found in the corporate directory on page 131.

51

GovernanceDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014Strategic ReportDIRECTORS

1. PETER FRANCE

CHIEF EXECUTIVE

2. ROGER LOCKWOOD

CHAIRMAN

Peter was appointed as Chief Executive of 
Rotork plc in 2008. He joined Rotork in 1989 as an 
Inside Sales Engineer. In 1998, he was appointed 
Director and General Manager at Rotork 
Singapore before becoming Managing Director 
of the Fluid Systems Division and then Chief 
Operating Officer.

APPOINTED TO THE BOARD

2006

EXTERNAL APPOINTMENTS

Chairman of the Bath Education Trust

COMMITTEE MEMBERSHIP

Nomination

Roger has been a non-executive director of 
Rotork since joining the Board and became 
non-executive Chairman in November 1998. 
He previously held CEO roles in automotive and 
engineering businesses.

3. JOHN NICHOLAS

SENIOR INDEPENDENT  
NON-EXECUTIVE DIRECTOR

John was appointed as Senior Independent 
Director of Rotork plc on 20 June 2014. Formerly, 
John was Group Finance Director of Tate & Lyle 
plc and Kidde plc.

APPOINTED TO THE BOARD

APPOINTED TO THE BOARD

1988

2008

EXTERNAL APPOINTMENTS

Chairman of Hydro International plc

COMMITTEE MEMBERSHIP

Nomination (Chairman)

EXTERNAL APPOINTMENTS

Chairman of Diploma plc
Non-executive director of Mondi plc
Non-executive director of Hunting plc
Member of the Financial Reporting Review Panel 
of the Financial Reporting Council (FRC)

COMMITTEE MEMBERSHIP

Audit, Nomination and Remuneration

1

2

3

4

5

4. GARY BULLARD

NON-EXECUTIVE DIRECTOR

5. SALLY JAMES

NON-EXECUTIVE DIRECTOR

Gary previously held senior management 
positions, including sales and marketing roles, at 
IBM and BT Group plc and was a non-executive 
director of Chloride Group plc. Gary most 
recently held the position of President of Logica 
UK until October 2012 and was a member of the 
Executive Committee of Logica plc.

APPOINTED TO THE BOARD

2010

EXTERNAL APPOINTMENTS

Founder and CEO of Catquin Ltd
Chairman of New Model Identity Ltd

COMMITTEE MEMBERSHIP

Remuneration (Chairman) 
Audit and Nomination

Sally previously held senior legal roles in investment 
banking in London and Chicago including Managing 
Director and EMEA General Counsel for UBS 
Investment Bank. She has also held the position of 
Bursar of Corpus Christi College, Cambridge.

APPOINTED TO THE BOARD

2012

EXTERNAL APPOINTMENTS

Non-executive director of UBS Limited
Non-executive director of Towry Limited
Non-executive director of Moneysupermarket.
com Group plc
Non-executive director of Abdi Limited
Trustee of Legal Education Foundation

COMMITTEE MEMBERSHIP

Audit (Chair), Remuneration and Nomination

52

ROTORK ANNUAL REPORT 2014Strategic Report

Directors

6. LUCINDA BELL

NON-EXECUTIVE DIRECTOR

7. BOB ARNOLD

8. MARTIN LAMB

PRESIDENT OF ROTORK CONTROLS INC.

NON-EXECUTIVE DIRECTOR

Lucinda is a Chartered Accountant with over 
20 years of industry experience and has held a 
range of finance roles in the real estate industry. 
Lucinda has served on the board of The British 
Land Company plc since March 2011 and 
became Finance Director in May 2011.

APPOINTED TO THE BOARD

2014

EXTERNAL APPOINTMENTS

Finance Director of The British Land Company plc

COMMITTEE MEMBERSHIP

Audit, Nomination and Remuneration

Bob was appointed President of Rotork Controls 
Inc. in 1988 and has responsibility for all Rotork’s 
interests in the Americas. He joined Rotork 
Controls Inc. in 1978 as Engineering Manager 
subsequently becoming Vice President, 
Engineering. Prior to joining Rotork, Bob worked 
for Westinghouse in the USA as a Design 
Engineer in the Nuclear Valve Group.

APPOINTED TO THE BOARD

2001

9. JONATHAN DAVIS

FINANCE DIRECTOR

Jonathan joined Rotork in 2002 after holding a 
number of finance positions in listed companies. 
He gained experience of the Rotork business 
initially as Group Financial Controller and then as 
Finance Director of the Rotork Controls Division 
and in 2010 was appointed Group Finance 
Director.

APPOINTED TO THE BOARD

2010

10.GRAHAM OGDEN
RESEARCH AND  
DEVELOPMENT DIRECTOR

Graham has been with Rotork since 1985  
and has been closely involved in product 
development including our award winning  
IQ series. Graham has been Research and 
Development Director since 1997.

APPOINTED TO THE BOARD

2005

Martin has an engineering background and 
worked for IMI for over 33 years, where he held a 
number of senior management roles. He served 
on the IMI plc board from 1996 until May 2014 
and held the position of Chief Executive of IMI plc 
from 2001 to 2013.

APPOINTED TO THE BOARD

2014

EXTERNAL APPOINTMENTS

Chairman of Evoqua Water Technologies LLC
Senior independent director of Severn Trent plc
Non-executive director of Mercia Technologies plc
Member of the European Advisory Board of AEA 
Investors (UK) Ltd

COMMITTEE MEMBERSHIP

Audit, Nomination and Remuneration

6

7

9

8

10

53

GovernanceFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014CORPORATE
GOVERNANCE

Statement from Chairman

Roger Lockwood
Chairman

54

The continuing success of Rotork, our reputation 
in its markets and our relationships with our 
stakeholders is dependent on and safeguarded 
by the leadership provided by an effective board. 
Good corporate governance supports the 
effectiveness of your board and contributes 
towards the long-term success of our company.

Our corporate governance report is set out on 
pages 54 to 63 and describes the roles, 
accountabilities and expectations for our 
directors and Board structures. We are subject to 
the UK Corporate Governance Code (the Code) 
and whilst ensuring we provide detailed 
reporting, we have sought to place emphasis on 
explaining how the principles of the Code are 
applied across our Group. A summary of the 
business the Board considered during 2014 is 
also set out opposite. I am pleased to report that 
throughout 2014, the Company complied with 
the Code in all respects.

Corporate governance highlights for 2014 include 
the progressive refreshing of the Board and its 
Committees by the appointment of two new 
independent non-executive directors, LM Bell and 
MJ Lamb and change in the roles of JE Nicholas 
(Senior Independent Director) and SA James 
(Chairman of the Audit Committee), which 
followed the retirement of IG King from the Board. 
Throughout the year, the Nomination Committee 
has held a number of additional meetings to 
consider Board composition and succession 
planning and, in particular, recommending to the 
Board the appointment of two new independent 
non-executive directors and a new Chairman.

The Audit Committee conducted a tender for 
the appointment of our external auditor and, 
following this process, appointed Deloitte LLP 
on 2 June 2014 as the Group’s external auditors, 
replacing KPMG Audit plc.

I believe that good corporate governance, when 
properly applied, supports and protects our 
business and its long term success by creating a 
link, based on trust and engagement, between 
Rotork and its stakeholders. It is important for 
governance to focus on and resonate throughout 
the entire organisation and at Rotork we seek to 
apply it across our activities worldwide in a 
consistent and unified way to create and maintain 
the right culture throughout our Group. I believe 
this allows us to produce a better business. 
Rotork’s products and services are offered in 
many markets and territories and we recognise 
that our business activities affect a diverse range 
of stakeholders. With that in mind, we must 
ensure that we consistently do things the right 
way through a unified approach. Our corporate 
governance arrangements underpin this by 
ensuring that our people know not just what to 
do, but how to do it.

ROTORK ANNUAL REPORT 2014GOVERNANCESummary of 2014 Board Business

February

March

April  
(2 meetings)

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Approval of the overall level of insurance for the Group.
 – Consideration of the Audit Committee recommendation to approve the 2013 financial statements for presentation to the 

shareholders for their approval at the Annual General Meeting (AGM).

 – Consideration of the 2013 financial statements and potential final dividend amount.
 – Receipt of a presentation from the Chief Executive and Finance Director of the preliminary announcement of the 2013 financial results.
 – Review of 2013 top objectives.
 – Presentation from the Group Human Resources Director, Group Operations Director and Group Legal Director on Corporate Social 

Responsibility.

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Presentations from the Group Business Development Director and Group Research and Development Director.

 – Consideration of the Audit Committee recommendation to approve the Interim Management Statement.

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Consideration of the AGM proxy returns and reports and consideration of the AGM arrangements.
 – Review of Third Annual Review of Women on Boards report by Lord Davies.
 – Presentation by Divisional Managing Director of Rotork Fluid Systems.

May

 – Approval of appointment of MJ Lamb as a non-executive director, following a Nomination Committee recommendation.
 – Approval of JE Nicholas as Senior Independent Director and SA James as Audit Committee Chairman.
 – Approval of appointment of Deloitte LLP as external auditor from 2 June 2014, following an Audit Committee recommendation.

June 
(meeting held 
at Rotork’s plant 
in Winston-Salem, 
USA)

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive and report from Chairman on meeting with institutional investors.
 – Discussion of the half year interim dividend.
 – Group Risk Review.
 – Group strategy presentation by Chief Executive and Board discussion on strategy.
 – Presentation from the Divisional Managing Director of Rotork Instruments and local management.

July

August

 – Approval of appointment of LM Bell as a non-executive director, following a Nomination Committee recommendation.

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Receipt of a presentation from the Chief Executive and Finance Director of the half year results.
 – Consideration and approval of half year report and consideration of interim dividend.
 – Strategy discussion.

September 
(meeting held at 
Rotork’s plant in 
Leeds, UK)

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Consideration of legal and corporate governance developments.
 – Presentation from the Divisional Managing Director of Rotork Gears.

November 
(2 meetings)

December

 – Consideration of the Audit Committee recommendation to approve the Interim Management Statement.

 – Performance and business review including a review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Consideration of risk appetite.
 – Review of the 2015 budget.
 – Consideration and approval of revised employment of former employees of the external auditor policy.
 – Consideration of legal and corporate governance developments, including the requirements of the UK Corporate Governance Code 2014.
 – Presentations from the Divisional Managing Director of Rotork Controls and the Managing Director of Rotork Site Services.

 – Performance and business review including review of prospective acquisitions.
 – Investor relations report from Chief Executive.
 – Discussion of potential 2014 final dividend amount.
 – Review of effectiveness of risk management and internal control systems.
 – Consideration of corporate governance developments.
 – Consideration of board performance evaluation.
 – Approval of Directors’ situational conflicts of interests disclosures.
 – Review of risk management and internal control systems including consideration of the Board’s additional responsibilities under 

the UK Corporate Governance Code 2014 and associated guidance.

 – Approval of 2015 corporate objectives.
 – Approval of the 2015 budget.

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GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014CORPORATE GOVERNANCE CONTINUED

UK Corporate Governance Code Compliance Statement
The following section on pages 56 to 63 is a summary of the system of 
corporate governance adopted by Rotork. Throughout the year ended 
31 December 2014, Rotork plc fully complied with the UK Corporate 
Governance Code (the Code). The Code is available to download at 
www.frc.org.uk.

The Board of Directors
The Board has a duty to promote the long-term success of Rotork for its 
shareholders; accomplished by entrepreneurial leadership, within a 
framework of prudent and effective controls. Its role therefore includes 
approval of strategy, risk reviews, finance matters and internal control and 
risk management including major contract approvals.

The terms and conditions of appointment of directors are available for 
inspection during business hours at the registered office of Rotork plc and 
at the AGM.

Board Composition
Rotork is led by an effective Board which consists of ten members: 
the Chairman, five independent non-executive directors and four 
executive directors. Apart from the Chairman, all non-executive directors 
are considered to be independent from Rotork and are appointed for an 
initial term of three years. Upon the completion of this term, the 
appointment is reviewed and, if appropriate, extended for up to a further 
two three year terms following which the director normally retires.

The biographies of the directors and details of Board committee 
membership are set out on pages 52 to 53.

All directors are subject to annual re-election at the AGM in line with 
the Code.

LENGTH OF TENURE OF INDEPENDENT 
NON-EXECUTIVE DIRECTORS  
AS AT 31 DECEMBER 2014

0 – 3 years 

3 – 6 years 

6 – 9 years 

BALANCE OF INDEPENDENT NON-EXECUTIVE 
DIRECTORS AND EXECUTIVE DIRECTORS 
AS AT 31 DECEMBER 2014

Non-Executive Chairman 

Independent Non-Executive 
Directors 

Directors’ attendance at Board and Committee meetings during 2014:

Board 

Audit 
Committee

Remuneration 
Committee

Nomination 
Committee

No. of meetings

RH Arnold
JM Davis
PI France
GM Ogden
LM Bell(ii)
GB Bullard
SA James
IG King(iii)
MJ Lamb(iv)
RC Lockwood
JE Nicholas

12

12
12
12
11
2
11
12
5
5
12
12

6

3(i)
6(i)
6(i)
3(i)
1
6
6
3
3
6
6

3

N/A
N/A
3(i)
N/A
1
3
3
1
2
3
3

4

N/A
N/A
4
N/A
0
4
4
1
1(v)
4
4

(i)  By invitation
(ii)  LM Bell was appointed to the Board on 10 July 2014
(iii)  IG King retired from the Board on 20 June 2014
(iv)  MJ Lamb was appointed to the Board on 2 June 2014
(v)  MJ Lamb did not attend November Nomination Committee meeting where he was 

being considered as a candidate for the upcoming Chairman vacancy

Roles and Responsibilities
There is a documented clear division of responsibilities between the 
Chairman and the Chief Executive to ensure that there is a balance 
of power and authority between leadership of the Board and 
executive leadership.

All directors are entitled to seek independent, professional advice at the 
Company’s expense in order to discharge their responsibilities as directors. 
Rotork maintains appropriate directors’ and officers’ insurance cover.

How the Board Operates Effectively
Board Activities
As part of Rotork’s Board effectiveness, day-to-day responsibility for the 
running of the Company is delegated to executive management. However, 
there are a number of matters where it is not considered appropriate to 
do this. The Board therefore has a formal and documented schedule of 
matters reserved for its decision which includes:
•  Approval of Group strategy;
•  Major capital projects and major contracts approval;
•  Acquisition and disposal of any company, business or fixed asset in 

excess of agreed levels;

•  Changes to Group corporate, capital, management or control 

structures or listing status;

•  Approval of preliminary announcements and results, annual report, 
dividends and significant changes in accountancy policies and 
procedures and treasury policy;

•  Approval of bank borrowings exceeding a certain percentage of the 

relevant company’s turnover;

•  Undertaking an annual assessment of the Group risk control process;
•  Making appointments and removals (following Nomination Committee 
recommendations) and changing the size and composition of the Board;

•  Succession planning;
•  Determining membership and chairmanship of Board Committees;
•  Appointment, re-appointment or removal of the external auditor 

(following Audit Committee recommendation);

•  Approval of all resolutions and corresponding documentation to be put 

to the shareholders at a general meeting and the annual report;
•  Approval of auditor, brokers and principal corporate finance adviser;
•  Prosecution, defence or settlement of any material litigation;
•  Approval of overall levels of insurance for the Group; and
•  Major changes to the Group’s pension schemes.

Executive Directors 

In 2014, the Board met 10 times at scheduled meetings and twice at 
additional meetings.

56

ROTORK ANNUAL REPORT 2014GOVERNANCEThe Chairman, through the Company Secretary, ensures that the Board agenda and all relevant information is circulated to the Board directors 
sufficiently in advance of the meeting. The Chairman and the Company Secretary discuss the agenda in detail ahead of every meeting and the Chairman 
and Chief Executive hold a review meeting ahead of each Board meeting.

At least once annually, the Board travels to and meets at one of Rotork’s locations other than its head office in Bath. This allows the Board, and in 
particular the non-executive directors, the opportunity to gain a deeper understanding of overseas businesses and their markets and to interact with 
local management and staff, as well as to view new capital investments and acquisitions. In 2014, the Board visited Rotork’s manufacturing facility in 
Winston-Salem (USA) and its new manufacturing plant in Leeds (UK). The Board met with and received presentations from local management.

Location of Board meetings

■  2014 – Winston-Salem, USA
■  2014 – Leeds, UK
■  2013 – Lucca, Italy
■  2012 – Chennai, India
■  2011 – Houston, USA
■  2010 – Bilbao, Spain

All Board directors constructively challenge executive management at Board meetings and are entitled to unfettered access to information and 
management across the Group should they require it. Rotork’s executive directors understand the distinction between their roles as executive 
managers and as Board directors. The Chairman facilitates discussion by ensuring that all Board members have the opportunity to fully contribute to all 
agenda items at Board meetings and he always seeks to obtain unanimous decisions while allowing sufficient time for discussion and then drawing 
discussions to a close in an orderly manner. This means that a range of views are offered by both executive and non-executive directors, when the Board 
discusses any particular issue or topic. Rotork Board members come from a variety of professional backgrounds including engineering, legal, 
accountancy and international sales and collectively possess significant managerial experience, as well as experience of being company directors of 
other public limited companies.

At each Board meeting, the Board receives presentations from senior management regarding that senior manager’s area of responsibility. The Board 
has the opportunity to ask questions to senior management following their presentations.

The Chief Executive and Finance Director present to the Board the content of preliminary and half year results announcements and the Board is invited 
to comment on and approve those announcements.

The performance of the Board is enhanced by the good working relationship between the Chief Executive and the Chairman who continue to work 
together to ensure that the best use of the time and talents of the Board are applied at Board meetings.

Induction and Development
New Board members receive a suitable and tailored induction. This is facilitated by the Company Secretary under the direction of the Chairman. In 2014 
LM Bell and MJ Lamb were appointed as independent non-executive directors. They both received a suitable induction which in addition to documentary 
content included arrangements for product training as well as visits to various Rotork sites and meetings with management.

Directors are encouraged to continually update their professional skills and knowledge. During 2014, development and induction activities for the directors 
included participation in external training seminars covering accounting and corporate governance developments and internal Rotork related training.

The Chairman is responsible for reviewing the level and nature of training given to the Board of directors at least annually.

57

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014 
CORPORATE GOVERNANCE CONTINUED

Performance Evaluations
During 2014 the Board undertook a detailed review of its performance, 
based on a written questionnaire which was designed after consultation 
with the Chairman and Company Secretary by Vivienne Cassley of Useful 
Thinking, an independent external consultancy, who also provided an 
analysis on the responses.

The feedback from the review was positive and the Board is satisfied that 
progress continues to be made as the Group expands. Although the 
structure of the Board has changed during the past two years, the level of 
trust and respect between members remains high, and there is a spirit of 
constructive challenge.

The system covers controls which enable Rotork to respond appropriately 
to financial, operational, compliance and any other risks. The system 
accords with the Turnbull Guidance, Internal Control – Guidance for 
Directors on the Combined Code, and key elements include:
•  Robust assurance processes and controls over financial 

reporting procedures;

•  A formal schedule of reserved matters for the Board including 

responsibility for reviewing Group strategy;

•  Clearly defined levels of authority and a division of responsibilities 

throughout the Group;

•  Formal documentation procedures;
•  A formal whistleblowing policy with an external whistleblowing hotline; 

and

The review considered matters raised in 2013, and identified progress in 
most areas. For example, during 2014 the processes governing internal 
controls were further strengthened and the Board’s diversity was further 
increased.

•  An internal audit function made up of accountants from head office 
and across subsidiaries supported by training in internal audit, best 
practice and control procedures to monitor and identify weaknesses in 
internal controls.

Board members identified key areas for focus in 2015, including:
•  Ensuring that new organisational structures across the Group are well 

implemented and supported;
•  Accelerating organic growth; and
•  A continued focus on longer term strategy.

JE Nicholas is the current Senior Independent Director. As part of his role, 
he annually arranges a meeting of the non-executive directors to appraise 
the Chairman’s performance. This feedback is used by him to discuss with 
the Chairman his performance.

Diversity on the Board
Rotork recognises the benefits that gender diversity can bring to the 
Boardroom and to the Group as a whole. Having met its first published 
target of achieving 25% female representation in its independent 
non-executive directorate in 2012, Rotork responded to Lord Davies’ call 
for action in the Second Annual Review of Women on Boards in 2013 by 
announcing the future action it will take to improve diversity in senior 
management and throughout the organisation. Rotork has made progress 
towards its published targets. Rotork has also published a diversity policy 
which covers diversity on the Board and throughout the organisation. 
Details of this policy are set out in the report of the Nomination 
Committee on page 63.

Internal Controls and Risk Management
The Board is cognisant of its responsibility to present a fair, balanced 
and understandable assessment of the Company’s position. The 
Board is responsible for Rotork’s system of internal control and risk 
management and meets at least annually to review the effectiveness 
of it. Internal control can only provide reasonable, not absolute, 
assurance against material misstatement or loss, as it is designed to 
manage the risks rather than remove them altogether.

All members of the Board receive full Audit Committee papers and prior 
meeting minutes. Additionally, the Audit Committee Chairman briefs the 
Board on the main business of the previous Audit Committee meeting as 
well as making recommendations from the Audit Committee to the Board. 
Board members therefore receive information and updates on the work of 
the Audit Committee in reviewing the effectiveness of the Company’s risk 
management and internal control systems throughout the year. The 
Board then carries out its review of the system of internal control.

There is a continuous process for identifying, evaluating and managing 
the significant risks faced by Rotork, details of which can be found on 
pages 36 to 39.

The Group continually learns from its experiences with internal controls 
and risk management which serves to further enhance the robustness of 
the internal controls and risk management in place around the Group. In 
2014, the annual review of the system of internal control identified no 
significant internal control failings or weaknesses.

In 2014 the Board considered the UK Corporate Governance Code 2014 
and the Financial Reporting Council’s Guidance on Risk Management, 
Internal Control and Related Financial and Business Reporting (both 
applicable to the Company from 1 January 2015) in order to comply with 
the revised requirements, including those related to internal controls and 
risk management, from the next financial year. The Board has planned a 
workshop on internal control and risk management procedures in 2015 to 
consider the Company’s internal control and risk management 
procedures and the requirements of the UK Corporate Governance Code 
2014 and associated guidance.

The Group’s key risks change during the year under review and details of 
processes to manage these risks, including the Board’s approach to the 
significant risks the Group is willing to take, ie. ‘risk appetite’, in achieving 
its specific objectives, can be found on pages 36 to 39.

58

ROTORK ANNUAL REPORT 2014GOVERNANCEBoard Committees
The Board has Audit, Nomination and Remuneration Committees. Each 
Committee has formal, written terms of reference which are available to 
download from the Rotork website at www.rotork.com/en/investors/
index/committees. All Board Committees have four independent 
non-executive directors within their composition. The Group Company 
Secretary advises and acts as Secretary to the Committees.

All Committees have authority to take external, independent professional 
advice at Rotork’s expense for matters relating to the discharge of their 
duties.

PLC Board
(RC Lockwood)

Audit 
Committee
(SA James)

Nomination 
Committee
(RC Lockwood)

Remuneration
Committee
(GB Bullard)

Relations with Shareholders
Communication with shareholders is a priority for Rotork and the 
Company maintains a regular dialogue with its major shareholders. Rotork 
recognises the value of the UK Stewardship Code. In 2014 the Board, and 
in particular the Chief Executive and Finance Director, have met with the 
shareholders in a number of ways including:
•  Hosting conference calls;
•  Hosting webcasts;
•  Attending shareholder events;
•  Hosting investor site visits;
•  Attending conferences;
•  Hosting and participating in Roadshows; and
•  Arranging ad hoc meetings with shareholders.

The Chairman ensures that all directors are made aware of major 
shareholder issues and concerns by ensuring the Board receives reports 
from the Chief Executive on meetings with analysts and fund managers as 
well as shareholders.

During 2014, the Chairman and Company Secretary met with institutional 
investors at the invitation of the Corporate Governance Director of a major 
shareholder to discuss various corporate governance issues after a 
response to a letter from the Company Secretary on behalf of the Board 
seeking feedback on the level of contact they received from the Board and 
in particular the Chairman and the independent non-executive directors. All 
responses received were positive and confirmed that the level of contact 
provided was satisfactory.

Rotork makes constructive use of its AGM as an opportunity for the Board 
to communicate with and answer questions from those shareholders who 
attend in person. The entire Board is normally available during the 
meeting and for lunch following the meeting to allow direct interaction 
between its directors and the shareholders.

Rotork also maintains a comprehensive investor relations section on its 
website which provides a variety of resources for investors including 
current webcasts, presentations and press releases. The website can be 
accessed at www.rotork.com/en/investors.

Electronic communications are also used by Rotork to communicate with 
its shareholders. All shareholders have been asked whether they would like 
to receive the Annual Report and Accounts in electronic form rather than in 
hard copy form. Any shareholders wishing to receive corporate documents 
electronically can do this by registering for the service at www.shareview.
co.uk and clicking on ‘Register’ under the ‘Portfolio’ section. Rotork also 
make available electronic proxy appointment for shareholders who wish to 
appoint a proxy online to vote at the Company’s AGM.

59

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014CORPORATE GOVERNANCE CONTINUED

Audit Committee

Summary of 2014 Audit Committee Business

Month

Principal activities

February

–  Review of the full year accounts including material 

– 

judgments and estimates, the draft Annual Report 2013, 
governance reports and draft results announcements.
Internal controls and risk management review including 
consideration of processes and procedures for risk 
management, effectiveness of internal controls and fraud 
risk.

–  Review of internal audit reports, the internal audit 

programme, its remit, resourcing and effectiveness, and of 
the need for a separate internal audit function.
–  Consideration of and reporting to the Board on the 
external auditor’s independence, objectivity and 
effectiveness including the annual audit. The auditor’s 
representation letter, views on the control environment 
and fraud risk management; and reappointment of the 
external auditor, including whether it is appropriate to put 
the external audit contract out to tender.

–  Meeting with the external auditor without the presence of 

management.

–  Consideration of accounting and corporate governance 

developments.

–  Review of non-audit services undertaken by the 

external auditor.

– 

Interim Management Statement review.

–  Recommendation to the Board that Deloitte LLP be 

appointed external auditor.

April

May

August

–  Review of the half year accounts including material 

– 

judgments, estimates and draft results announcements.
Internal controls and risk management review including 
reviewing policies and procedures for preventing bribery 
and corruption and consideration of significant internal 
audit reports.

–  Review of external auditor’s report on the half year 

accounts and the proposed full year external audit scope, 
key risks, materiality and year end issues.

–  Review of non-audit services undertaken by the external 

auditor.

–  Meeting with the external auditor without the presence of 

management.

–  Consideration of accounting and corporate governance 

developments.

November
(2 meetings)

– 

Interim Management Statement review.

– 

Internal controls and risk management review including 
key risks and mitigating controls; processes and 
procedures for risk management and consideration of 
significant internal audit reports.

–  Review of the policy on employment of former audit staff 

and policy on and extent of non-audit services provided by 
the external auditor.

–  Consideration of the external auditor’s fees, engagement 

letter and risk of them leaving the market.
–  Review of whistleblowing policy and hotline.
–  Annual review of Audit Committee effectiveness and 

Terms of Reference.

–  Consideration of accounting and corporate governance 

developments including the requirements of the 
UK Corporate Governance Code 2014 and 
associated guidance.

–  Consideration of the Audit Committee Schedule of Work 

2015.

SA James
Chairman
Members: LM Bell, 
GB Bullard, MJ Lamb, 
JE Nicholas

During 2014, embracing its role of protecting the interests of 
shareholders, the Committee focused on the integrity of the Group’s 
financial reporting and the effectiveness of internal and external audit. 
The Committee conducted a tender for the external audit contract and, 
on 2 June 2014, following a robust review and tender process, the Board 
appointed Deloitte LLP as the Group’s external auditor, following a 
recommendation from the Committee. During 2014, Chairmanship of the 
Committee changed and following JE Nicholas’ appointment as Senior 
Independent Director, SA James was appointed as Chairman of the 
Committee on 20 June 2014. The Committee has also monitored changes 
in governance requirements, including those relating to internal controls 
and risk management.

All Committee members are independent non-executive directors. LM Bell 
and JE Nicholas hold professional accounting qualifications and the Board 
considers both to have recent and relevant financial experience. Biographies 
of each member of the Committee can be found on pages 52 to 53. The 
Chairman, Chief Executive, Finance Director, Group Financial Controller, 
internal audit co-ordinator and external auditor also regularly attend 
meetings by invitation.

The Committee operates under formal terms of reference which are 
reviewed annually. A copy of the terms of reference is available on the 
Rotork website at www.rotork.com. Principal responsibilities are to review 
and report to the Board on:
The integrity of financial reporting;
•  Significant accounting policies and judgements;
• 

Internal control and risk management systems including monitoring 
the effectiveness of internal audit;

•  The appointment, independence and effectiveness of the external 
auditor, including the policy relating to non-audit work and policy 
relating to employment of former staff of the external auditor;

•  The external auditor’s remuneration; and
•  The whistleblowing policy.

Activities of the Audit Committee during the year
The Committee met six times during the year. A summary of its principal 
activities is set out opposite:

60

ROTORK ANNUAL REPORT 2014GOVERNANCEFinancial Reporting
A key role of the Committee in relation to financial reporting is to review 
the quality and appropriateness of the half year and year end financial 
statements with a particular focus on:
•  Accounting policies and practices;
•  The clarity of disclosures and compliance with International Financial 

Reporting Standards, UK company law and the UK Corporate 
Governance Code;

•  Material areas in which significant judgements have been applied or 
where there has been discussion with the external auditor; and

•  Upon request of the Board, advising the Board on whether the annual 
report and financial statements are fair, balanced and understandable 
and provide the information necessary for shareholders to assess the 
Company’s performance as a whole.

To assist the Committee, the Group Finance Director and Group Financial 
Controller present a detailed report at each meeting outlining significant 
matters and the external auditor presents a report on the work they have 
undertaken on the half year and year end financial statements.

The principal matters of judgement considered by the Committee in 
relation to the 2014 accounts and how they were addressed were:
•  Goodwill impairment testing. The year end balance sheet includes 
Goodwill of £149.7m, this represents approximately 25.9% of the 
Group assets. The Committee reviewed the carrying value of Goodwill 
by examining a report from the Group Financial Controller which set 
out the values attributable to each cash generating unit, the expected 
value in use, based on projected cash flows and the key economic 
assumptions related to growth and discount rates. The Committee 
also considered the work undertaken by Deloitte in testing the 
assumptions. The Committee discussed the appropriateness of the 
assumptions used and compared expected growth rates to historical 
averages and the discount rate to the Group weighted average cost of 
capital and appropriate risk premiums. The Committee also 
considered whether it was possible that a reasonable change in 
assumptions might indicate impairment. Following discussion, the 
Committee were satisfied that the approach taken by management 
was appropriate and that there was no requirement to record any 
impairments in the accounts.

•  Acquired intangible assets. During 2014, the Group acquired three 
businesses, the largest of these was Young Tech Co Ltd which was 
acquired in March. The Committee reviewed the accounting and 
reporting in relation to these acquisitions, in particular the 
determination and valuation of intangible assets prepared by the Group 
Financial Controller. The Committee considered this report together 
with comments from Deloitte; it also examined the disclosures in the 
report and accounts and concluded the judgements made were 
reasonable and that the reporting was accurate.

•  Retirement benefit schemes. The Group operates two defined benefit 
retirement plans which are still open to future accrual. The valuations 
are prepared by independent actuaries and are reviewed by Deloitte. 
The Committee considered the report and the comments by Deloitte 
and was satisfied the assumptions used were appropriate. The 
detailed disclosure for these schemes under IAS19 are shown in note 
24 and the Committee is satisfied they are complete and accurate.

•  Valuation of inventory. The Group has £81m of inventory which is 

prior year. Deloitte explained the work that they have performed and 
confirmed that based on this work no material inconsistencies or 
misstatements were found. Following discussion, the Committee was 
satisfied that the judgments that had been exercised and valuation 
methodology were appropriate and that the provisions were 
appropriately stated at year end.

External Auditor
KPMG and its predecessor firms had been auditor to the Group for over 
fifty years and during this time a tender had not been conducted. During 
2013, the Committee considered how to achieve a high quality audit for 
the Group as a whole and decided to bring all external audit work under 
one firm and considered it appropriate to offer all the external audit work 
for tender. The decision to tender also followed regulatory developments 
relating to external audit tendering.

The Committee invited a number of external audit firms with the requisite 
capability to tender for the external audit contract and the Audit 
Committee consulted the Financial Reporting Council’s Notes on Best 
Practice for Audit Tenders. KPMG, being the Company’s former external 
auditor, was not invited to tender. Following the conclusion of the audit 
tender process, Deloitte LLP was appointed as the Group’s external 
auditor on 2 June 2014 and will undertake all external audit work for the 
Group. Deloitte’s continuing appointment will be subject to shareholder 
approval at the 2015 AGM.

The Committee assesses the effectiveness of the external audit process, 
the scope of the Group audit and the quality of the audit work throughout 
the year.

The assessment considers:
•  Any issues arising from the prior year audit;
•  The proposed audit plan including identification of risks specific to 

Rotork, audit scope and materiality thresholds;

•  Staffing continuity and experience;
•  The delivery of the audit in line with the plan;
•  Matters arising during the audit and the communication of these to the 

Committee;

•  Feedback from executive management;
•  Private meetings with the auditor without management being present;
•  The independence, objectivity and scepticism of the auditor; and
•  The Financial Reporting Council audit quality review report on selected 

audits undertaken by Deloitte.

Having completed this review, the Committee agreed that the audit 
process, independence and quality were satisfactory.

Non-Audit Services
In order to safeguard the independence and objectivity of the external 
auditor, the Board has adopted a policy on non-audit services which 
restricts the work and fees available to the external audit firm and the 
policy is reviewed by the Committee annually to ensure it remains 
appropriate and in line with applicable requirements.

The policy specifies certain activities which the external auditor may not 
undertake such as work relating to financial statements which may be 
subject to external audits or management or significant involvement with 
internal audit services.

spread across all of the Group’s global locations. The provisions made 
to write down slow-moving and obsolete inventory are based on an 
assessment of market developments and on an analysis of historic and 
projected usage. The calculation of the provisions requires application 
of judgement by management. Management confirmed to the 
Committee that there have been no significant changes to the 
approach used to estimate inventory provisions compared with the 

For work within the policy scope, namely anything other than audit, half 
year review or tax compliance work, authority has been delegated to the 
Finance Director to approve fees of up to £10,000 per project or £40,000 
in aggregate for general work, £50,000 in aggregate for tax work and 
£10,000 for acquisition related work. Non-audit work above these levels 
requires the prior approval of the Committee Chairman or the Committee 
as a whole.

61

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014CORPORATE GOVERNANCE CONTINUED

At each Committee meeting, a summary is provided of all non-audit 
services awarded to the external auditor during the year.

An analysis of fees paid to Deloitte, including the split between audit and 
non-audit is included in note 8 of the report and accounts. The total 
non-audit fees for 2014 represent 27% of the total Deloitte audit fee. 
The majority of the Deloitte non-audit fees were earned prior to their 
appointment as Group auditor.

Internal Controls and Risk Management
The Committee has responsibility for reviewing and monitoring the 
effectiveness of the Group’s control environment, internal audit and risk 
management process.

During the year, the Committee considered reports on internal control 
from the Group Finance Director as well as reports on procedures to 
prevent bribery and corruption from the Company Secretary. The 
Committee was satisfied with the arrangements in place. During 2014 the 
Committee considered the 2014 UK Corporate Governance Code and the 
Financial Reporting Council’s Guidance on Internal Controls, Risk 
Management and Related Financial Reporting (applicable to the Company 
from 1 January 2015) to the extent it relates to the Committee. The 
Committee commenced work with the Board in 2014 which will continue 
into 2015 to review internal controls and risk management procedures in 
order to comply with these revised requirements.

The Group does not have a separate independent internal audit function 
but does have a well established internal audit approach of using staff 
from one division to undertake audits in a different division. This 
arrangement encourages the sharing of best practice and provides career 
development for the staff involved. During 2014, the Company appointed 
an internal audit co-ordinator whose duties include managing the internal 
audit programme, reviewing internal audit reports and, when invited, 
attending Audit Committee meetings. External resource is used to 
supplement the internal team where specific technical or language 
expertise is required. The Committee receives a report at each meeting 
on the activities of internal audit, any significant matters arising and the 
management response. The Committee reviews each year, the internal 
audit arrangements including the annual audit plan and staffing. It also 
considers whether a separate internal audit function is required. The 
Committee is satisfied with the effectiveness of the internal audit 
arrangements at this time.

The Group has operated a risk management process for several years. 
The process starts with divisional management considering and assessing 
the risks in each of their businesses. This leads in due course to a Group 
meeting at which the principal risks, mitigation and management of those 
risks are reviewed. All Committee members are invited to this meeting 
and in 2014 all members attended. The Committee gains a detailed 
understanding of the risk management process and considers the 
process effective.

Other Matters
In accordance with its terms of reference, the Committee, led by the 
Chairman, carried out a review of its effectiveness by way of 
questionnaire, including how it discharged its responsibilities and terms of 
reference.

The Committee’s activities were also reviewed as part of the Board 
evaluation process referred to on page 58.

Throughout the year, the Committee also considered relevant accounting 
and corporate governance developments.

62

ROTORK ANNUAL REPORT 2014GOVERNANCEThe Committee also considered succession planning in order to satisfy 
itself that plans are in place for an orderly succession for appointments to 
the Board and senior management to maintain an appropriate balance of 
skills and experience within the Group and to ensure progressive 
refreshing of the Board. In particular, the Committee considered 
succession planning for the position of Chairman which will be vacated 
when RC Lockwood retires following the Company’s AGM in 2015 and 
recommended to the Board that MJ Lamb be appointed as Chairman of 
the Board at the conclusion of the Company’s AGM in 2015. The Chairman 
did not chair the Committee and MJ Lamb did not attend Committee 
meetings while business relating to the successor Chairman was 
considered. Following the recommendation to the Board it was resolved 
that MJ Lamb be appointed as Chairman of the Board at the conclusion of 
the Company’s AGM in 2015. On appointment, MJ Lamb will step down 
from membership of the Audit and Remuneration Committees.

Diversity Policy
As part of it’s commitment to maintaining an appropriate balance of skills, 
knowledge and experience on its Board, the Board seeks to attain a 
diverse mix of skills, experience, knowledge and background. In 
considering diversity, gender will play an important role but the Board will 
take account of ethnicity, nationality, background, profession and 
personality.

Following the appointment of LM Bell, female representation in the 
Company’s independent non-executive directorate is 40%.

The Board will take a number of voluntary actions to improve diversity 
including: only using external search consultants (where such consultants 
are engaged to make an appointment) which have signed up to the 
Voluntary Code of Conduct for Executive Search Firms and assisting the 
development of the executive pipeline by encouraging senior employees 
to take on additional roles, such as seeking non-executive director roles, 
to gain valuable board experience.

The Board’s Diversity Policy also applies more generally throughout the 
Group and sets out other actions the Group will take to contribute to a 
more diverse pool of talent.

Remuneration Committee
The work of the Remuneration Committee is described in the 
Remuneration Report on pages  64 to 77 of the Report of the Directors.

Nomination Committee

RC Lockwood
Chairman
Members: LM Bell,  
GB Bullard, PI France,  
SA James, MJ Lamb,  
JE Nicholas

The Nomination Committee is responsible for leading the process for 
Board appointments and making recommendations to the Board; 
ensuring succession planning is in place; regularly reviewing the structure, 
size and composition of the Board, including its balance of skills, 
knowledge and experience and making recommendations as appropriate.

Activities of the Nomination Committee during the year
The Committee met four times during the year. A summary of principal 
activities is set out below:

Summary of 2014 Nomination Committee Business

Month

Principal activities

February

– Consideration of candidates for additional independent 

non-executive director appointments.

March

– Ongoing succession planning discussions.
– Further consideration of candidates for additional 

independent non-executive director appointments.

– Recommendation to the Board that MJ Lamb be 

appointed an independent non-executive director.

July

– Recommendation to the Board that LM Bell be appointed 

an independent non-executive director.

November – Ongoing discussions and search relating to the 

succession of the Chairman.

During the year the Committee led the search for and recommended 
to the Board the appointment of two additional independent 
non-executive directors, LM Bell and MJ Lamb, having considered the 
balance of skills, experience and diversity (including gender diversity) on 
the Board. The Committee engaged Korn Ferry, an external search 
consultancy, to search for suitable candidates for both appointments in 
conjunction with the Committee; Korn Ferry has no other connection with 
the Company. LM Bell is a chartered accountant and she is the Finance 
Director of The British Land Company plc, a FTSE 100 company. MJ Lamb 
is an experienced director and recently retired as Chief Executive of IMI 
plc, an international FTSE 100 engineering company. In line with all other 
directors, LM Bell and MJ Lamb will stand for election to the Board by the 
shareholders at the 2015 AGM.

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GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’

REMUNERATION REPORT

Statement from the Chairman of the 
Remuneration Committee

GB Bullard
Chairman
Members: LM Bell, 
SA James, MJ Lamb, 
JE Nicholas

The Directors’ Remuneration Report is split into two parts:
•  The Policy Report, which sets out the Company’s Policy on directors’ 
remuneration. The Policy was approved by shareholders at the 2014 
AGM for a period of three years; and

•  The Annual Report on Remuneration which discloses the payments and 

awards made to the directors under the Policy and shows the link 
between remuneration and the Group’s performance.

The Policy Report is not subject to a shareholder vote this year. The Annual 
Report on Remuneration together with this introductory statement is 
subject to an advisory shareholder vote at the 2015 AGM.

As set out in the Annual Report on Remuneration, the Company 
performed well in a challenging year against 2014 incentive targets 
resulting in an annual cash bonus payout of 66% of the maximum bonus 
opportunity available and a LTIP vesting rate of 37% for the 2012 award 
(which vests based on performance to 31 December 2014). At the end of 
2014 the share price, and consequently the total shareholder return 
element of the LTIP, was impacted by the oil price fall and so did not vest. 
However, growth in earnings per share ensured a vesting of 37% of the 
total 2012 award. 2014 profit growth and cash flow ensured a bonus 
payout of 66%.

During 2014, the Remuneration Committee (Committee) continued to 
monitor developments relating to remuneration. Throughout the year the 
Committee has considered updates on best practice from relevant 
providers of corporate governance guidance including the Investment 
Association (formerly the Association of British Insurers), the National 
Association of Pension Funds (NAPF) and Institutional Shareholder Services/
Research, Recommendation and Electronic Voting (ISS/RREV). The Group 
supports the continued drive for improvement of best practice and for 
greater focus on transparency, moderation, simplicity and a closer 
alignment of the interests of the directors with those of the shareholders.

In accordance with the UK Corporate Governance Code 2014, which the 
Company is required to comply with from 1 January 2015, the Long Term 
Incentive Plan (LTIP) and bonus scheme have clawback provisions allowing 
the Committee to recover sums paid or withhold the payment of other 
sums in circumstances where financial results have been materially 
misstated, an award was based on erroneous, inaccurate or misleading 
information or where an individual ceases to be an employee or director of 
the Group as a result of misconduct on the part of that individual. The LTIP 
and bonus scheme also permit the Committee to lapse all or part of an 
award in similar circumstances to the clawback.

Details of how the Policy will be applied in 2015 are detailed on page 76. 
The Committee continues to be mindful of employee remuneration 
conditions around the Group and salary increases for executive directors 
will be 1.8% (except for JM Davis who received 2.5%), which is broadly in 
line with the typical increase for other UK employees. The annual bonus 
and LTIP will operate in a similar format to 2014. Under the approved 
policy, LTIP awards worth up to 150% of salary may be granted. The 
Committee does not intend to make LTIP awards of more than 100% of 
basic salary to any executive, except the Chief Executive who will receive 
an award of 125% of salary in 2015. The maximum bonus potential remains 
125% of salary for the Chief Executive and 100% of salary for other 
executive directors.

During 2015, the Committee intends to review the remuneration policy to 
ensure that it continues to support the business strategy, appropriately 
incentivises and rewards the Directors for their role in the long-term success 
of the Group and is aligned to the interests of shareholders. The outcome of 
this review will be communicated in next year’s remuneration report, with any 
changes to the Policy (if required) submitted to shareholders for approval at 
the AGM in 2016. Any significant changes will be subject to prior consultation 
with major shareholders.

64

ROTORK ANNUAL REPORT 2014GOVERNANCEActivities of the Remuneration Committee during the year
The Committee met four times during the year.

Summary of 2014 Remuneration Committee Business

Month

Principal activities

February
(2 meetings)

– Approval of LTIP award levels and bonus opportunity for 

2014 for executive directors and other members of senior 
management.

– Approval of the Remuneration Report 2013.
– Consideration on executive remuneration principles of 

NAPF and others.

August

– Review of LTIP performance.
– Consideration of legal and corporate governance 

developments.

– Consideration of remuneration market trends.

December – Approval of the Committee’s schedule of work for 2015.

– Consideration of current investor guidance from 

Investment Management Association on remuneration.
– Consideration of corporate governance developments 
including the UK Corporate Governance Code 2015.

– Consideration of a paper from NBS on executive 

remuneration as at December 2014.
– Review of NBS paper on Chairman fees.
– Setting of basic salary for executive directors.
– Approval of LTIP awards for the Chief Executive of 125% of 

basic salary.

Remuneration Report
The Company’s remuneration report is presented to shareholders by the Board 
at the AGM, along with the Annual Report on Remuneration. The auditor is 
required to report on the information concerning the single figure of 
remuneration, total pension entitlements, scheme interests awarded during 
the financial year, payments made to past directors (if any), payments for loss of 
office (if any) and the statement of directors’ shareholdings and share interests 
shown within the Annual Report on Remuneration.

Policy Report
This report sets out the policy of the Company on the remuneration of 
the directors. This Policy Report was approved by shareholders at the 
AGM of the Company held on 25 April 2014 and took effect from that 
date. The Policy Report is not subject to a shareholder vote this year but 
has been reproduced here for ease of reference. The charts on page 70 
have been updated to reflect the current salaries of executive directors.

Role of the Remuneration Committee
The principal role of the Committee is to determine the framework and 
policy for remuneration of the executive directors and the Chairman, 
ensuring that remuneration levels are sufficient but not excessive in order 
to attract, retain and motivate directors of the quality required to run the 
Company.

The full terms of reference of the Committee can be found on the 
Company’s website at: www.rotork.com/en/investors/index/committees. 
Key responsibilities include:
•  Within the approved policy, determining individual remuneration 
packages for the Chairman and executive directors, including the 
terms of any discretionary share schemes in which executive directors 
may be invited to participate, taking account of the level of 
remuneration for other Rotork Management Board members and being 
aware of remuneration conditions throughout the Group;
•  Agreeing the terms and conditions to be included in service 

agreements for executive directors, including termination payments; 
and

•  Selecting, appointing and setting terms of reference with any 
remuneration consultants who may advise the Committee.

Consideration of conditions elsewhere in the Company
The Committee is sensitive to employee remuneration conditions in the 
Company and in determining remuneration takes account of 
remuneration conditions throughout the Company. While the Committee 
does not consult with employees on remuneration, it does invite the 
Group Human Resources Director to its meetings to provide, amongst 
other things, details of employee remuneration conditions and metrics 
such as pay rises awarded to employees.

Consideration of shareholder views
In formulating the Remuneration Policy, the Committee takes into account 
guidance issued by shareholder representative bodies, including the 
Investment Association, the NAPF and ISS. The Committee also takes into 
consideration any views expressed by shareholders during the year 
(including at the AGM) and encourages an open dialogue with its largest 
shareholders. Major shareholders would be consulted in advance about 
changes to the approved Remuneration Policy or any significant proposed 
changes to the way in which it is implemented.

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GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’ REMUNERATION REPORT CONTINUED

Overview of the directors’ Remuneration Policy

Directors’ future policy table

Element of
remuneration

Base salary

Purpose and how it
supports the strategy

How the element operates (including
maximum amounts payable)

To attract and retain 
executive directors of 
the right calibre and 
provide a core level of 
reward for the role. 

Salary levels (and subsequent salary increases) are set 
after taking into account the responsibilities of the role, 
the value of the individual in terms of skills, experience 
and personal contribution, company performance, 
internal relativities and pay conditions, and external 
market data (benchmarked against companies of a 
similar size and complexity and other companies in the 
same industry sector). The Committee also considers 
the impact of any increase to salaries on the total 
remuneration package.

Salaries are paid monthly and reviewed annually (salaries 
are normally reviewed in December, with any changes 
effective from 1 January). Details of the current salaries 
of the executive directors are set out in the Annual 
Report on Remuneration.

Any salary increase will ordinarily be in line with the typical 
increase (as a percentage of salary) applied to the UK 
workforce. However, the Committee retains the discretion 
to award a higher increase if appropriate. For example, 
where there is a change in responsibility, progression in the 
role or to reflect the increased experience of the individual.

Framework used to assess performance

N/A

Benefits

To attract and retain 
executive directors 
of the right calibre by 
providing a market 
competitive level of 
benefit provision.

The range of benefits that may be provided is set by the 
Committee after taking into account local market practice 
in the country where the executive is based. The executive 
directors’ benefits currently comprise a car and fuel, or 
car and fuel allowance, personal accident insurance for UK 
executive directors only and private medical insurance. 
Additional benefits may be provided, as appropriate.

N/A

Executive directors are also entitled to membership of the 
all-employee Rotork Share Incentive Plan (SIP), or Overseas 
Profit Linked Share Scheme (OPLSS), within the maximum 
limits as set by HMRC.

There is no prescribed maximum level, but the Committee 
monitors the overall cost of the benefit provision to ensure 
that it remains appropriately proportionate.

66

ROTORK ANNUAL REPORT 2014GOVERNANCEElement of
remuneration

Annual Cash 
Bonus

Purpose and how it
supports the strategy

How the element operates (including
maximum amounts payable)

The maximum annual bonus potential is 125% of salary for 
the Chief Executive and 100% of salary for other Executive 
Directors. Bonuses are paid in cash.

Drives and rewards 
performance against 
annual financial and 
operational goals which 
are consistent with the 
medium to long term 
strategic needs of the 
business.

Long Term 
Incentive Plan 
(LTIP)

To incentivise long 
term value creation 
and alignment with 
shareholder interests. 

The LTIP permits an annual grant of shares which vest 
subject to performance and continued employment. 
The LTIP awards will be granted in accordance with the 
rules of the plan, which were approved by shareholders 
in 2010, and the discretions contained therein. A copy 
of the rules is available on request from the 
Company Secretary.

Under the rules of the LTIP, the maximum award size is 
150% of salary. Details of the proposed award level 
for 2015 are set out in the Annual Report on 
Remuneration.

Awards under the LTIP may be granted in the form of 
conditional shares, forfeitable shares, nil-cost options 
or cash (where the award cannot be settled in shares). 
Awards are currently structured as nil-cost options.

The executive directors are also subject to a shareholding 
requirement to build and maintain a shareholding in Rotork 
equivalent to 150% of salary.

Framework used to assess performance

The executive annual bonus is focused 
on the delivery of strategically important 
performance measures. These include 
demanding financial and non-financial 
measures. The financial measures (which 
account for the majority of the bonus 
potential) are currently based on annual 
profit target, three year profit growth, 
earnings per share and cash generation. The 
non-financial measures currently include the 
accident frequency rate and CO2 emissions. 
However, the Committee may use different 
measures and/or weightings for future 
bonus cycles to take into account changes in 
the strategic needs of the business.

For each measure, normally a sliding scale of 
stretching targets is set by the Committee, 
which apply from the beginning of each 
financial year. The threshold level of bonus 
under each financial measure varies but 
accounts for no more than one third of 
the maximum bonus opportunity under 
any single measure. Under the terms of 
the bonus plan, the Committee has the 
discretion, in exceptional circumstances, to 
amend previously set targets or to adjust 
the proposed payout to ensure a fair and 
appropriate outcome.

Awards under the LTIP are currently subject 
to two performance conditions. Half of 
the awards are subject to an earnings per 
share performance condition and half of 
the awards are subject to a relative total 
shareholder return (TSR) performance 
condition, each measured over three 
financial years. The TSR performance 
condition is also subject to an underpin 
relating to underlying financial performance. 
A sliding scale of targets is set for each 
measure with no more than 25% of the 
award (under each measure) vesting for 
achieving the threshold performance hurdle. 
The performance targets are set prior to the 
grant of each award. Different targets and/
or weightings between measures may be set 
for future award cycles.

Under the LTIP rules approved by 
shareholders, the Committee has 
the discretion to amend the targets 
applying to existing awards in exceptional 
circumstances providing the new targets are 
no less challenging than originally envisaged. 
The Committee also has the power to adjust 
the number of shares subject to an award 
in the event of a variation in the capital of 
the Company.

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GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’ REMUNERATION REPORT CONTINUED

Element of
remuneration

Pension

Purpose and how it
supports the strategy

How the element operates (including
maximum amounts payable)

Framework used to assess performance

To provide a market 
competitive 
remuneration package 
to enable the 
recruitment and 
retention of the 
executive directors.

The Company may fund contributions to a director’s 
pension as appropriate. This may include participation in 
the Company’s defined benefit pension schemes (which 
are now closed to new members), contributions to a money 
purchase scheme and/or payment of a cash allowance 
where appropriate.

N/A

Chairman and
Non-Executive
Directors’ fees

To attract and retain 
non-executive
directors of the
right calibre.

Further details on the Company’s policy on pension 
arrangements (including maximum entitlements) are set 
out below this table.

Life assurance is provided for executive directors based in 
the UK only.

Fees for the Chairman and non-executive directors are 
reviewed periodically.

N/A

Non-executive director fees are determined by the 
Chairman and Chief Executive. The fees for the Chairman 
are determined by the Committee taking into account views 
of the Chief Executive. The Chairman excludes himself from 
such discussions.

The fees for the non-executive directors (which are paid 
quarterly in cash) normally comprise a basic Board fee, with 
additional fees paid to the Senior Independent Director 
and for chairing a Committee. The fee levels set are set by 
reference to rates in companies of comparable size and 
complexity. The fee levels are reviewed periodically taking 
into account the responsibilities of the role and the time 
commitment of the individual.

The maximum aggregate fee level is £500,000, as set out in 
the Company’s Articles of Association.

Performance measures
Performance measures are used to determine the extent of any awards made under the variable elements of the executive directors’ remuneration mix, 
being the annual cash bonus and the LTIP. The performance measures used are set out in the directors’ future policy table above. The performance 
measures were selected because of their use as key performance indicators (KPIs) to assess Company performance and to align the interests of the 
directors to those of the shareholders. Non-financial KPIs constitute part of the annual cash bonus award and these are selected to ensure that 
performance measured by financial KPIs is not delivered at the expense of important non-financial considerations, in this case the safety of Rotork’s 
people and Rotork’s impact on the environment.

Clawback and malus
The payment of any bonus is at the ultimate discretion of the Committee and the Committee also retains an absolute discretion to reclaim some, or all, 
of any annual bonus paid in exceptional circumstances, such as misstatement of results, an error in the calculation of the performance targets and/or 
award size and gross misconduct.

In terms of the LTIP, the Committee has the discretion to reclaim some, or all, of a vested LTIP award in exceptional circumstances (the categories for 
clawback being the same as for the annual bonus plan). In addition, the Committee may lapse or reduce an award prior to vesting where the participant 
is found to be guilty of serious misconduct.

Pension policy
PI France and JM Davis are active members of the Rotork Pension and Life Assurance Scheme (a defined benefit pension scheme). If they remain active 
members of this pension scheme until their normal retirement age of 60 and 65 respectively, PI France will be entitled to a pension of 66.7% of the 
earnings cap and JM Davis will be entitled to a pension of 47.5% of the earnings cap (which is set at £145,800 per annum for 2015) but may increase in 
line with inflation. These figures ignore any benefits transferred from another pension arrangement and the tax implications of remaining in the Rotork 
Pension scheme until normal retirement age. In addition, they receive a cash allowance on salary above the cap (22.5% for PI France and 18% for JM 
Davis). GM Ogden is a preserved member of the Rotork Pension and Life Assurance Scheme and now receives a cash allowance of 44% of salary in lieu of 
pension. RH Arnold is a member of the Rotork Controls Inc. pension scheme and a supplementary executive retirement plan, which in aggregate are 
targeted to provide a pension of 60% of uncapped basic salary at age 65. The Company’s defined benefit pension schemes in the UK and USA are closed 
to new entrants. The pension arrangement that would be offered to a new executive director would be limited to a maximum 25% of salary cash 
allowance or contribution to one of the Company’s defined contribution schemes and/or continued participation in a defined benefit scheme if the 
executive is an existing member of one of the schemes.

68

ROTORK ANNUAL REPORT 2014GOVERNANCEDifferences between the policy on directors’ remuneration and the policy 
on employee remuneration
The Board recognises that it is appropriate for a significant proportion of 
executive directors’ remuneration to be contingent on the performance of 
the Company and that such remuneration is at risk subject to the 
satisfaction of stretching performance conditions. Consequently, 
executive directors are invited to participate in the LTIP where shares 
awarded will vest contingent upon performance conditions over a 
three-year period. Executive directors are also invited to participate in the 
annual cash bonus scheme which will result in a cash bonus payment 
being made if targets are achieved. For employee remuneration, the Board 
considers it more appropriate that employees share in the success of the 
Company through a profit based bonus plan which is based on the 
performance of their business unit. This is coupled with the opportunity, 
for eligible employees, to receive free shares from the Company, paid from 
the Company’s profits.

Approach to recruitment remuneration
Base salary levels will be set in accordance with Rotork’s remuneration 
policy, taking into account the experience and calibre of the individual and 
their existing remuneration package. Where it is appropriate to offer a 
lower salary initially, a series of increases to salary may be given over 
subsequent years subject to individual performance. Benefits will 
generally be provided in accordance with the approved policy, with 
relocation expenses/an expatriate allowance paid for if necessary.

The structure of the variable pay element will be in accordance with 
Rotork’s approved policy detailed above. The maximum aggregate 
variable pay opportunity under the policy is up to 275% of salary for the 
role of Chief Executive and up to 250% of salary for other executive 
directors. Different performance measures may be set initially for the 
annual bonus, taking into account the responsibilities of the individual, and 
the point in the financial year that the executive joined.

In the case of an external hire, it may be necessary to buy-out incentive 
pay or benefit arrangements (which would be forfeited on leaving the 
previous employer). This would be provided for taking into account the 
form (cash or shares) and timing and expected value (i.e. likelihood of 
meeting any existing performance criteria) of the remuneration being 
forfeited. Replacement share awards, if used, may be granted using 
Rotork’s existing share plans to the extent possible, although awards may 
also be granted outside of these schemes if necessary and as permitted 
under the Listing Rules.

In the case of an internal hire, any outstanding variable pay awarded in 
relation to the previous role will be allowed to pay out according to its 
terms of grant.

Fees for a new Chairman or non-executive director will be set in line with 
the approved policy.

Service contracts and policy on payments for loss of office
Under the executive directors’ service contracts twelve months’ notice of 
termination of employment is required by either party (except in the case 
of RH Arnold, see below). Should notice be served, the executives can 
continue to receive basic salary, benefits and pension for the duration of 
their notice period during which time the Company may require the 
individual to continue to fulfil their current duties or, for PI France or JM 
Davis, may assign a period of garden leave. The Company applies a general 
principle of mitigation in relation to termination payments and the service 
contracts for PI France and JM Davis (which reflect the policy to be used 
for future hires) expressly include the use of monthly phased payments 
following termination in lieu of notice which can be reduced to the extent 
that alternative remunerated employment is found.

The service contracts for PI France and JM Davis also enable the Company 
to elect to make a payment in lieu of notice equivalent in value to twelve 
months’ base salary only.

RH Arnold does not have a signed service agreement in place. Instead the 
conditions of his employment are governed by local state law (he is 
resident in the USA). The Company may terminate his employment 
without notice or compensation (providing it meets any employer 
obligations such as the settlement of unpaid holiday entitlement and sick 
leave).

In the event of cessation of employment, the executives may still be 
eligible for a bonus at the discretion of the Committee, payable in cash, on 
a pro-rata basis, but only for the period of time served from the start of 
the financial year to the date of termination and not for any period in lieu 
of notice. Different performance measures (to the other executive 
directors) may be set for the bonus for the period up until departure, as 
appropriate, to reflect changes in responsibility.

The rules of the LTIP set out what happens to awards if a participant 
leaves employment before the end of the vesting period. Generally, any 
outstanding share awards will lapse when an executive leaves 
employment except in certain circumstances. If the executive ceases to 
be employed as a result of death, injury, retirement, transfer of 
employment or any other reason at the discretion of the Committee, then 
they will be treated as a ‘good leaver’ under the plan rules. The shares for a 
good leaver will vest subject to an assessment of performance, with a 
pro-rata reduction to reflect the proportion of the vesting period served. 
For awards granted in 2013 and prior, the awards for a good leaver will vest 
on cessation of employment. For awards to be granted in 2014 and 
beyond, the awards for a good leaver will vest on the normal vesting date, 
unless the Committee determines that they should vest early (for 
example, following the death of the participant). In determining whether 
an executive should be treated as a good leaver and the extent to which 
their award may vest (up to the pro-rated amount), the Committee will 
take into account the circumstances of an individual’s departure.

Outplacement services and reimbursement of legal costs may be 
provided where appropriate.

Any statutory entitlements or sums to settle or compromise claims in 
connection with a termination would be paid as necessary.

69

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’ REMUNERATION REPORT CONTINUED

Illustration of the application of the remuneration policy
The charts below illustrate how the remuneration policy would function for minimum, on target and maximum performance for 2015 for each executive 
director.

PI France

JM Davis

1,750,000

1,500,000

1,250,000

1,000,000

750,000

500,000

250,000

0

1,750,000

1,500,000

1,250,000

1,000,000

750,000

500,000

250,000

0

£1,653,600

33%

33%

£1,008,600
13%

31%

£578,600

100%

56%

34%

Minimum

On Target

Maximum

RH Arnold

£335,000

100%

£524,200
11%

26%

63%

£808,000

29%

29%

42%

Minimum

On Target

Maximum

1,750,000

1,500,000

1,250,000

1,000,000

750,000

500,000

250,000

0

250,000

200,000

150,000

100,000

50,000

0

£623,600
11%

27%

61%

£389,900

100%

£974,100

30%

30%

40%

Minimum

On Target

Maximum

GM Ogden

£79,300

100%

£110,600

9%

91%

£131,500

14%

86%

Minimum

On Target

Maximum

n  Fixed remuneration  n  Annual variable remuneration  n  Multiple period variable remuneration

Footnote to charts:
Salary levels (and consequently the other elements of the remuneration package which are calculated as a percentage of salary) are based on those applying on 1 January 2015. Taxable 
benefits are shown as the cost to the Company of supplying those benefits for the year ending 31 December 2014. On target performance, for illustrative purposes, assumes achievement 
of 60% of the maximum available bonus and threshold LTIP vesting (20% of the maximum). Maximum performance assumes achievement of the maximum bonus and full vesting of the 
LTIP shares. The LTIP grant level for all executives is 100% of salary, except for PI France who from 2015 is granted 125% of salary. No share price growth has been assumed and for 
simplicity, the benefit derived from participating in the Company’s all employee SIP or OPLSS have been excluded. GM Ogden is retiring in 2015 and will not receive an LTIP award for 2015 
and the annual cash bonus will be awarded on a pro-rata basis.

70

ROTORK ANNUAL REPORT 2014GOVERNANCEAnnual Report on Remuneration
Single figure of remuneration (£000s) (Audited)
Executive directors

Salary

Benefits(i)

Annual cash bonus

LTIP(ii)(iv) 

Pension and related 
benefits

Name

RH Arnold(iii)
JM Davis
PI France
GM Ogden

2014

232
285
422
205

2013

240
270
412
200

2014

2013

17
18
18
18

17
18
18
17

2014

153
188
348
135

2013

226
255
486
189

2014

99
113
173
84

2013

235
262
410
203

2014

84
80
131
90

2013

32
116
126
88

Total 
remuneration

2014

2013

585
684
1,092
532

750
921
1,452
697

(i)  The benefit value consists of a car and fuel (or a car and fuel allowance), private medical insurance (executive director only) and the cash value on allocation of SIP and OPLSS share 

awards as appropriate

(ii)  The 2014 figures relate to the vesting of the 2012 LTIP award which vests based on performance to 31 December 2014. The award vested at 37% and has been valued using the 

average share price for the period 1 October to 31 December 2014. The award will vest in March 2015

(iii)  RH Arnold is paid in US Dollars
(iv)  The 2013 figures have been updated to reflect the actual share price on vesting of the 2011 LTIP award

Directors not performing an executive function

Name

LM Bell(i)
GB Bullard
SA James (ii)
IG King(iii)
MJ Lamb(iv)
RC Lockwood
JE Nicholas

Base fees

Additional fees

Total remuneration

2014

20
43
43
20
25
140
43

2013

–
40
40
40
–
140 
40

2014

2013

–
7
4
3
–
–
8

–
6
–
7
–
–
8

2014

20
50
47
23
25
140
51

2013

–
46
40
47
–
140
48

(i)  LM Bell was appointed as a director of the Company on 10 July 2014
(ii)  SA James was appointed as Chairman of the Audit Committee on 20 June 2014
(iii)  IG King retired as a director of the Company on 20 June 2014
(iv)  MJ Lamb was appointed as a director of the Company on 2 June 2014

Additional fees relate to the supplementary fee paid to the Chairmen of the Audit and Remuneration Committees and the Senior Independent Director.

All directors have confirmed that, save as disclosed in the single figures of remuneration tables above, they have not received any other items in the 
nature of remuneration.

Annual Cash Bonus for 2014
The annual cash bonus is calculated according to targets which total 80% and which are allocated to directors at 100% of basic salary, except for the Chief 
Executive where the allocation is 125% of basic salary. The targets, weightings and achievement in relation to performance in 2014 are as follows:

Performance 
required to 
trigger bonus 
payment

Performance 
required at 
target 

% payable 
at target 
performance

Performance 
required at 
maximum

% payable at 
maximum

Performance 
outcome

<0.42
<0.0%
85%
>124.9p

<0.42
-1.5%
100%
137.4p
>£134.1m £161.0m
>£143.8m £153.4m

<0.42
5%
-1.5%
5%
100%
10%
10%
137.4p
15% £178.8m
15% £159.7m

0.31
5%
7.3%
5%
97.5%
10%
10%
131.6p
25% £157.7m
25% £157.2m

60%

80%

% bonus 
awarded

5.0%
0.0%
8.3%
5.4%
13.1%
21.0%

52.8%

Accident Frequency Rate
CO2 reduction
Cash generation
EPS growth
Three year profit growth
Annual profit target

Total

Overall this resulted in the following bonus payments:
•  RH Arnold – £153,000 (66.0% of salary)
•  JM Davis – £188,000 (66.0% of salary)
•  PI France – £348,000 (82.5% of salary)
•  GM Ogden – £135,000 (66.0% of salary)

71

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’ REMUNERATION REPORT CONTINUED

Long Term Incentive Plan
The Company’s Long Term Incentive Plan (LTIP) rewards the creation of shareholder value which is a strategic priority. Performance is measured over a 
three year period using a combination of earnings per share, growth and relative total shareholder return (TSR) compared to a comparator group. The 
performance measures and weightings are summarised in the table below.

The awards granted and vesting under this plan to the executives are detailed in the table below:

RH Arnold

JM Davis

PI France

GM Ogden

Note

Year of grant

(i)
(ii)
(iii)
(iv)

(i)
(ii)
(iii)
(iv)

(i)
(ii)
(iii)
(iv)

(i)
(ii)
(iii)
(iv)

2011
2012
2013
2014

2011
2012
2013
2014

2011
2012
2013
2014

2011
2012
2013
2014

Awards at 
1 January 
2014 

12,904
11,114
8,362
–

32,380

14,076
12,654
9,292
–

36,022

21,994
19,314
14,182
–

55,490

10,888
9,412
6,984
–

27,284

Awards 
granted 
during 
the year

–
–
–
8,308

8,308

–
–
–
10,356

10,356

–
–
–
15,344

Awards 
vesting 
during 
the year

(8,645)
–
–
–

Awards 
lapsed 
during the 
year

(4,259)
–
–
–

Awards at 
31 December 
2014

–
11,114
8,362
8,308

(8,645)

(4,259)

27,784

(9,430)
–
–
–

(4,646)
–
–
–

–
12,654
9,292
10,356

(9,430)

(4,646)

32,302

(14,735)
–
–
–

(7,259)
–
–
–

–
19,314
14,182
15,344

15,344

(14,735)

(7,259)

48,840

–
–
–
7,460

7,460

(7,294)
–
–
–

(3,594)
–
–
–

–
9,412
6,984
7,460

(7,294)

(3,594)

23,856

Vesting Date

6 March 2014
5 March 2015
3 March 2016
7 March 2017

6 March 2014
5 March 2015
3 March 2016
7 March 2017

6 March 2014
5 March 2015
3 March 2016
7 March 2017

6 March 2014
5 March 2015
3 March 2016
7 March 2017

(i)  The 2011 awards were based on TSR and EPS performance to 31 December 2013 (each condition accounting for 50% of the award). The overall vesting of the awards was 67% and the 

total number of shares vesting in respect of all Executives was therefore 40,104. The shares vested on 6 March 2014. The share price on that date was £27.81.

(ii)  The 2012 awards were based on TSR and EPS performance to 31 December 2014 (each condition accounting for 50% of the award). TSR was measured relative to the FTSE 250 index 

(excluding all financial services, insurance companies and investment trusts). For the EPS condition, EPS growth must be at least RPI + 10% for 25% vesting, increasing on a 
straight-line basis to full vesting for EPS growth of RPI + 25% and above. Rotork’s actual TSR performance was 48% resulting in 0% of the TSR element of the award vesting. Rotork’s 
actual EPS growth was 28% resulting in 73.9% of the EPS element of the award vesting. The overall vesting of the awards was 37% and the total number of shares vesting in respect of 
all Executives was therefore 19,394. The shares will vest in March 2015.

(iii)  The performance conditions for the 2013 awards are based on performance to 31 December 2015. The targets are the same as for the 2012 awards.
(iv)  The 2014 awards were granted on 7 March 2014 and are subject to the same performance targets as the 2013 awards (albeit based on performance to 31 December 2016). Further 

details on the awards are set out in the table below.

LTIP awards made during the year (Audited)

RH Arnold
JM Davis
PI France
GM Ogden

Share awards 
made during 
2014

8,308
10,356
15,344
7,460

Basis on which 
award made

Face value of 
award

100% of salary £228,636
100% of salary £284,997
100% of salary £422,267
100% of salary £205,299

Number of 
shares vesting 
for minimum 
performance(i)

Number 
of shares 
vesting for 
maximum 
performance

1,661
2,071
3,068
1,492

8,308
10,356
15,344
7,460

End of 
performance period

31 December 2016
31 December 2016
31 December 2016
31 December 2016

(i)  Vesting if the minimum performance EPS and TSR conditions are achieved (20% of the maximum award). The share price used at the date of award (6 March 2014) was £27.52.

72

ROTORK ANNUAL REPORT 2014GOVERNANCEFree SIP and OPLSS Share Awards (Audited)
In common with all eligible employees, UK based executive directors receive an entitlement to ordinary shares under the SIP which is approved by Her 
Majesty’s Revenue and Customs (HMRC). Under the SIP and the OPLSS an aggregate total of up to 5% of profits are distributed to employees each year 
in the form of ordinary shares. The distribution is calculated by reference to years of service and basic salary. Details of free share awards under the SIP 
and OPLSS made to executive directors in 2014 are set out below. Free shares awarded to all three UK executive directors under the SIP are subject to 
the HMRC upper limit of £3,600 by value. This limit also applies to the OPLSS for the year under review.

RH Arnold
JM Davis
PI France
GM Ogden

The share price used for the award was £26.28.

Free share 
awards made 
during the 
year

136
136
136
136

Date of Grant

8 April 2014
8 April 2014
8 April 2014
8 April 2014

Basis on which award made

Non-performance based
Non-performance based
Non-performance based
Non-performance based

Face value 
of award

£3,574
£3,574
£3,574
£3,574

RH Arnold, in common with other eligible overseas employees, participates in the OPLSS. The scheme Trustee is based in Jersey, Channel Islands. The 
figure shown for RH Arnold relates solely to OPLSS.

Partnership SIP Share Awards (Audited)
In line with all eligible UK based employees, UK based directors are entitled to purchase monthly Partnership Shares under the SIP to a maximum of £150 
per month. Interests in Partnership Shares as at 31 December 2014 are shown in the table below:

RH Arnold
JM Davis
PI France
GM Ogden

Partnership share interest 
as at 31 December 2014

N/A
748
263
0

Sharesave Options Granted to Executive Directors (Audited)
In common with all eligible UK employees, UK based executive directors are entitled to participate in the HMRC approved Rotork Sharesave scheme. 
Under the Sharesave scheme, employees are permitted to save up to £500 per month for a term of three or five years, after which the employee is 
allowed to exercise the share option. The option price is determined in accordance with the HMRC approved Sharesave Scheme Rules and is calculated 
by taking an average of the share price over the five days preceding the invitation date.

The option exercise period is six months duration after which the options lapse.

JM Davis
JM Davis
PI France
PI France
GM Ogden
GM Ogden

Shares 
under option

410
402
1,179
677
410
402

Basis on which award made

Option price

Duration

Date of grant

Date of vesting

Non-performance based
Non-performance based
Non-performance based
Non-performance based
Non-performance based
Non-performance based

£21.94
£22.36
£13.10
£22.36
£21.94
£22.36

3 years
3 years
5 years
5 years
3 years
3 years

30 September 2013
30 September 2014
5 October 2010
30 September 2014
30 September 2013
30 September 2014

1 December 2016
1 December 2017
1 December 2015
1 December 2019
1 December 2016
1 December 2017

73

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’ REMUNERATION REPORT CONTINUED

Statement of directors’ shareholding and share interests (Audited)
The table below shows total beneficial shareholdings of the directors as at 31 December 2014.

RH Arnold
JM Davis
PI France
GM Ogden
LM Bell
GB Bullard
SA James
IG King(ii) 
MJ Lamb 
RC Lockwood
JE Nicholas

Beneficial shares held

2014

2013

Outstanding 
LTIP awards 
2014

Outstanding 
options 
2014

38,703
18,572
61,391
38,871
–
3,506
1,050
7,013
2,000
500
500

33,161
17,371
59,382
38,735
–
2,799
1,050
7,013
–
500
500

27,784
32,302
48,840
23,856
–
–
–
–
–
–
–

–
812
1,856
812
–
–
–
–
–
–
–

% 
Shareholding 
of salary 
achieved(i) 
2014

381%
152%
338%
440%
N/A
N/A
N/A
N/A
N/A
N/A
N/A

(i)  The share price used to determine the percentage of the shareholding of salary achieved is £23.26 being the share price as at 31 December 2014.
(ii) 

IG King retired as a director of the Company on 20 June 2014.

Share retention policy statement
All executive directors are required to maintain a shareholding of at least 150% of basic salary. The policy requires the use of shares vesting under the 
LTIP to achieve this requirement. All executive directors have met this requirement. There has been no change in the directors’ interests in the ordinary 
share capital of the Company between 31 December 2014 and 3 March 2015.

Total pension entitlements (Audited)

Director

RH Arnold
JM Davis
PI France
GM Ogden

Normal 
Retirement 
Age

Total accrued pension
in the defined benefit scheme
as at 31 December 2014 (£)

65
65
60
60

128,622
27,767
61,246
99,013

Value of pension related benefits (£) during company financial year to:

31 December 2013

31 December 2014

Defined
benefit 
scheme

38,280
91,920
63,660
–

Cash in
lieu of 
pension

–
23,858
61,785
88,129

Total

32,280
115,778
125,445
88,129

Defined 
benefit
scheme

83,250
53,900
67,360
–

Cash in
lieu of 
pension

–
25,290
63,293
90,332

Total

83,250
79,820
130,653
90,332

Notes:
1.  The amounts above have been calculated in accordance with Statutory Instrument 2013 No 1981 – The Large and Medium-sized Companies and Groups (Account and Reports) 

(Amendment) Regulations 2013.

2.  The total accrued pension in the defined benefit scheme as at 31 December 2014 is that which would be paid annually on retirement from normal pension age, based on service to 31 

December 2014, except for GM Ogden who became a preserved member of the Rotork Pension and Life Assurance Scheme on 5 April 2012. GM Ogden’s total benefit as at 31 
December 2014 includes deferred revaluation applied to that date.

3.  The value of benefits in the defined benefit pension scheme is based on the increase in accrued pension over the year incorporating an increase for Consumer Prices Index 

(CPI) inflation.

4.  GM Ogden became a preserved member of the Scheme as at 5 April 2012 and so did not accrue any additional pension during 2014. He receives a cash allowance of 44% of basic salary 

in lieu of this pension benefit, which we have calculated amounted to £90,332 in 2014.

5.  The Pensionable Salary used to calculate benefits in the defined benefit scheme for PI France and JM Davis is restricted to a scheme-specific earnings cap which was £141,000 for 
2014. In consideration of this limitation on their benefits under the scheme they receive a monthly cash sum equal to 22.5% and 18% respectively of their basic salary above the 
Scheme’s specific cap.

6.  The figures shown for RH Arnold are in respect of his membership of the Rotork Controls Inc. pension scheme and a supplemental executive retirement plan so that, in aggregate, the 
pension arrangements for RH Arnold are targeted to provide a pension of at least 60% of uncapped basic salary at age 65. The valuations of the benefits are affected by movements in 
the US dollar relative to sterling and are therefore not directly comparable with the directors in the UK scheme.

7.  The accrued pension figures for PI France include a fixed transfer-in pension amount of £5,123 which is payable from his normal retirement date at age 60.

Payments to past directors (Audited)
No payments were made to past directors during the year.

Payments for loss of office (Audited)
No payments for loss of office were made during the year.

74

ROTORK ANNUAL REPORT 2014GOVERNANCETSR performance graph and historic Chief Executive Remuneration table
Rotork plc Total Return Index vs the Total Return Index of the FTSE Industrial Engineering Sector for the 5 Financial Years ending 31 December 2014 
(rebased as at 1 January 2010).

350

300

250

200

150

100

50

0

Year

2014
2013
2012
2011
2010
2009

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Rotork plc 

FTSE Industrial 
Engineering Sector

Chief 
Executive 
single figure 
remuneration 
(£000s)

Annual cash 
bonus as a 
percentage 
of maximum 
opportunity

LTIP vesting 
rate as a 
percentage 
of maximum 
opportunity

1,092
1,452
1,539
1,182
1,288
1,062

66.0%
94.4%
91.3%
88.9%
91.9%
99.5%

37.0%
67.0%
75.5%
30.0%
94.4%
100.0%

Chief 
Executive

PI France
PI France
 PI France
PI France
PI France
PI France

Percentage change in remuneration of director undertaking the role of Chief Executive Officer
This shows the percentage change in remuneration (salary, benefits and bonus) between 2013 and 2014 of the Chief Executive, PI France, compared to 
percentage change for UK employees, being the group against which salary increases are compared, calculated on a per head basis.

The remuneration breakdown varies from country to country so the best comparison should be provided by looking at total remuneration. Total 
remuneration per employee has reduced year on year by 4.2%. However, this comparison is distorted by currency movements as the average salary 
increase between 2013 and 2014 for overseas employees was 4.8% and for the UK workforce was 3.0%.

Base Salary
Benefits
Bonus

PI France Chief Executive

Average per UK employee

2014
% Change from 2013

2014
% Change from 2013

2%
0%
(28)%

3%
5%
3%

75

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014DIRECTORS’ REMUNERATION REPORT CONTINUED

Relative importance of spend on pay
The following graph shows actual expenditure of the Company and change in spend between current and prior financial periods on remuneration paid to 
all employees against distributions to shareholders.

143,579

Employee Remuneration (£000s)

Dividends (£000s)

2014

2013

+6.7%

2014

2013

Employee Remuneration (£000s)
Dividends (£000s)(i)
Instruments

2014

2013

143,579

134,526

42,702

38,735

(i)  Dividends paid were the only distributions to shareholders during the year.

+10%

Instruments

134,526

42,702

38,735

2014

2013

2014

2013

143,579
42,702

134,526
38,735

Percentage 
change

6.7%
10%

Statement of implementation of the remuneration policy in 2015
The base salaries for the executive directors were reviewed in December 2014 and the percentage increases shown below (effective from 1 January 
2015) were agreed by the Committee. Except for JM Davis, this is consistent with the typical increase for the UK workforce (which was 1.8%). JM Davis 
received a marginally higher increase reflecting his experience and continued progression in the role.

The salaries from 1 January 2015 are therefore as follows:
•  RH Arnold – $389,760 (1.8%)
•  JM Davis – £292,125 (2.5%)
•  PI France – £430,000 (1.8%)
•  GM Ogden – £208,997 (1.8%)

The annual cash bonus for 2015 will be based on annual profit target (25%), three year profit growth (25%), EPS (10%), cash generation (10%), accident 
frequency rate (5%) and CO2 emissions (5%). These targets total 80% and are then allocated to executive directors at 100% of basic salary, except for the 
Chief Executive where the allocation is 125% of basic salary. The specific targets relating to the bonus have not been disclosed as they are considered by 
the Committee to be commercially sensitive but full details will be given on a retrospective basis in next year’s report.

LTIP awards of 100% of salary will be granted, except for the Chief Executive where the LTIP award will be 125%. This is within the maximum policy limit 
of 150% of salary. The Committee considers that the higher award level for the Chief Executive in 2015 provides a better balance between the short and 
long-term incentive opportunity for the Chief Executive and is appropriate given the overall potential value of his remuneration package. Consistent 
with the approach used in previous years, the performance conditions will be subject to TSR and EPS performance conditions (each accounting for 50% 
of the award). TSR will be measured relative to the FTSE 250 Index excluding all financial services, insurance companies and investment trusts with 25% 
vesting at median increasing to full vesting for upper quartile performance or above. For the EPS condition, EPS growth must be at least RPI + 10% for 
25% vesting, increasing on a straight-line basis to full vesting for EPS growth of RPI + 25% and above. The Committee is satisfied that the EPS targets 
remain appropriately challenging given the current outlook for the Group.

The fees for the non-executive directors were reviewed in December 2013 and no changes to the fees are proposed. The fee for the Chairman was 
reviewed in December 2014 as part of the search process for a successor Chairman.

GM Ogden will retire from the Company on 31 March 2015. He will not receive any compensation for loss of office. He will receive a pro-rated annual 
cash bonus for 2015. The Committee has exercised its discretion in relation to his outstanding LTIP awards for 2013 and 2014 in line with the relevant 
scheme rules applicable for each award. For the 2013 award there will be a pro rata award based on a hypothetical vesting at the retirement date. For the 
2014 award there will be a pro rata vesting in the event that there is any vesting of the award at the end of the relevant performance period. Any 
outstanding Sharesave or SIP awards will vest in accordance with their terms.

76

ROTORK ANNUAL REPORT 2014GOVERNANCE 
 
Consideration by the directors of matters relating to directors’ remuneration
The members of the Committee are: GB Bullard (Chairman), LM Bell, SA James, MJ Lamb and JE Nicholas. The Committee invites the Group Human 
Resources Director to inform the Committee of pay awards throughout the Group when setting executive director remuneration. The Chairman and 
Chief Executive are also invited to attend meetings except when their own remuneration is considered. The Company Secretary acts as secretary to the 
Committee.

New Bridge Street is remuneration advisor to the Committee and was appointed by the Committee in September 2013 following a retendering process. 
New Bridge Street is a trading name of Aon plc and a signatory to the Remuneration Consultants’ Group Code of Conduct. A subsidiary of Aon plc is also 
the scheme actuary for the Group’s USA pension plan. The Committee is satisfied that New Bridge Street is sufficiently independent to act as 
remuneration advisor to the Committee.

In 2014, the Company paid £52,068 (2013: £13,333 (part year only)) to New Bridge Street for services to the Committee.

Statement of voting at general meeting
At the 2014 AGM of the Company, the percentages of votes cast ‘for’, ‘against’ and ‘withheld’ in respect of the directors’ remuneration report were as 
follows:

Resolution

To approve the directors’ remuneration policy

To approve the directors’ remuneration report

Votes cast 
‘for’

Votes cast 
‘against’

Votes 
‘withheld’

98.0%

96.6%

1.4%

3.4%

0.6%

0%

‘Against’ votes cast at the AGM were a very small proportion of the overall votes and accordingly the directors did not deem it necessary to take any 
remedial action regarding these votes.

77

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014REPORT

OF THE DIRECTORS

The directors submit their report which incorporates the management 
report required under the Disclosure and Transparency Rules for listed 
companies and the audited accounts for the year ended 31 December 
2014 as set out on pages  84 to 128. In compiling this report, the directors 
have consulted with the management of the Group.

Directors
The names of the directors in office during the year still in office at the 
year end and their biographies and other details are set out on pages 52 to 
53. IG King was a director during the year and resigned from the Board on 
20 June 2014.

Directors’ indemnification and insurance
The Company’s Articles of Association provide for the directors and officers 
of the Company to be appropriately indemnified, subject to the provisions of 
the Companies Act 2006. The Company purchases and maintains insurance 
for the directors and officers of the Company in performing their duties, as 
permitted by section 233 Companies Act 2006.

Powers of the directors
As set out in the Company’s Articles of Association, the business of the 
Company is managed by the Board who may exercise all the powers of the 
Company.

Appointment and removal of directors
The Board may appoint a director, either to fill a vacancy or as an additional 
director. Any director appointed by the Board must retire at the next AGM of 
the Company and put themselves forward for re-appointment by the 
shareholders. In accordance with the recommendations of the UK 
Corporate Governance Code, each member of the Board submits themself 
for re-election on an annual basis.

In addition to any power of removal conferred by the Companies Act 2006, 
the Company may by ordinary resolution remove any director before the 
expiration of their period of office and may, subject to the Articles of 
Association, by ordinary resolution appoint another person who is willing 
to act as a director in their place.

Political donations
No political donations were made during the year. The Group has a policy 
of not making political donations in any part of the world.

Dividend
The directors recommend a final dividend of 30.9p per ordinary share 
(2013: 30.0p) for the year, payable on 18 May 2015 to shareholders on the 
register on 10 April 2015. An interim dividend for 2014 of 19.2p per 
ordinary share (2013: 18.05p) was paid on 26 September 2014.

Information required in the Directors’ report set out in the 
Strategic Report
Information relating to likely future developments of the Company and its 
subsidiaries and information relating to research and development 
activities of the Company and its subsidiaries is set out in the Strategic 
Report on pages 1 to 51.

Share capital
Details of the Company’s share capital including the rights and obligations 
attached to each class of shares and the ordinary shares issued during 
2014 are summarised in note 17 of the financial statements. 5p ordinary 
shares represent over 99.9% of the Company’s total share capital and £1 
9.5% cumulative preference shares represent less than 0.1% of the 
Company’s total share capital.

There are no securities of the Company carrying special rights with regard 
to the control of the Company.

At the Company’s last AGM held on 25 April 2014, the shareholders 
authorised the Company to make market purchases of ordinary shares 
limited to just under approximately 10% of its issued ordinary share 
capital at that time and of certain issued preference shares, and to allot 
shares within certain limits approved by shareholders. These authorities 
expire at the 2015 AGM and appropriate renewals will be sought.

The Company did not acquire any of its own shares in 2014.

The Company’s Articles of Association contain customary restrictions on 
the transfer of shares as applicable only in certain limited circumstances 
(e.g. in relation to transfers to a minor). Save for those provisions, there are 
no restrictions on the transfer of ordinary shares in the capital of the 
Company other than certain restrictions which may be required from time 
to time by law, for example, insider trading law. In accordance with the Model 
Code, which forms part of the Listing Rules of the UK Listing Authority (as 
adopted by the Company), directors and certain employees are required to 
seek the prior approval of the Company to deal in its shares.

The Company is not aware of any agreements between shareholders that 
may result in restrictions on the transfer of securities and/or voting rights. 
The Company’s Articles of Association contain limited restrictions on the 
exercise of voting rights (e.g. in relation to disenfranchised shares 
following the issue of a notice to shareholders under section 793 
Companies Act 2006).

The Company’s share schemes each contain provisions providing voting 
rights to the scheme trustee.

Amendments to the Company’s Articles of Association
The Company’s Articles of Association may only be amended by special 
resolution at a general meeting of the shareholders.

Significant agreements – change of control
The Company is not aware of any significant agreements to which it is 
party that take effect, alter or terminate upon a change of control of the 
Company following a takeover. There are no agreements between the 
Company and its directors or employees that provide for compensation 
for loss of office or employment that occurs because of a takeover bid.

Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by law are 
set out in the Corporate Social Responsibility report on page 44.

Use of financial instruments
An explanation of the Group policies on the use of financial instruments 
and financial risk management objectives are contained in note 26 to the 
accounts.

Disabled persons and employee involvement
The disclosures concerning the Group’s policies on the employment of 
disabled persons and employee involvement are set out in the Corporate 
Social Responsibility report on page 46.

Post-balance sheet events
There have been no important post-balance sheet events.

Existence of branches outside the UK
The Company has no branches outside of the UK.

78

ROTORK ANNUAL REPORT 2014GOVERNANCESubstantial shareholders
As at 31 December 2014, the following notifiable interests in issued share 
capital had been received by the Company under the Disclosure and 
Transparency Rules (DTR 5) of the UK Listing Authority. It should be noted 
that these holdings are likely to have changed since notified to the 
Company. However, notification of any change is not required until an 
applicable threshold is crossed.

The directors are responsible for keeping adequate accounting records that 
are sufficient to show and explain the company’s transactions and disclose 
with reasonable accuracy at any time the financial position of the Company 
and enable them to ensure that the financial statements comply with the 
Companies Act 2006. They are also responsible for safeguarding the assets 
of the Company and hence for taking reasonable steps for the prevention 
and detection of fraud and other irregularities.

Identity

AXA Investment Managers S.A.
APG Asset Management NV
Blackrock Inc
Mondrian Investment Partners Limited

Size of 
holding

5.28%
5.01%
4.86%
4.99%(i)

Nature of 
holding

Indirect
Direct
Indirect
Direct

(i)  The Company was informed on 15 January 2015 that Mondrian Investment Partners 
Limited had increased the size of its holding to 5.01% of the voting capital. No other 
changes to the above have been disclosed to the Company in accordance with DTR 5 
between the end of the financial year and 2 March 2015.

Corporate governance
The Company’s corporate governance report can be found on pages 54 to 63.

Disclosure of information to auditors
The directors who held office at the date of approval of this directors’ report 
confirm that, so far as they are each aware, there is no relevant audit 
information of which the Company’s auditors are unaware; and each 
director has taken all the steps that they ought to have taken as a director to 
make themselves aware of any relevant audit information and to establish 
that the Company’s auditor is aware of that information.

‘Going Concern’ basis of preparation
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 financial statements. In forming this view, the 
directors have considered trading and cash flow forecasts, financial 
commitments, the significant order book with customers spread across 
different geographic areas and industries and the significant net cash 
position.

Statement of directors’ responsibility for preparing the Annual Report 
and Financial Statements
Directors’ responsibilities
The directors are responsible for preparing the Annual Report and the 
financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare such financial statements 
for each financial year. Under that law the directors are required to prepare 
the group financial statements in accordance with International Financial 
Reporting Standards (IFRSs) as adopted by the European Union and Article 
4 of the IAS Regulation and have also chosen to prepare the parent company 
financial statements under IFRSs as adopted by the European Union. Under 
company law the directors must not approve the financial statements 
unless they are satisfied that they give a true and fair view of the state of 
affairs of the Company and of the profit or loss of the Company for that 
period. In preparing these financial statements, International Accounting 
Standard 1 requires that directors:
•  properly select and apply accounting policies;
•  present information, including accounting policies, in a manner that 

provides relevant, reliable, comparable and understandable information;

•  provide additional disclosures when compliance with the specific 

requirements in IFRSs are insufficient to enable users to understand the 
impact of particular transactions, other events and conditions on the 
entity’s financial position and financial performance; and
•  make an assessment of the company’s ability to continue as a 

going concern.

The directors are responsible for the maintenance and integrity of the 
corporate and financial information included on the Company’s website. 
Legislation in the United Kingdom governing the preparation and 
dissemination of financial statements may differ from legislation in other 
jurisdictions.

Directors’ responsibility statement
We confirm that to the best of our knowledge:
1.  the financial statements, prepared in accordance with IFRSs as 

adopted by the EU, give a true and fair view of the assets, liabilities, 
financial position and profit or loss of the company and the 
undertakings included in the consolidation taken as a whole;

2.  the strategic report includes a fair review of the development and 

performance of the business and the position of the company and the 
undertakings included in the consolidation taken as a whole, together 
with a description of the principal risks and uncertainties that they 
face; and

3.  the annual report and financial statements, taken as a whole, are fair, 
balanced and understandable and provide the information necessary 
for shareholders to assess the company’s performance, business 
model and strategy.

Directors’ statement pursuant to the Disclosure and Transparency Rules
Each of the directors, whose names and functions are listed on pages 52 
to 53 confirm that, to the best of each person’s knowledge and belief:
•  The financial statements, prepared in accordance with the applicable 
set of accounting standards, give a true and fair view of the assets, 
liabilities, financial position and profit of the Group and Company;
•  The Directors’ Report includes a fair review of the development and 
performance of the business and the position of the Group and 
Company, together with a description of the principal risks and 
uncertainties that they face; and

•  Having taken advice from the Audit Committee, the annual report and 

financial statements, taken as a whole, are fair, balanced and 
understandable and provide the information necessary for 
shareholders to assess the Company’s performance, business model 
and strategies.

The directors are responsible for the maintenance and integrity of the 
corporate and financial information included on the Company’s website. 
Legislation in the UK governing the preparation and dissemination of 
financial statements may differ from legislation in other jurisdictions.

External auditor
Upon the recommendation of the Audit Committee and approval of the 
Board, a resolution to appoint Deloitte LLP as auditor, and to authorise the 
directors to determine their remuneration are to be proposed at the 
forthcoming AGM.

On behalf of the Board

Stephen Rhys Jones
Company Secretary
2 March 2015

79

GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationROTORK ANNUAL REPORT 2014FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF ROTORK PLC

Opinion on financial 
statements of Rotork plc

Going concern

In our opinion:
• 

the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs 
as at 31 December 2014 and of the Group’s and the parent Company’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial 
Reporting Standards (IFRSs) as adopted by the European Union;
the parent Company financial statements have been properly prepared in accordance with United Kingdom 
Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 
and, as regards the Group financial statements, Article 4 of the IAS Regulation.

• 

• 

• 

The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of 
Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated Statement of Cash 
Flows, the Consolidated Statement of Changes in Equity and the related notes 1 to 30. The financial reporting 
framework that has been applied in the preparation of the group financial statements is applicable law and IFRSs as 
adopted by the European Union. The financial reporting framework that has been applied in the preparation of the 
parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom 
Generally Accepted Accounting Practice).

As required by the Listing Rules we have reviewed the directors’ statement contained within the Report of the 
Directors on page 79 that the Group is a going concern. We confirm that:
•  we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the 

financial statements is appropriate; and

•  we have not identified any material uncertainties that may cast significant doubt on the Group’s ability to 

continue as a going concern.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the 
Group’s ability to continue as a going concern.

Our assessment of risks of 
material misstatement

The assessed risks of material misstatement described below are those that had the greatest effect on our audit 
strategy, the allocation of resources in the audit and directing the efforts of the engagement team.

The description of risks opposite should be read in conjunction with the significant issues considered by the Audit 
Committee discussed on page 61.

Our audit procedures relating to these matters were designed in the context of our audit of the financial 
statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the 
financial statements is not modified with respect to any of the risks described above, and we do not express an 
opinion on these individual matters.

Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the 

economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality 
both in planning the scope of our audit work and in evaluating the results of our work.

We determined materiality for the group to be £6.9m, which is 5% of pre-tax profit. In 2013, the previous auditors 
set materiality at £9.7m on the basis of 7% of pre-tax profit.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of 
£138,000 (in 2013 the previous auditor reported on all amounts over £450,000), as well as differences below that 
threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on 
disclosure matters that we identified when assessing the overall presentation of the financial statements. 

80

ROTORK ANNUAL REPORT 2014RISK

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

Impairment of the carrying value of goodwill
The gross carrying value of goodwill at 31 December 2014 was 
£149.7m. Details of its valuation is included by management in the 
‘critical accounting estimates and judgements’ section on page 92 
and note 10 to the accounts.

Management perform an impairment review under IAS36 Impairment 
of Assets on an annual basis and whenever an indication of 
impairment exists.

A significant risk of material misstatement exists as a result of the 
application of management judgement and estimates in performing 
the impairment review, in particular in relation to the forecasting of 
future cash flows and the discount rates used for each cash 
generating unit (CGU).

Accounting for significant acquisitions
During the year, the Group has acquired three businesses, YTC, Rotork 
Midland and Masso. £32.4m of intangible assets have been identified in 
relation to the acquisitions in the year. Details of their valuation are 
included by management in the ‘critical accounting estimates and 
judgements’ section on page 92 and note 3 to the accounts.

The valuation of intangible assets represents a key judgement area 
based on a number of inputs in the discounted cash flow and royalty 
relief valuations, which include the discount rates, growth rates and 
royalty rates.

Other provisional fair value adjustments have been made by 
management in the areas of inventory, trade receivables and warranty 
provisioning. 

Valuation of inventory
The Group had inventory of £81.1m at 31 December 2014, held in 
numerous global locations across several product lines. Details of its 
valuation is included by management in the ‘critical accounting 
estimates and judgements’ section on page 92 and note 14 to the 
accounts.

There are risks surrounding the absorption of labour and overheads 
and the obsolescence of stock in niche markets and industries where 
customer demand fluctuates over periods. Both raw materials and 
finished goods require assessment for provisions based on past and 
predicted future product usage. There is a risk that local systems can 
present inconsistent data and/or override occurs. 

Defined benefit pension liability valuation
The Group has a defined benefit pension liability of £36.1m at 31 
December 2014. Details of the valuation of the liability is included by 
management in the ‘critical accounting estimates and judgements’ 
section on page 92 and note 24 to the accounts.

There is a risk relating to judgements made by management in valuing 
the Defined Benefit pension plans as small changes in the key model 
input assumptions such as the discount rate, mortality assumption and 
inflation level, can have a significant effect on the valuation of the 
liability.

We challenged the reasonableness of the assumptions which 
underpin management’s forecasts with reference to recent 
performance and historical trend analysis. We confirmed the 
forecasts used had been challenged by the Board and approved by it. 
We compared the identification and aggregation of the CGUs against 
how goodwill is monitored within the business. We performed a 
specific review and challenge, involving internal valuations 
specialists, of the discount rates applied for each CGU against the 
Group weighted average cost of capital and third party data relating 
to premiums applied to take account of cash flows arising in overseas 
locations.

We recalculated management’s sensitivity analysis on key 
assumptions and replaced key assumptions with alternative 
scenarios e.g. further changes in discount and growth rates.

Our audit of the acquired intangible assets focused on management’s 
valuation model and compliance with IFRS3, IFRS13 and accepted 
industry valuation practice regarding discount rates, growth rates 
and royalty rates. We used our internal valuation specialists to 
support our assessment of these rates.

We challenged the reasonableness of underlying forecast cash flows 
through discussions with management, results of the business pre 
and post-acquisition and review of any due diligence work.

We evaluated any significant fair value adjustments made to align the 
historical accounting of the acquired entity with the Group’s 
accounting policies.

Our work on provisions included agreeing the provision calculations 
to inventory usage data and product history. We have recalculated 
provisions based on this data.

We have benchmarked the various manufacturing components 
within the Group regarding their use of absorption rates and reviewed 
individual overhead categories against IAS2 criteria.

We challenged the key assumptions supporting management’s 
valuation of the pension liability. We used our internal actuarial 
experts to compare the discount, inflation and life expectancy rates 
against externally derived data.

We challenged management to understand the sensitivity of changes 
in assumptions and quantify a range of reasonable rates that could be 
used in their calculation.

We also considered the adequacy of the Group’s disclosures in 
respect of the sensitivity of the deficit to changes in these key 
assumptions. 

81

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF ROTORK PLC CONTINUED

An overview of the scope  
of our audit

Our group audit was scoped by obtaining an understanding of the Group and its environment, including group-wide 
controls, and assessing the risks of material misstatement at a group level. Based on that assessment, we focused 
our group audit scope primarily on the audit work at 30 components. 22 components were subject to a full scope 
audit and audit procedures were performed on key account balances at the other 8 locations where the extent of 
our testing was based on our assessment of the risks of material misstatement and of the materiality of the 
Group’s operations at those locations.

84%

16%

Revenue

8%

92%

Profit before tax

The 30 locations represent the principal business units within the Group’s four reportable segments across 12 
countries and account for 84% of the Group’s revenues, 92% of profit before tax. They were also selected to 
provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified 
above. Our audit work at these locations was executed at levels of materiality applicable to each individual entity 
which were lower than group materiality ranging from £2.3m to £3.3m.

Due to the significance of the 22 components’ operations subject to full scope audits to the group audit, senior 
members of the group audit team designed and implemented a programme to visit the components. We consider 
the United Kingdom, Italy, United States of America and China to be key components and we visited these locations 
in the current year. Our plan is that we will visit these each year. As part of our first year audit we also visited 
components in Australia, Canada, Germany and Spain. We plan to include these locations in our rotational visit 
programme going forward.

For each of the businesses included within the programme of planned visits, the group audit team also discusses 
audit findings with the relevant component audit team throughout the audit engagement and reviews relevant 
audit working papers. For the remaining locations where full audits were completed, we discuss audit findings with 
the relevant component audit team, review audit working papers in relation to key issues and discuss key matters 
with divisional management where considered necessary in forming our group audit opinion. In relation to the 
locations which were subject to an audit of key account balances, we discuss the results of these businesses and 
accounting matters arising through our involvement in divisional meetings with management.

At the parent entity level, we also tested the consolidation process and carried out analytical procedures to 
confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial 
information of the remaining 24 components not subject to audit or audit of specified account balances. None of 
these components represented more than 2% of revenue or profit before taxation individually.

In our opinion:
• 

the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with 
the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the 
financial statements are prepared is consistent with the financial statements.

• 

Opinion on other matters 
prescribed by the Companies 
Act 2006

82

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
Matters on which we are 
required to report by 
exception

Adequacy of explanations  
received and accounting records

Directors’ remuneration

Corporate Governance  
Statement

Our duty to read other  
information in the  
Annual Report

Respective responsibilities of 
directors and auditor

Scope of the audit of the 
financial statements

Under the Companies Act 2006 we are required to report to you if, in our opinion:
•  we have not received all the information and explanations we require for our audit; or
•  adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have 

not been received from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns.

• 

We have nothing to report in respect of these matters.

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ 
remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in 
agreement with the accounting records and returns. We have nothing to report arising from these matters.

Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to 
the Company’s compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report 
arising from our review.

Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, 
information in the annual report is:
•  materially inconsistent with the information in the audited financial statements; or
•  apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired 

in the course of performing our audit; or

•  otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge 
acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and 
understandable and whether the annual report appropriately discloses those matters that we communicated to 
the Audit Committee which we consider should have been disclosed. We confirm that we have not identified any 
such inconsistencies or misleading statements.

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the 
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility 
is to audit and express an opinion on the financial statements in accordance with applicable law and International 
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s 
Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). 
Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and 
applied. Our quality controls and systems include our dedicated professional standards review team and 
independent partner reviews.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the 
Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members 
those matters we are required to state to them in an auditor’s 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 and the company’s 
members as a body, for our audit work, for this report, or for the opinions we have formed.

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to 
give reasonable assurance that the financial statements are free from material misstatement, whether caused by 
fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and 
the parent company’s circumstances and have been consistently applied and adequately disclosed; the 
reasonableness of significant accounting estimates made by the directors; and the overall presentation of the 
financial statements. In addition, we read all the financial and non-financial information in the annual report to 
identify material inconsistencies with the audited financial statements and to identify any information that is 
apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the 
course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we 
consider the implications for our report.

Nicola Mitchell FCA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
2 March 2015

83

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationCONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2014

Revenue
Cost of sales

Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses
Operating profit before the amortisation of intangible assets
Amortisation of acquired intangible assets
Operating profit

Finance income
Finance expense

Profit before tax
Income tax expense

Profit for the year

Basic earnings per share 
Adjusted basic earnings per share 
Diluted earnings per share
Adjusted diluted earnings per share

Note

2014
£000

2013
£000

2

4

5

2

7
7

8
9

18
18
18
18

594,739
(309,280)

578,440
(304,066)

285,459
277
(5,466)
(137,832)
(211)
157,167
(14,940)
142,227

1,421
(2,483)

141,165
(37,963)

103,202

119.0p
131.6p
118.5p
131.0p

274,374
206
(5,623)
(129,576)
(116)
151,412
(12,147)
139,265

1,173
(2,441)

137,997
(38,488)

99,509

114.8p
124.9p
114.3p
124.3p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2014

Profit for the year
Other comprehensive income
Items that may be subsequently reclassified to the Income Statement:
Foreign exchange translation differences
Effective portion of changes in fair value of cash flow hedges net of tax

Items that are not subsequently reclassified to the Income Statement:
Actuarial (loss)/gain in pension scheme net of tax

Income and expenses recognised directly in equity

Total comprehensive income for the year

2014
£000

2013
£000

103,202

99,509

(869)
(1,810)

(2,679)

(15,341)

(18,020)

(4,981)
1,274

(3,707)

5,528

1,821

85,182

101,330

84

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014CONSOLIDATED BALANCE SHEET
At 31 December 2014

Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Derivative financial instruments
Deferred tax assets
Other receivables

Total non-current assets
Current assets
Inventories
Trade receivables
Current tax
Derivative financial instruments
Other receivables
Cash and cash equivalents

Total current assets

Total assets

Equity
Issued equity capital
Share premium
Reserves
Retained earnings

Total equity

Non-current liabilities
Interest bearing loans and borrowings
Employee benefits
Deferred tax liabilities
Provisions

Total non-current liabilities
Current liabilities
Interest bearing loans and borrowings
Trade payables
Employee benefits
Current tax
Derivative financial instruments
Other payables
Provisions

Total current liabilities

Total liabilities

Total equity and liabilities

Note

2014
£000

2013
£000

10
11
12
23
13
15

14
15
15
23
15
16

17

19
20
13
21

19
22
20
22
23
22
21

149,679
72,270
64,050
–
15,703
1,976

105,150
53,481
45,871
804
11,778
1,532

303,678

218,616

81,090
128,472
1,962
1,913
12,586
46,816

75,081
105,976
1,145
2,933
12,152
68,873

272,839

266,160

576,517

484,776

4,346
9,422
3,970
359,057

4,344
8,840
6,649
312,246

376,795

332,079

1,303
38,864
 20,358
1,913

62,438

20,274
40,162
16,018
15,200
1,119
35,191
9,320

1,678
22,705
16,920
2,628

43,931

532
38,019
17,479
14,836
32
31,002
6,866

137,284

108,766

199,722

152,697

576,517

484,776

These financial statements were approved by the Board of Directors on 2 March 2015 and were signed on its behalf by:  

PI France and JM Davis, Directors.

85

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Balance at 31 December 2012
Profit for the year
Other comprehensive income
Foreign exchange translation differences
Effective portion of changes in fair value of cash  

flow hedges

Actuarial gain on defined benefit pension plans 
Tax in other comprehensive income
Total other comprehensive income

Total comprehensive income
Transactions with owners, recorded directly in equity
Equity settled share-based payment transactions 
Tax on equity settled share-based payment transactions
Share options exercised by employees
Own ordinary shares acquired
Own ordinary shares awarded under share schemes
Dividends

Issued
equity
capital

4,340
–

–

–
–
–
–

–

–
–
4
–
–
–

Share
premium

Translation
reserve

8,258
–

–

–
–
–
–

–

–
–
582
–
–
–

7,649
–

(4,981)

–
–
–
(4,981)

(4,981)

–
–
–
–
–
–

Capital
redemption
reserve

1,644
–

–

–
–
–
–

–

–
–
–
–
–
–

Hedging
reserve

1,063
–

Retained
earnings

246,369
99,509

Total

269,323
99,509

–

–

(4,981)

1,598
–
(324)
1,274

–
7,669
(2,141)
5,528

1,598
7,669
(2,465)
1,821

1,274

105,037

101,330

–
–
–
–
–
–

143
632
–
(5,601)
4,401
(38,735)

143
632
586
(5,601)
4,401
(38,735)

Balance at 31 December 2013

4,344

8,840

2,668

1,644

2,337

312,246

332,079

Profit for the year
Other comprehensive income
Foreign exchange translation differences
Effective portion of changes in fair value of cash  

flow hedges

Actuarial loss on defined benefit pension plans 
Tax in other comprehensive income
Total other comprehensive income

Total comprehensive income
Transactions with owners, recorded directly in equity
Equity settled share-based payment transactions 
Tax on equity settled share-based payment transactions
Share options exercised by employees
Own ordinary shares acquired
Own ordinary shares awarded under share schemes
Dividends

–

–

–
–
–
–

–

–
–
2
–
–
–

–

–

–
–
–
–

–

–
–
582
–
–
–

–

(869)

–
–
–
(869)

(869)

–
–
–
–
–
–

–

–

–
–
–
–

–

–
–
–
–
–
–

–

–

103,202

103,202

–

(869)

(2,368)
–
558
(1,810)

–
(19,832)
4,491
(15,341)

(2,368)
(19,832)
5,049
(18,020)

(1,810)

87,861

85,182

–
–
–
–
–
–

2,799
(274)
–
(6,300)
5,427
(42,702)

2,799
(274)
584
(6,300)
5,427
(42,702)

Balance at 31 December 2014

4,346

9,422

1,799

1,644

527

359,057

376,795

Detailed explanations for equity capital, the translation reserve, capital redemption reserve and hedging reserve can be seen in note 17.

86

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2014

Cash flows from operating activities
Profit for the year
Adjustments for:
Amortisation of intangibles
Amortisation of development costs
Depreciation
Equity settled share-based payment expense
Profit on sale of property, plant and equipment
Finance income
Finance expense
Income tax expense

Increase in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Difference between pension charge and cash contribution
(Decrease)/increase in provisions
Increase in employee benefits

Income taxes paid

Cash flows from operating activities

Investing activities
Purchase of property, plant and equipment
Development costs capitalised
Sale of property, plant and equipment
Acquisition of businesses, net of cash acquired
Contingent consideration paid
Interest received

Cash flows from investing activities

Financing activities
Issue of ordinary share capital
Own ordinary shares acquired
Interest paid
Increase/(decrease) in bank loans
Repayment of finance lease liabilities
Dividends paid on ordinary shares

Cash flows from financing activities

(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held

Cash and cash equivalents at 31 December

Note

2014
£000

2014
£000

2013
£000

2013
£000

103,202

14,940
1,461
7,996
5,160
88
(1,421)
2,483
37,963

171,872
(1,891)
(16,349)
(1,327)
(5,241)
(1,379)
2,176

147,861
(42,992)

(17,518)
(2,676)
224
(81,263)
(1,463)
1,048

584
(6,300)
(1,120)
19,496
(36)
(42,702)

3

16

99,509

12,147
1,214
6,801
2,178
(25)
(1,173)
2,441
38,488

161,580
(1,740)
(10,786)
(1,778)
(534)
863
2,621

150,226
(39,866)

104,869

110,360

(10,419)
(2,033)
159
(43,235)
(250)
917

(101,648)

(54,861)

586
(5,601)
(653)
(618)
(34)
(38,735)

(30,078)

(26,857)
68,873
4,800

46,816

(45,055)

10,444
59,868
(1,439)

68,873

87

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationNOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 31 December 2014

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

Rotork plc is a company domiciled in England. The consolidated financial statements of the Company for the year ended 31 December 2014 
comprise the Company and its subsidiaries (together referred to as the Group). The accounting policies contained below in note 1 and the 
disclosures in notes 2 to 30 all relate to the Group financial statements. The Company balance sheet can be found following note 30. As the 
Company has elected to continue reporting under UK GAAP, the applicable accounting policies are contained in note a, and notes b to k relate to the 
Company’s financial statements.

1. ACCOUNTING POLICIES
The accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been 
consistently applied to the years presented, unless otherwise stated.

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

The consolidated financial statements have been prepared under the historical cost convention subject to the items referred to in the derivative 
financial instruments accounting policy below.

New accounting standards and interpretations
The following amendments have been applied from 1 January 2014:
•  Amendments to IAS32 – Offsetting Financial Assets and Financial liabilities
•  Amendments to IAS36 – Recoverable Amount Disclosures for Non-Financial Assets
•  Amendments to IAS39 – Novation of Derivatives and Continuation of Hedge Accounting

Application of these standards and amendments has not had any material impact on the disclosures, net assets or results of the Group.

Recent accounting developments
IFRS15 Revenue from contracts with customers has been issued but is not yet effective and has not been adopted as application was not 
mandatory for the year. The new standard requires the separation of performance obligations within contracts with customers and the contractual 
value to be allocated to the performance obligations. Once a performance obligation is satisfied revenue should be recognised on that element of 
the contract. The introduction of the standard is likely to have some impact on Rotork but this is unlikely to be material due to the relatively 
straightforward contractual terms and conditions with customers. An assessment will be carried to understand the impact of this standard prior to 
it becoming effective in January 2017.

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

The following narrow scope amendments which were issued as part of the IFRS Annual improvement cycle are effective for the 2015 financial year:
•  Amendment to IAS19 Defined benefit plans – Employee contributions
• 
• 
• 
• 
• 

IFRS2 Share-based payment – Definition of vesting condition
IFRS3 Business combination – Accounting for contingent consideration
IFRS8 Operating segments – Aggregation of operating segments and reconciliation of the total of reportable assets
IFRS13 Fair value measurement – Short-term receivable and payables
IAS24 Related party disclosure – Key management personnel services

Application of these amendments has not had any material impact on the disclosures, net assets or results of the Group.

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 financial statements. In forming this 
view, the directors have considered trading and cash flow forecasts, financial commitments, the significant order book with customers spread 
across different geographic areas and industries and the net cash position.

Consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year to 31 December 2014. 
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date 
control ceases. Intra-group balances and any unrealised gains or losses or income and expenses arising from intra-group transactions are 
eliminated in preparing the consolidated financial statements.

88

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 20141. ACCOUNTING POLICIES continued
Foreign currencies
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities 
denominated in foreign currencies at the balance sheet date are translated to sterling at the foreign exchange rate ruling at that date. Foreign 
exchange differences arising on translation are recognised in the Income Statement. Non-monetary assets and liabilities that are measured in 
terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and 
liabilities denominated in foreign currencies that are stated at fair value are translated to sterling at foreign exchange rates at the dates the values 
were determined.

Assets and liabilities of foreign subsidiaries, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at 
rates of exchange ruling at the balance sheet date. The revenues and expenses of foreign subsidiaries are translated to sterling at rates 
approximating those ruling at the date of the transactions. Differences on exchange arising from the retranslation of the opening net investment in 
subsidiaries, and from the translation of the results of those subsidiaries at average rate, are reported as an item of other comprehensive income 
and accumulated in the translation reserve.

Any differences that have arisen since 1 January 2004, the date of transition to IFRS, are presented as a separate component of equity. Translation 
differences that arose before the date of transition to IFRS in respect of all foreign entities are not presented as a separate component.

Revenue
Revenue comprises the fair value of the consideration received or receivable for the sale of goods or services. Revenue is shown net of value-added 
tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be 
reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the 
Group’s activities.

Revenue from the sale of actuators, gearboxes and flow control products is recognised in the Income Statement when the significant risks and 
rewards of ownership have been transferred to the buyer in accordance with the contracted shipping terms.

Revenue from service work is recognised in the Income Statement in proportion to the stage of completion of the transaction at the balance sheet 
date. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated completion costs, the 
possible return of goods or continuing management involvement with the goods.

Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred 
to the Group.

For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:
• 
• 
• 
• 

the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in the Income Statement.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is 
not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration 
are recognised in the Income Statement.

Goodwill is stated at cost or deemed cost less any impairment losses. The carrying value of goodwill is reviewed at each balance sheet date and is 
allocated to cash-generating units (CGU). An impairment loss is recognised whenever the carrying value of an asset or its CGU exceeds its 
recoverable amount. Impairment losses are recognised in the Income Statement.

Intangible assets 
i) Research & development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised 
in the Income Statement as an expense as incurred. Development costs incurred after the point at which the commercial and technical feasibility of 
the product have been proven, and the decision to complete the development has been taken and resources made available, are capitalised. The 
expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development 
expenditure is stated at cost less accumulated amortisation and impairment losses. Development expenditure has an estimated useful life of five 
years and is written off on a straight-line basis.

89

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationNOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

1. ACCOUNTING POLICIES continued
ii) Other intangible assets
Other intangible assets that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation and 
impairment losses. The useful life of each of these assets is assessed based on discussions with the management of the acquired business and 
takes account of the differing natures of each of the intangibles acquired. The assessed useful lives of intangibles acquired are as follows:

Brands and trademarks 
Customer relationships 
Product design patents  
Order backlog 

4 to 10 years
2 to 7 years
5 to 8 years
3 months to 1 year

Amortisation is charged on a straight-line basis over the estimated useful life of the assets.

Property, plant and equipment
Freehold land is not depreciated. Long leasehold buildings are amortised over 50 years or the expected useful life of the building where less than 50 
years. Other assets are depreciated in equal annual instalments by reference to their estimated useful lives and residual values at the following 
annual rates:

Freehold buildings 
Short leasehold buildings 
Plant and equipment 

2% to 4%
period of lease
10% to 33%

Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation.

Leases
Where fixed assets are financed by leasing agreements, which give rights approximating to ownership, the assets are treated as if they had been 
purchased and the capital element of the leasing commitments are shown as obligations under finance leases. Assets acquired under finance 
leases are initially recognised at the present value of the minimum lease payments. The rentals payable are apportioned between interest, 
which is charged to the Income Statement, and liability, which reduces the outstanding obligation so as to give a constant rate of charge on the 
outstanding lease obligations. Costs in respect of operating leases are charged on a straight-line basis over the term of the lease in arriving at 
the operating profit.

Taxation
Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in the Income Statement except to the extent 
that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable 
income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of 
previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and 
liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: 
goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profits. The 
amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using 
tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be 
utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Inventory and work in progress
Inventory and work in progress are valued at the lower of cost and net realisable value. In respect of work in progress and finished goods, cost 
includes all production overheads and the attributable proportion of indirect overhead expenses which are required to bring inventories to their 
present location and condition. The net realisable value in respect of old and slow moving inventory is assessed by reference to historic usage 
patterns and forecast future usage.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short term (with an original maturity less than three months) deposits. Bank overdrafts that 
are repayable on demand form part of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

Equity
Equity comprises issued equity capital, share premium, reserves and retained earnings.

When issued equity capital is repurchased, the amount paid, including directly attributable costs, is recognised as a change in equity. Repurchased 
shares are debited direct to equity and shown as a deduction from retained earnings.

90

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
 
1. ACCOUNTING POLICIES continued
Provisions
i) Warranties
A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty cost data, 
known issues and management expectations of future costs.

ii) Contingent consideration
The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash at a future date, depends on 
uncertain future events. The amounts recognised in the financial statements represent a fair value estimate at the balance sheet date of the 
amounts expected to be paid.

Employee benefits
i) Pension plans
Where the Group operates a defined benefit pension scheme, contributions are made in accordance with qualified actuaries’ recommendations. In 
respect of all actuarial gains and losses that arise in calculating the Group’s obligation in respect of the plans, these are recognised in equity. 
Interest on pension scheme liabilities has been recognised within financing expenses.

The Group also operates defined contribution pension schemes. The costs for these schemes are recognised in the Income Statement as incurred.

ii) Share-based payment transactions
The Rotork Sharesave Plan, introduced in 2004, offers certain employees the opportunity to purchase shares in Rotork plc at a discounted price 
compared with the market price at the time of grant. Details of the scheme are given in note 25. The fair value of the right/option is recognised as an 
employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period between grant and 
maturity. The right/option reaches maturity when the employee becomes unconditionally entitled. The fair value of the grant is measured using a 
Black-Scholes model, taking into account the terms and conditions upon which the rights were granted. The amount recognised as an expense is 
adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold 
for vesting.

The Rotork Long Term Incentive Plan grants awards of shares to executive directors and senior managers. These awards may vest after a period of 
three years dependent upon both market and non-market performance conditions being met. Details of the grants are given in note 25. The fair 
value of the award is measured at grant date, using a Monte Carlo simulation model which takes into account the market based performance 
criteria, and spread over the vesting period. The fair value of the award is recognised as an employee expense with a corresponding increase in 
equity for the share settled award. The amount recognised as an expense is adjusted to exclude options that do not vest as a result of non-market 
performance conditions not being met.

The Overseas Profit Linked Share Scheme (OPLSS) and the Share Incentive Plan (SIP) are discretionary profit linked share schemes based on the 
prior year profit of the participating Rotork companies. The value of the award to each employee is based on salary and the length of service, the 
value of the awards can be up to £3,600. Shares awarded under these schemes are issued by the trustee at the cost of purchase. The costs of 
providing these plans are recognised in the Consolidated Income Statement over the period to which the employee has earned the award.

iii) Long term service leave
The Group’s net obligation in respect of long term service leave is the amount of future benefit that employees have earned in return for their 
service in the current and prior periods.

iv) Other employee benefits
The Group offers a number of discretionary bonus schemes to employees around the world. The costs of these schemes are recognised in the 
Income Statement as incurred.

Derivative financial instruments
The Group uses forward exchange contracts and swaps to hedge its exposure to foreign exchange risk arising from operational and financing 
activities. These are the only derivative financial instruments used by the Group. In accordance with its Treasury Policy, the Group does not hold or 
issue contracts for trading purposes. Forward exchange contracts that do not qualify for hedge accounting are accounted for as trading instruments.

Forward exchange contracts are recognised initially at fair value. Where a forward exchange contract is designated as a hedge of the variability in 
cash flows of a recognised liability, a firm commitment or a highly probable forecasted transaction, the effective part of any gain or loss on the 
forward contract is recognised directly in equity. Any effective cumulative gain or loss is removed from equity and recognised in the Income 
Statement at the same time as the hedged transaction. The ineffective part of any gain or loss is recognised in the Income Statement immediately.

When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative gain or loss at 
that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no 
longer expected to take place, the cumulative unrealised gain or loss held in equity is recognised in the Income Statement immediately.

91

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationNOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

1. ACCOUNTING POLICIES continued
Dividends
Interim dividends are recorded in the financial statements when they are paid. Final dividends are recorded in the financial statements in the period 
which they are approved by the Company’s shareholders.

Critical accounting estimates and judgements
Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future 
events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting estimates will, by definition, seldom equal the actual results. 
The estimates and assumptions that have a risk of causing a material adjustment to the carrying amount of assets and liabilities in the next financial 
year are listed below.

i) Impairment of intangible assets
Intangible assets (other than goodwill) are amortised over their useful lives which are based on management’s estimates of the period over which 
the assets will generate revenue. The useful lives are periodically reviewed to ensure they continue to be appropriate. Changes to the estimates 
used can result in significant variations in the carrying value.

The Group assesses the impairment of intangible assets subject to amortisation whenever events or changes in circumstances indicate that the 
carrying value might not be recoverable. Additionally, goodwill arising on acquisitions and indefinite lived assets are subject to impairment review. 
The Group undertakes an impairment review annually or more frequently if events or changes in circumstances indicate that the carrying value may 
not be recoverable.

Factors considered important that could trigger an impairment review of intangible assets include the following:
•  significant underperformance relative to historical or projected future operating results;
•  significant changes in the use of the acquired assets or the strategy for the overall business; or
•  significant negative industry or economic trends.

The key sensitivities in the calculation are the discount rate and growth rates. Explanations of the estimates, judgements and sensitivities in 
respect of the current year impairment review are detailed in note 10.

ii) Valuation of acquired intangible assets
Acquisitions may result in the recognition of customer relationships, brands and trademarks, product design patents and order backlogs. These are 
valued using discounted cash flow models or a relief from royalty method. In applying these methodologies certain key judgements and 
assumptions are made over discount rates, growth rates, royalty rates and tax rates where a group of companies are acquired. Further details of 
the accounting policies are shown earlier in this note and the valuation of the acquired intangible assets are shown in note 11.

iii) Valuation of inventory
The Group inventory is spread across all of the Group’s global locations. The provisions made to write down slow-moving and obsolete inventory 
are based on an assessment of market developments and on an analysis of historic and projected usage. The calculation of the provisions requires 
application of judgement by management.

iv) Retirement benefits
The Group’s financial statements include costs in relation to, and provisions for, retirement benefit obligations. The costs and the present value of 
any pension value of any related pension assets and liabilities depend on such factors as life expectancy of the members, salary increases, inflation, 
the returns that the plan assets will generate and the discount rate to calculate the present value of the liabilities. The Group uses previous 
experience and impartial actuarial advice to calculate the present value of the liabilities. The estimates and the effects of variances in the key 
estimates are shown in note 24.

92

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 20142. OPERATING SEGMENTS
The Group has chosen to organise the management and financial structure by the grouping of related products. The four identifiable operating 
segments where the financial and operating performance is reviewed monthly by the chief operating decision maker are as follows:

Controls – the design, manufacture and sale of electric actuators
Fluid Systems – the design, manufacture and sale of pneumatic and hydraulic actuators
Gears – the design, manufacture and sale of gearboxes, adaption and ancillaries for the valve industry
Instruments – the manufacture of high precision pneumatic controls and power transmission products for a wide range of industries

Unallocated expenses comprise corporate expenses.

Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties.

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

Analysis by operating segment

Revenue from external customers
Inter segment revenue

Total revenue
Operating profit before the amortisation of intangible assets
Amortisation of acquired intangible assets
Operating profit

Net finance expense
Income tax expense

Profit for the year

Revenue from external customers
Inter segment revenue

Total revenue
Operating profit before the amortisation of intangible assets
Amortisation of acquired intangible assets
Operating profit

Net finance expense
Income tax expense

Profit for the year

Controls
2014

324,539
–

324,539
104,709
(3,477)
101,232

Fluid
Systems
2014

180,260
–

180,260
31,180
(1,585)
29,595

Controls
2013

321,902
–

321,902
105,472
(4,363)
101,109

Fluid
Systems
2013

186,969
–

186,969
31,010
(1,920)
29,090

Gears
2014

Instruments
2014

Elimination
2014

Unallocated
2014

Group
2014

45,771
12,035

57,806
13,011
(428)
12,583

44,169
1,788

45,957
14,433
(9,450)
4,983

–
(13,823)

(13,823)
–
–
–

–
–

–
(6,166)
–
(6,166)

594,739
–

594,739
157,167
(14,940)
142,227

(1,062)
(37,963)

103,202

Gears
2013

Instruments
2013

Elimination
2013

Unallocated
2013

Group
2013

45,353
10,682

56,035
12,972
(403)
12,569

24,216
706

24,922
7,833
(5,461)
2,372

–
(11,388)

(11,388)
–
–
–

–
–

–
(5,875)
–
(5,875)

578,440
–

578,440
151,412
(12,147)
139,265

(1,268)
(38,488)

99,509

93

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationNOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

2. OPERATING SEGMENTS continued

Depreciation
Amortisation:
– Other intangibles
– Development costs
Non-cash items: equity settled share-based payments
Net financing expense
Acquired as part of business combinations:
– Goodwill
– Intangible assets
Capital expenditure

Depreciation
Amortisation:
– Other intangibles
– Development costs
Non-cash items: equity settled share-based payments
Net financing expense
Acquired as part of business combinations:
– Goodwill
– Intangible assets
Capital expenditure

Controls
2014

4,396

3,477
1,342
2,779
–

–
–
6,082

Controls
2013

4,353

4,363
1,193
881
–

19,766
19,548
7,108

Fluid
Systems
2014

2,012

1,585
20
1,162
–

1,753
1,346
6,820

Fluid
Systems
2013

1,692

1,920
9
427
–

3,688
3,277
2,350

Gears
2014

813

428
44
574
–

–
–
3,875

Gears
2013

427

403
12
271
–

1,398
1,413
581

Instruments
2014

Unallocated
2014

715

60

9,450
55
181
–

43,301
31,042
613

–
–
464
(1,062)

–
–
2

Instruments
2013

Unallocated
2013

329

5,461
–
35
–

–
–
281

–

–
–
563
(1,268)

–
–
–

Group
2014

7,996

14,940
1,461
5,160
(1,062)

45,054
32,388
17,392

Group
2013

6,801

12,147
1,214
2,177
(1,268)

24,852
24,238
10,320

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

Geographical analysis
i) Revenue by location of subsidiary

UK
Italy
Rest of Europe
USA
Other Americas
Rest of World

2014

2013

57,424
66,447
110,790
144,366
36,327
179,385

51,027
64,861
117,467
147,039
38,201
159,845

594,739

578,440

This disclosure has been restated to revenue by location of subsidiary because this gives a better reflection of the geographic distribution of where 
the sale occurred.

ii) Non-current assets

Non-current assets:
– Goodwill
– Intangible assets
– Property, plant and equipment

Non-current assets:
– Goodwill
– Intangible assets
– Property, plant and equipment

94

UK
2014

14,107
11,972
21,770

UK
2013

5,691
5,538
16,304

Rest of
Europe
2014

53,409
21,767
18,257

Rest of
Europe
2013

55,205
27,317
15,176

USA
2014

Other
Americas
2014

Rest of
World
2014

Group
2014

42,565
16,824
7,265

759
–
801

38,839
21,707
15,957

149,679
72,270
64,050

USA
2013

Other
Americas
2013

40,154
20,351
6,706

770
–
768

Rest of
World
2013

3,330
275
6,917

Group
2013

105,150
53,481
45,871

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 20143. ACQUISITIONS
i) YTC
On 31 March 2014 the Group acquired 100% of the share capital of Young Tech Co Ltd (YTC) for £68,379,000. YTC is a leading manufacturer and 
supplier of valve positioners and accessories which are certified for use in international markets, based in Seoul, Korea. The acquired business is 
reported within the Instruments division. In the nine months to 31 December 2014 YTC contributed £13,873,000 to Group revenue and £5,580,000 
to consolidated operating profit before amortisation. The amortisation charge in the 39 week period from the acquired intangible assets was 
£3,254,000.

If the acquisition had occurred on 1 January 2014 the business would have contributed £17,899,000 to Group revenue, £6,917,000 to Group 
operating profit and £5,330,000 to profit attributable to equity shareholders.

ii) Other acquisitions
The Group acquired 100% of the share capital of Xylem Flow Control Limited (Midland) for £20,018,000 on 2 July 2014. Midland is a leading 
manufacturer of solenoid valves and instruments under the Midland-ACS, Alcon Solenoid Valves and Landon Kingsway brands based in 
Wolverhampton, UK. The acquired business is reported within the Instruments division.

The Group acquired 100% of the share capital of Masso Ind S.p.A. (Masso) for £2,973,000 on 9 December 2014. Masso is a marine valve remote 
control system manufacturer based in Valduggia, Italy. The acquired business is reported within the Fluid Systems division.

In the period from acquisition to 31 December 2014, Midland and Masso contributed £6,286,000 to Group revenue and £1,202,000 to consolidated 
operating profit before amortisation. The amortisation charge in respect of these acquisitions during the year was £1,049,000. If these other 
acquisitions had occurred on 1 January 2014 Midland and Masso would have contributed £14,990,000 to Group revenue, £2,569,000 to Group 
operating profit and £2,014,000 profit attributable to equity shareholders.

iii) Acquisitions fair value table
The three acquisitions had the following effect on the Group’s assets and liabilities.

Non-current assets
Property, plant and equipment
Intangible assets
Current assets 
Inventory
Trade and other receivables
Cash
Current liabilities
Trade and other payables
Employee benefits
Warranty provision
Corporation tax
Non-current liabilities
Deferred tax liability

Total net assets
Goodwill

Purchase consideration

Paid in cash
Contingent consideration

Purchase consideration

Purchase consideration paid in cash
Cash held in subsidiary

Cash outflow on acquisition

YTC

Other acquisitions

Total 

Book value Adjustments

Provisional 
fair value

Book value Adjustments

Provisional 
fair value

Provisional 
fair value

7,889
226

3,158
3,311
4,514

(1,099)
(40)
–
(292)

–
23,976

7,889
24,202

(382)
(254)
–

(1,276)
–
(30)
(53)

2,776
3,057
4,514

(2,375)
(40)
(30)
(345)

1,565
–

2,367
5,662
1,197

(3,197)
(207)
(25)
(236)

–
8,186

(345)
(41)
–

(32)
–
(132)
(48)

1,565
8,186

2,022
5,621
1,197

(3,229)
(207)
(157)
(284)

9,454
32,388

4,798
8,678
5,711

(5,604)
(247)
(187)
(629)

–

(6,154)

(6,154)

16

(1,908)

(1,892)

(8,046)

17,667

15,827

33,494
34,885

68,379

64,379
4,000

68,379

64,379
(4,514)

59,865

7,142

5,680

12,822
10,169

22,991

22,595
396

22,991

46,316
45,054

91,370

86,974
4,396

91,370

22,595
(1,197)

86,974
(5,711)

21,398

81,263

The adjustments shown in the table represent the alignment of accounting policies of the acquired businesses to Rotork Group policies and the fair 
value adjustments of the assets and liabilities at the acquisition date of each of the businesses. The contingent consideration in respect of YTC is 
payable in April 2015 dependant on a profit target being achieved.

The goodwill arising from the three acquisitions represents the opportunity to grow by exploiting new routes to market via the Rotork sales network 
and the technical expertise of the acquired workforce. None of the goodwill recognised is expected to be deductible for income tax purposes.

The intangible assets identified comprise customer relationships, brands, product design patents and acquired order books.

95

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

2014

111
166

277

2014

199
12

211

2013

125
81

206

2013

100
16

116

2014

2013

117,198
14,891
6,085
5,160
245

112,497
13,888
6,002
2,177
(38)

143,579

134,526

2014
Number

2013
Number

1,801
838
354
231

3,224

697
2,527

3,224

1,701
731
322
138

2,892

607
2,285

2,892

4. OTHER INCOME

Gain on disposal of property, plant and equipment
Other

5. OTHER EXPENSES

Loss on disposal of property, plant and equipment
Other

6. PERSONNEL EXPENSES

Wages and salaries (including bonus and incentive plans)
Social security costs
Pension costs (note 24)
Share-based payments (note 25)
Increase/(decrease) in liability for long term service leave

During the year, the average monthly number of employees, analysed by business segment was:
Controls
Fluid Systems
Gears
Instruments

UK
Overseas

96

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 20147. FINANCE INCOME AND EXPENSE
Recognised in the Income Statement

Interest income
Foreign exchange gains

Finance income

Interest expense
Interest charge on pension scheme liabilities (note 24)
Foreign exchange losses

Finance expense

Recognised in equity

Effective portion of changes in fair value of cash flow hedges
Fair value of cash flow hedges transferred to Income Statement
Foreign currency translation differences for foreign operations

Recognised in:
Hedging reserve
Translation reserve

2014

1,057
364

1,421

2013

917
256

1,173

2014

2013

(1,159)
(788)
(536)

(2,483)

(653)
(1,168)
(620)

(2,441)

2014

2013

667
(3,035) 
(869)

3,035
(1,437) 
(4,981)

(3,237)

(3,383)

(2,368)
(869)

(3,237)

1,598
(4,981)

(3,383)

97

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationNOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

8. PROFIT BEFORE TAX
Profit before tax is stated after charging the following:

Depreciation of property, plant and equipment:
– Owned assets
– Assets held under finance lease contracts
Amortisation:
– Other intangibles
– Development costs
Inventory write downs recognised in the year
Hire of plant and machinery
Other operating lease rentals
Research & development expenditure
Exchange differences realised 

Audit fees and expenses paid to Deloitte (2013: KPMG Audit Plc):
– Audit of these financial statements
– Audit of financial statements of subsidiaries of the Company

Other auditors of financial statements of subsidiaries of the Company

Total audit fees and expenses

Amounts paid to Deloitte (2013: KPMG Audit Plc) and its associates in respect of:
– Taxation compliance services
– Half year review
– Corporate finance services
– Other assurance services

These costs can be found under the following headings in the Income Statement:
i)  Both within cost of sales and administrative expenses;
ii)  Within cost of sales;
iii)  Within administrative expenses;
iv)  Within financing income and expenses.

Note

2014

2013

i
i

i
i
ii
i
i
iii
iv

7,902
94

14,940
1,461
1,825
1,893
3,512
7,187
172

6,699
102

12,147
1,214
1,816
1,283
2,170
6,361
364

696
75

771
18

789

8
45
157
–

210

332
161

493
95

588

144
40
–
69

253

98

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 20149. INCOME TAX EXPENSE

Current tax:
UK corporation tax on profits for the year
Adjustment in respect of prior years

Overseas tax on profits for the year
Adjustment in respect of prior years

Total current tax

Deferred tax:
Origination and reversal of other temporary differences
Adjustment in respect of prior years

Total deferred tax

Total tax charge for year

Effective tax rate (based on profit before tax)

Profit before tax

2014

2014

2013

2013

6,122
(766)

36,283
229

5,356

36,512

41,868

7,986
156

34,790
(59)

(3,650)
(255)

(4,177)
(208)

(3,905)

37,963

26.9%

141,165

8,142

34,731

42,873

(4,385)

38,488

27.9%

137,997

Profit before tax multiplied by the blended standard rate of corporation tax in
  the UK of 21.5% (2013: 23.25%)

30,350

32,084

Effects of:
Different tax rates on overseas earnings
Permanent differences
Research and development credits
Utilisation of overseas tax holidays
Adjustments to tax charge in respect of prior years

Total tax charge for year

8,841
1,444
(1,880)
–
(792)

37,963

6,019
1,398
(901)
(1)
(111)

38,488

A tax expense of £274,000 (2013: credit of £632,000) in respect of share-based payments has been recognised directly in equity in the year.

The reduction in the effective tax rate from 27.9% to 26.9% is primarily due to the withholding tax rate on remitted dividends from China reducing 
from 10% to 5% and the patent box relief available in the UK being effective for a full year in 2014. The Group continues to expect its effective rate 
of corporation tax to be higher than the standard UK rate due to higher rates of tax in the USA, Canada, France, Germany, Italy, Japan and India.

A credit of £4,214,000 (2013: £3,611,000) in respect of acquired intangible asset amortisation is included in the deferred tax credit of £3,905,000 
(2013: £4,385,000).

There is an unrecognised deferred tax liability for temporary differences associated with investments in subsidiaries. Rotork plc controls the 
dividend policies of its subsidiaries and subsequently the timing of the reversal of the temporary differences. The value of temporary differences 
associated with unremitted earnings of subsidiaries for which deferred tax has not been recognised is £292,704,000 (2013: £249,208,000).

99

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany InformationNOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

10. GOODWILL

Cost
At 1 January
Acquisition through business combinations (note 3)
Exchange adjustments

At 31 December
Provision for impairment
At 1 January and 31 December

Carrying amounts

2014

2013

105,150
45,054
(525)

80,729
24,852
(431)

149,679

105,150

–

–

149,679

105,150

Cash generating units
Goodwill acquired through business combinations has been allocated to the lowest level of cash generating unit (CGU) and to the division in which it 
is reported. Where the acquired entity’s growth into new markets is through the Group’s existing sales network the lowest level of CGU is 
considered to be at the divisional level.

The carrying value of goodwill is allocated as follows:

Controls
  Schischek 
  Other cash generating units

Fluid Systems
  Rotork Fluid Systems
  Rotork Sweden
  Other cash generating units

Gears
  Other cash generating units

Instruments
  YTC
  Fairchild 
  Soldo
  Midland

Total Group

2014

2013

17,874
9,428

27,302

7,143
5,965
13,786

26,894

8,991

8,991

35,729
28,494
13,853
8,416

86,492

19,003
9,279

28,282

7,594
6,796
11,978

26,368

9,069

9,069

–
26,722
14,709
–

41,431

149,679

105,150

Impairment testing
Goodwill is not amortised but is tested annually for impairment. Value in use calculations are used to determine the recoverable amount of goodwill 
allocated to each of the CGUs. These calculations use cash flow projections based on actual operating results and management forecasts. The key 
assumptions in the annual impairment review which are common to all CGUs are set out below:

i) Management forecasts
The three year plan is a bottom up process which takes place as part of the annual budget process. The three year plan is prepared by each 
reporting entity’s management reflecting their view of the local market, known projects and experience of past performance. The annual budget 
and the three year plan are reviewed and approved by the Board each year.

ii) Long term growth rates
In the period after the three year plan growth rates are forecast at 6% per annum for the first two years and 2% thereafter for each CGU (2013: all 
years post three year plan were forecast at 2%). The 6% rate reflects a more realistic market forecast for the flow control market up until 2019. 
These rates are considered to be prudent given the significant organic growth of the business over the last 10 years.

100

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
10. GOODWILL continued
iii) Discount rates
Discount rates for each of the CGUs have been based on the geographic area in which the subsidiary is located and these rates range between 9.2% 
and 10.3% (2013: Group wide discount rate of 10.5%). Applying an area specific discount rate more accurately reflects the risks and rewards for 
subsidiaries operating in various geographic sectors around the world.

Sensitivity analysis
Sensitivity analysis has been undertaken for each CGU to assess the impact of any reasonable change in assumptions. Using the key assumptions 
above there is no reasonable change that would cause the carrying values of any CGU to exceed the recoverable amount apart from YTC and 
Schischek, the sensitivities for which are explained below.

With regard to YTC, which has only been part of the Group for 9 months, downside sensitivities have been assessed. A decrease in the growth rate 
by 6% in each of the next five years would result in the goodwill being impaired. If the discount factor were to increase by 2% to 12.2%, growth 
would need to reduce by 1% in each of the next five years for the goodwill to become impaired. It is anticipated that as YTC becomes more 
established within the Group and leverages the sales network opportunities the long term growth rate should comfortably exceed the growth rates 
assumed in the forecast.

Schischek downside sensitivities have also been assessed. A decrease in the growth rate of 7% per year over the next five years would be required 
to result in an impairment. If the discount rate were to increase by 2% to 12.3%, a decrease in the growth rate of 2% in each of the next five years 
would be required to result in a goodwill impairment.

11. INTANGIBLE ASSETS

Cost
1 January 2013
Acquisition through business combinations
Internally developed
Exchange adjustments

31 December 2013
Acquisition through business combinations
Internally developed
Exchange adjustments

31 December 2014

Amortisation
1 January 2013
Charge for the year
Exchange adjustments

31 December 2013
Charge for the year
Exchange adjustments

31 December 2014

Net book value
31 December 2013

31 December 2014

Business combinations acquired intangible assets

Research &
development
costs

Brands

Customer
relationships

Other

Total

9,069
–
2,033
(6)

11,096
226
2,746
16

14,084

4,850
1,214
–

6,064
1,461
1

7,526

5,032

6,558

21,954
7,968
–
(242)

29,680
4,808
–
(135)

34,353

4,110
3,816
(201)

7,725
4,188
(38)

11,875

21,955

22,478

26,722
12,298
–
(584)

38,436
22,579
–
82

61,097

8,792
6,684
(456)

15,020
8,255
(121)

23,154

23,416

37,943

3,842
3,972
–
(84)

7,730
4,775
–
(77)

61,587
24,238
2,033
(916)

86,942
32,388
2,746
(114)

12,428

121,962

3,092
1,647
(87)

4,652
2,497
(12)

20,844
13,361
(744)

33,461
16,401
(170)

7,137

49,692

3,078

5,291

53,481

72,270

Other acquired intangible assets represent order books and intellectual property.

The amortisation charge is recognised within administrative expenses in the Income Statement.

101

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

12. PROPERTY, PLANT AND EQUIPMENT

Cost
1 January 2013
Additions
Disposals
Acquisition through business combinations
Exchange adjustments

31 December 2013
Additions
Disposals
Acquisition through business combinations
Exchange adjustments

31 December 2014

Depreciation
1 January 2013
Charge for the year
Disposals
Exchange adjustments

31 December 2013
Charge for the year
Disposals
Exchange adjustments

31 December 2014

Net book value
31 December 2013

31 December 2014

Land and
buildings

Plant and
equipment

27,767
2,287
(12)
3,519
(508)

33,053
4,063
–
8,144
(383)

51,805
8,033
(1,530)
1,444
(1,078)

58,674
13,329
(1,883)
1,310
(644)

Total

79,572
10,320
(1,542)
4,963
(1,586)

91,727
17,392
(1,883)
9,454
(1,027)

44,877

70,786

115,663

7,750
745
(11)
(76)

8,408
1,042
–
(173)

33,377
6,056
(1,405)
(580)

37,448
6,954
(1,577)
(489)

41,127
6,801
(1,416)
(656)

45,856
7,996
(1,577)
(662)

9,277

42,336

51,613

24,645

35,600

21,226

28,450

45,871

64,050

The net book value of the Group’s plant and equipment includes £18,000 (2013: £61,000) in respect of assets held under finance leases.

Net book value of land and buildings can be analysed between:

Land
Buildings

Net book value at 31 December

2014

2013

6,004
29,596

35,600

2,794
21,851

24,645

It is the Group’s policy to test assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be 
recoverable. No impairment was identified in the year.

102

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 201413. DEFERRED TAX ASSETS AND LIABILITIES

Property, plant and equipment
Intangible assets
Employee benefits
Provisions
Other items

Net tax assets/(liabilities)
Set off of tax

Assets
2014

162
54
9,487
4,551
2,915

17,169
(1,466)

Liabilities
2014

(987)
(18,383)
(77)
–
(2,377)

(21,824)
1,466

Net
2014

(825)
(18,329)
9,410
4,551
538

(4,655)
–

Assets
2013

282
–
5,890
5,535
1,605

13,312
(1,534)

Liabilities
2013

(1,094)
(14,731)
–
–
(2,629)

(18,454)
1,534

15,703

(20,358)

(4,655)

11,778

(16,920)

Net
2013

(812)
(14,731)
5,890
5,535
(1,024)

(5,142)
–

(5,142)

Movements in the net deferred tax balance during the year are as follows:

Balance at 1 January
Credited to the Income Statement
(Charged)/credited directly to equity in respect of share-based payments
Acquired as part of business combinations
Credited/(charged) directly to equity in respect of pension schemes
Credited/(charged) directly to hedging reserves in respect of cash flow hedges
Exchange differences

Balance at 31 December

2014

2013

(5,142)
3,905
(425)
(8,046)
4,491
558
4

(4,655)

(504)
4,385
188
(6,624)
(2,141)
(324)
(122)

(5,142)

A deferred tax asset of £15,703,000 (2013: £11,778,000) has been recognised at 31 December 2014. The directors are of the opinion, based on 
recent and forecast trading, that the level of profits in the current and future years make it more likely than not that these assets will be recovered.

A deferred tax asset of £1,519,000 (2013: £1,664,000) has not been recognised in relation to capital losses. This asset may be recovered if sufficient 
capital profits are made in future in the companies concerned. There is no expiry date in relation to this asset.

14. INVENTORIES

Raw materials and consumables
Work in progress
Finished goods

Included in cost of sales was £206,104,000 (2013: £205,092,000) in respect of inventories consumed in the year.

2014

2013

58,590
10,088
12,412

81,090

51,844
8,445
14,792

75,081

103

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

15. TRADE AND OTHER RECEIVABLES

Non-current assets:
Other non-trade receivables

Other receivables

Current assets:
Trade receivables
Less provision for impairment of receivables

Trade receivables – net

Corporation tax

Current tax

Other non-trade receivables
Other taxes and social security
Prepayments

Other receivables

16. CASH AND CASH EQUIVALENTS

Bank balances
Cash in hand
Short term deposits

Cash and cash equivalents
Bank overdraft

Cash and cash equivalents in the Consolidated Statement of Cash Flows

2014

2013

1,976

1,976

1,532

1,532

130,819
(2,347)

107,801
(1,825)

128,472

105,976

1,962

1,962

2,161
6,046
4,379

1,145

1,145

1,833
5,542
4,777

12,586

12,152

2014

2013

23,777
45
22,994

46,816
–

46,816

40,747
43
28,083

68,873
–

68,873

104

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
 
17. CAPITAL AND RESERVES
Share capital and share premium

At 1 January
Issued under employee share schemes

At 31 December

Number of shares (000)

5p Ordinary
shares
Issued
and fully
paid up
2014

4,344
2

4,346

86,928

£1 Non-
redeemable
preference
shares
2014

40
–

40

5p Ordinary
shares
Issued
and fully
paid up
2013

4,340
4

4,344

86,871

£1 Non-
redeemable
preference
shares
2013

40
–

40

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

The Group received proceeds of £584,000 (2013: £586,000) in respect of the 57,321 (2013: 62,904) ordinary shares issued during the year: £2,000 
(2013: £4,000) was credited to share capital and £582,000 (2013: £582,000) to share premium. Further details of the share awards are shown in note 25.

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

Within the retained earnings reserve are own shares held. The investment in own shares held is £5,393,000 (2013: £4,520,000) and represents 
202,098 (2013: 162,518) ordinary shares of the Company held in trust for the benefit of directors and employees for future payments under the 
Share Incentive Plan and Long Term Incentive Plan. The dividends on these shares have been waived.

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

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

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

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

30.0p final dividend (2013: 26.6p) 
19.2p interim dividend (2013: 18.05p) 

2014
Payment date

19 May
26 September

2014

2013

26,046
16,656

42,702

23,082
15,653

38,735

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

Final proposed dividend per qualifying ordinary share
30.9p 

30.0p

2014

2013

26,861

26,061

105

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

18. EARNINGS PER SHARE
Basic earnings per share
Earnings per share is calculated for both the current and previous years using the profit attributable to the ordinary shareholders for the year. The 
earnings per share calculation is based on 86.7m shares (2013: 86.7m shares) being the weighted average number of ordinary shares in issue (net of 
own ordinary shares held) for the year.

Net profit attributable to ordinary shareholders

Weighted average number of ordinary shares
Issued ordinary shares at 1 January
Effect of own shares held
Effect of shares issued under Share option schemes/Sharesave plans

Weighted average number of ordinary shares during the year 

Basic earnings per share

2014

2013

103,202

99,509

86,708
25
7

86,740

119.0p

86,638
44
9

86,691

114.8p

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

Net profit attributable to ordinary shareholders
Amortisation
Tax effect on amortisation at effective rate

Adjusted net profit attributable to ordinary shareholders

Weighted average number of ordinary shares during the year 

Adjusted basic earnings per share

2014

2013

103,202
14,940
(4,018)

99,509
12,147
(3,388)

114,124

108,268

86,740

131.6p

86,691

124.9p

Diluted earnings per share
Diluted earnings per share is based on the profit for the year attributable to the ordinary shareholders and 87.1m shares (2013: 87.1m shares). The 
number of shares is equal to the weighted average number of ordinary shares in issue (net of own ordinary shares held) adjusted to assume 
conversion of all potentially dilutive ordinary shares. The Company has two categories of potentially dilutive ordinary shares: those share options 
granted to employees under the Sharesave plan where the exercise price is less than the average market price of the Company’s ordinary shares 
during the year and contingently issuable shares awarded under the Long Term Incentive Plan (LTIP).

Net profit attributable to ordinary shareholders

Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares for the year 
Effect of Sharesave options in issue
Effect of LTIP shares in issue

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

Diluted earnings per share

Adjusted diluted earnings per share

Net profit attributable to ordinary shareholders
Amortisation
Tax effect on amortisation at effective rate

Adjusted net profit attributable to ordinary shareholders

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

Adjusted diluted earnings per share

106

2014

2013

103,202

99,509

86,740
112
238

87,090

118.5p

86,691
103
277

87,071

114.3p

2014

2013

103,202
14,940
(4,018)

99,509
12,147
(3,388)

114,124

108,268

87,090

131.0p

87,071

124.3p

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
19. INTEREST BEARING LOANS AND BORROWINGS
This note provides information about the contractual terms of the Group’s interest bearing loans and borrowings. For more information about the 
Group’s exposure to interest rate, liquidity and currency risks, see note 26.

Non-current liabilities
Preference shares classified as debt
Bank loans
Finance lease liabilities

Current liabilities
Bank loans
Finance lease liabilities

Terms and debt repayment schedule
The terms and conditions of outstanding loans were as follows:

Currency

Interest rates

Year of 
maturity

Sterling

–
Sterling, Euro 0% – 4.5% 2015–32
Sterling, Euro & Yen 0% – 5.6% 2015–17

9.5%

2014

2013

40
1,253
10

1,303

20,259
15

20,274

2014

40
21,512
25

21,577

40
1,607
31

1,678

502
30

532

2013

40
2,109
61

2,210

Non-redeemable preference shares
Bank loans and overdrafts
Finance lease liabilities

Repayment profile
Finance leases and bank loans are payable as follows:

Bank loans less than one year
Bank loans more than one and less than five years
Bank loans more than five years
Finance leases less than one year
Finance leases more than one and less than five years

Principal
2014

20,259
494
759
15
10

21,537

Interest
2014

45
87
113
1
1

247

Minimum 
payments
2014

20,304
581
872
16
11

21,784

Principal
2013

Interest
2013

502
736
871
30
31

2,170

37
105
140
3
2

287

Minimum 
payments
2013

539
841
1,011
33
33

2,457

107

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

20. EMPLOYEE BENEFITS

Recognised liability for defined benefit obligations:
– Present value of funded obligations
– Fair value of plan assets

Other pension scheme liabilities
Employee bonuses
Long Term Incentive Plan
Employee indemnity provision
Other employee benefits

Non-current
Current

2014

2013

187,918
(151,786)

152,882
(132,684)

36,132

20,198

435
13,105 
404
1,971
2,835

477
14,726 
576
1,833
2,374

54,882

40,184

38,864
16,018

54,882

22,705
17,479

40,184

Defined benefit pension scheme disclosures are detailed in note 24.

21. PROVISIONS

Contingent
consideration

Warranty
provision

Balance at 1 January 2014
Exchange differences
Increase as a result of business combinations
Provisions used during the year
Credited to the Income Statement

Balance at 31 December 2014

Maturity at 31 December 2014
Non-current
Current

Maturity at 31 December 2013
Non-current
Current

2,809
(85)
4,396
(1,463)
(164)

5,493

–
5,493

5,493

400
2,409

2,809

6,685
36
187
(752)
(416)

Total

9,494
(49)
4,583
(2,215)
(580)

5,740

11,233

1,913
3,827

5,740

2,228
4,457

6,685

1,913
9,320

11,233

2,628
6,866

9,494

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

Contingent consideration relates to amounts outstanding in respect of the acquisitions of YTC, Flowco Limited, GTA Group and Masso Ind S.p.A. 
All of these amounts are due to be paid during 2015.

108

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22. TRADE AND OTHER PAYABLES

Trade payables

Corporation tax

Current tax

Other taxes and social security
Payments on account
Other payables and accrued expenses

Other payables

23. DERIVATIVE FINANCIAL INSTRUMENTS

Forward foreign exchange contracts – cash flow hedges
Foreign exchange swaps – cash flow hedges

Total 

Less non-current portion:
Forward foreign exchange contracts – cash flow hedges

Current portion

2014

2013

40,162

38,019

15,200

15,200

8,123
7,617
19,451

35,191

2013
Assets

3,067
670

3,737

2014
Assets

1,243
670

1,913

2014
Liabilities

576
543

1,119

–

–

1,913

1,119

(804)

2,933

14,836

14,836

6,922
7,995
16,085

31,002

2013
Liabilities

32
–

32

–

32

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 
12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

There was no ineffectiveness to be recorded from the use of foreign exchange contracts.

The hedged forecast transactions denominated in foreign currency are expected to occur at various dates. Gains and losses in respect of these 
derivatives recognised in the hedging reserve in equity at 31 December 2014 are recognised in the Income Statement in the period or periods 
during which the hedged forecast transaction affects the Income Statement.

109

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

24. PENSION SCHEMES
i) Defined benefit pension schemes
The Group operates two defined benefit pension arrangements one in the UK called the Rotork Pension and Life Assurance Scheme (UK Scheme) 
and one in the USA called the Rotork Controls Inc. Pension Plan. The Schemes provide benefits based on final salary and length of service on 
retirement, leaving service or death.

The UK Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the UK Scheme is carried out at least 
once every three years to determine whether the Statutory Funding Objective is met. As part of the process the Company must agree with the 
trustees of the UK Scheme the contributions to be paid to address any shortfall against the Statutory Funding Objective and contributions to pay 
for future accrual of benefits.

The UK Scheme is managed by a Trustee, with directors appointed in part by the Group and part from elections by members of the Scheme. The 
Trustee has responsibility for obtaining valuations of the fund, administering benefit payments and investing the UK Scheme’s assets. The Trustee 
delegates some of these functions to their professional advisers where appropriate.

The US Pension Plan is subject to the ERISA funding requirements.  A valuation of the Plan is carried out annually to ensure the Funding Objective is 
met under ERISA by contributing at least the minimum required contribution.  As part of this process the Company must contribute to the Plan 
enough contributions to ensure at least the minimum contribution is deposited in the Trust to pay for the accrual of benefits.

The two defined benefit pension arrangements expose the Group to a number of risks:
• 

Investment risk. The Schemes hold investments in asset classes, such as equities, which have volatile market values and while these assets are 
expected to provide real returns over the long term the short term volatility can cause additional funding to be required if a deficit emerges.
Interest rate risk. The Schemes' liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the 
Schemes hold assets such as equities the value of the assets and liabilities may not move in the same way.
Inflation risk. A significant proportion of the benefits under the Schemes are linked to inflation. Although the Schemes' assets are expected to 
provide a good hedge against inflation over the long term, movements over the short term could lead to deficits emerging.

• 

• 

2014

2013

152,882
2,579
132
494
7,035
(4,291)
27,827
1,260

151,501
2,773
345
499
6,448
(4,079)
(4,314)
(291)

187,918

152,882

•  Mortality risk. In the event that members live longer than assumed a deficit will emerge in the Schemes.

There were no plan amendments, curtailments or settlements during the period.

Movements in the present value of defined benefit obligations

Liabilities at 1 January
Current service costs
Administration costs
Member contributions
Interest cost
Benefits paid
Actuarial loss/(gain)
Currency loss/(gain)

Liabilities at 31 December

110

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
24. PENSION SCHEMES continued

Movements in fair value of plan assets

Assets at 1 January
Interest income on plan assets
Employer contributions
Member contributions
Benefits paid
Return on plan assets, excluding interest income on plan assets
Currency gain/(loss) 

Assets at 31 December

Expense recognised in the Income Statement

Current service costs
Administration costs
Net interest cost

The expense is recognised in the following line items in the Income Statement:

Cost of sales
Administrative expenses
Net finance expense 

Remeasurements over the year

Experience adjustments on plan assets
Experience adjustments on plan liabilities
Actuarial (loss)/gain from changes to financial assumptions
Actuarial (loss)/gain from changes to demographic assumptions
Experience adjustments on currency

2014

2013

132,684
6,247
8,038
494
(4,291)
7,995
619

122,802
5,280
4,999
499
(4,079)
3,355
(172)

151,786

132,684

2014

2,579
132
788

3,499

2014

962
1,749
788

3,499

2014

7,995
1,063
(27,293)
(1,597)
(641)

(20,473)

2013

2,773
345
1,168

4,286

2013

972
2,146
1,168

4,286

2013

3,355
589
1,715
2,010
119

7,788

111

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

24. PENSION SCHEMES continued
Reconciliation of net defined benefit obligation

Net defined benefit obligation at the beginning of the year
Current service costs
Administration costs
Net financing expense
Remeasurements over the year
Employer contributions

2014

2013

20,198
2,579
132
788
20,473
(8,038)

28,699
2,773
345
1,168
(7,788)
(4,999)

36,132

20,198

Liability for defined benefit obligations
The principal actuarial assumptions at 31 December 2014 (expressed as weighted averages):

Discount rate
Rate of increase in salaries
Rate of increase in pensions (post May 2000)
Rate of increase in pensions (pre May 2000)
Rate of inflation

UK scheme 
(% per annum)

US scheme 
(% per annum)

Weighted average 
(% per annum)

2014

2013

2014

2013

2014

2013

3.6
3.6
3.0
4.6
3.1

4.6
3.9
3.3
4.6
3.4

4.3
3.0
0.0
0.0
3.0

5.0
3.5
0.0
0.0
3.5

3.7
3.5
2.7
4.1
3.1

4.6
3.8
3.0
4.2
3.4

The Retail Price Index is used as the rate of inflation as it is a requirement of the pension scheme rules.

The split of the schemes’ assets were as follows:

Equities
Bonds
Property
Cash
US deposit administration contract

Total

Actual return on the schemes’ assets

2014
Fair value

71,928
59,748
8,717
1,403
9,990

2013
Fair value

68,724
46,782
7,485
931
8,763

151,786

132,685

14,242

8,636

The mortality assumptions used are the S1NXA year of birth tables with future improvements in mortality based on the CMI_2012 projections 
(2013: CMI_2012 projections) with a long-term rate of improvement of 1.25% per annum (2013: 1.25%).

112

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
24. PENSION SCHEMES continued
By way of example the respective mortality tables indicate the following life expectancy:

CURRENT AGE

65
45

Sensitivity analysis on the scheme liabilities

 Adjustments to assumptions

Discount rate
Plus 0.5% pa
Minus 0.5% pa
Inflation
Plus 0.5% pa
Minus 0.5% pa
Salary Increase
Plus 0.5% pa
Minus 0.5% pa
Life Expectancy
Decrease mortality rates by a factor of 10%
Increase mortality rates by a factor of 10%

2014  
Life expectancy at age 65

2013  
Life expectancy at age 65

Male

22.5
24.2

Female

25.0
26.9

Male

22.4
24.1

Female

24.9
26.8

Approximate effect on liabilities

(18,000)
20,100

9,200
(8,700)

4,100
(3,900)

5,600
(5,100)

Note that the above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other assumptions 
remain the same.

For the life expectancy sensitivity we have increased/decreased the mortality rates by a factor of 10%. Broadly speaking this decreases/increases 
the assumed life expectancy by slightly less than 1 year.

The sensitivity analysis shown above was determined using the same method as per the calculation of liabilities for the balance sheet disclosures, 
but using assumptions adjusted as detailed above.

Effect of the Schemes on Groups future cash flows
The Group is required to agree a Schedule of Contributions with the Trustees of the UK Scheme following a valuation which must be carried out at 
least once every three years. The next valuation of the Scheme will have an effective date of 31 March 2016. In the event that the valuation reveals a 
larger deficit than expected the Group may be required to increase contributions above those set out in the existing Schedule of Contributions. 
Conversely, if the position is better than expected, contributions may be reduced.

The Group estimates that cash contributions to the Group’s defined benefit pension schemes during 2015 will be £2,900,000 for regular payments 
(2014: £2,858,000) and £5,500,000 of additional payments in relation to past service (2014: £5,200,000).

The weighted average duration of the defined benefit obligation is 21 years.

ii) Other pension plans
The Group makes a contribution to a number of defined contribution plans around the world to provide benefits for employees upon retirement. 
Total expense relating to these plans in the year was £3,506,000 (2013: £2,884,000).

113

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

25. SHARE-BASED PAYMENTS
The equity settled share-based payment expense included in the Income Statement can be analysed as follows:

Sharesave plan (a)
Long Term Incentive Plan (b)
OPLSS/SIP profit linked share scheme (c)

Total expense recognised as employee costs (note 6)

2014

361
1,501
3,298

5,160

2013

285
1,892
–

2,177

Volatility assumptions for equity-based payments
The expected volatility of all equity compensation benefits is based on the historic volatility (calculated based on the weighted average remaining 
life of each benefit), adjusted for any expected changes to future volatility due to publicly available information.

a) Sharesave plan
UK employees are invited to join the Sharesave plan when an offer is made each year. All the offers to date were made at a 20% discount to market price 
at the time. There are no performance criteria for the Sharesave plan. Employees are given the option of joining either the 3 year or the 5 year scheme.

3 year scheme

2014

Grant date
Share price at grant date
Exercise price
Shares granted under scheme
Vesting period
Expected volatility
Risk free rate
Expected dividends expressed as a dividend yield
Probability of ceasing employment before vesting
Fair value

30 September
£27.65
£22.36
49,975
3 years
24.0%
1.33%
1.8%
20%
£6.79

2013

30 September
£27.27
£21.94
28,822
3 years
24.9%
0.92%
1.6%
20%
£6.82

5 year scheme

2014

30 September
£27.65
£22.36
72,209
5 years
24.6%
1.83%
1.8%
20%
£7.82

2013

30 September
£27.27
£21.94
26,137
5 years
31.5%
1.62%
1.6%
20%
£9.03

Movements in the number of share options outstanding and their weighted average exercise prices are as follows:

At 1 January 
Granted
Exercised
Lapsed

At 31 December 

2014

2013

Average
exercise 
price in
£ per share

15.28
22.36
10.24
19.23

19.23

Average
 exercise 
price in
£ per share

12.24
21.94
8.96
15.76

15.28

Options

227,963
122,184
(57,321)
(6,383)

286,443

Options

242,830
54,959
(62,904)
(6,922)

227,963

Of the 286,443 outstanding options (2013: 227,963), 14,134 are exercisable (2013: 4,562).

The Group received proceeds of £584,000 in respect of the 57,321 options exercised during the year: £2,000 was credited to share capital and 
£582,000 to share premium. The weighted average share price at date of exercise was £23.57 (2013: £26.51).

The weighted average remaining life of 105,627 (2013: 82,224) awards outstanding under the 3 year plan is two years. The weighted average 
remaining life of 180,816 (2013: 145,739) awards outstanding under the 5 year plan is three years.

114

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
25. SHARE-BASED PAYMENTS continued
b) Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) is a performance share plan under which shares are conditionally allocated to selected members of senior 
management at the discretion of the Remuneration Committee on an annual basis. Following shareholder approval of the LTIP at the Company’s 
AGM on 18 May 2000, awards over shares are made to executive directors and senior managers each year.

2010 LTIP plan
Following shareholder approval of the 2010 LTIP plan at the Company’s AGM on 23 April 2010, awards of shares have been made annually to 
executive and senior managers. Half of these awards vest under a TSR performance condition and half under an EPS performance condition.

TSR measures the change in value of a share and reinvested dividends over the period of measurement. The actual number of shares transferred 
will be determined by the number of shares initially allocated multiplied by a vesting percentage. The actual number of shares transferred will be 
25% at the 50th percentile rising to 100% at the 75th percentile.

The EPS performance condition is satisfied with 15% of the awards vesting if the EPS growth is RPI + 10% over the vesting period up to a maximum 
of 100% vesting if EPS growth exceeds RPI +25%.

The performance period for the 2011 awards ended on 31 December 2013. Messrs. PricewaterhouseCoopers LLP as independent actuaries 
certified to the Remuneration Committee that there was a 67% vesting of this award as the Company was in the 59th percentile relative to the 
comparator group and the Group’s EPS growth exceeded RPI +25% over the performance period. The awards vested during 2014.

The performance period for the 2012 awards ended on 31 December 2014. The TSR element of the award will not vest as the Company was in the 
40th percentile relative to the comparator group. The EPS growth was 28.0% over the performance period which exceeded RPI by 20.4%.Messrs. 
PricewaterhouseCoopers LLP as independent actuaries certified to the Remuneration Committee that there was a 37.0% vesting of this award. 
These awards will vest during 2015.

Grant date
Share price at grant date
Shares granted under scheme
Vesting period
Expected volatility
Risk free rate
Expected dividends expressed as a dividend yield
Probability of ceasing employment before vesting
Fair value of awards under TSR performance conditions
Fair value of awards under EPS performance conditions

2011 Award
2012 Award
2013 Award
2014 Award

2014

2013

7 March 2014
£27.52
106,402
3 years
25.1%
1.0%
1.7%
5% p.a.
£12.56
£26.21

7 March 2013
£29.05
98,832
3 years
25.7%
0.3%
1.5%
5% p.a.
£17.02
£28.19

Outstanding
at start
of year

124,906
122,695
98,832
–

Granted 
during year

Vested 
during year

–
–
–
106,402

(83,672)
–
–
–

Outstanding
at end
of year

–
122,695
98,832
106,402

Lapsed

(41,234)
–
–
–

346,433

106,402

(83,672)

(41,234)

327,929

At the date of vesting the 2011 awards were valued at £27.63. The weighted average remaining life of awards outstanding at the year end is one year.

c) Overseas Profit Linked Share Scheme (OPLSS) and the Share Incentive Plan (SIP)
These discretionary profit linked shares schemes are annual schemes based on the prior year profit of participating Rotork companies. The value of 
the award to each employee is based on salary and length of service, the value of the award can be up to £3,600.

115

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

26. FINANCIAL INSTRUMENTS
Financial risk and treasury policies
The Treasury department maintains liquidity, identifies and manages foreign exchange risk, manages relations with the Group’s bankers and 
provides a treasury service to the Group’s businesses. Treasury dealings such as investments, borrowings and foreign exchange are conducted 
only to support underlying business transactions.

The Group has clearly defined policies for the management of credit, foreign exchange and interest rate risk. The Group Treasury department is 
not a profit centre and, therefore, does not undertake speculative foreign exchange dealings for which there is no underlying exposure. Exposures 
resulting from sales and purchases in foreign currency are matched where possible and the net exposure may be hedged.

a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, 
and arises principally from the Group’s receivables from customers and cash on deposit with financial institutions.

Management has a credit policy in place and exposure to credit risk is both monitored on an ongoing basis and reduced through the use of credit 
insurance covering 80% to 90% of trade receivables at any time. Credit evaluations are carried out on all customers requiring credit above a certain 
threshold, with varying approval levels set around this depending on the value of the sale. At the balance sheet date there were no significant 
concentrations of credit risk.

Goods are sold subject to retention of title clauses, so that in the event of non–payment the Group may have a secured claim.

The Group maintains an allowance for impairment in respect of non–insured receivables where recoverability is considered doubtful.

The Group Treasury Committee meets regularly and reviews the credit risk associated with institutions that hold a material cash balance. As well as 
credit ratings, counterparties and instruments are assessed for credit default swap pricing and liquidity of funds.

Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Trade receivables
Other receivables
Cash and cash equivalents
Foreign exchange contracts 

The maximum exposure to credit risk for trade receivables at the reporting date by currency was:

Sterling
US dollar
Euro
Indian rupee
Other

Provisions against trade receivables
The aging of trade receivables and the associated provision for impairment at the reporting date was:

Not past due
Past due 0–30 days
Past due 31–60 days
Past due 61–90 days
Past due more than 91 days

116

Carrying amount

2014

2013

128,472
14,562
46,816
1,913

105,976
13,684
68,873
3,737

191,763

192,270

Carrying amount

2014

2013

15,207
37,750
45,014
5,001
25,500

13,166
30,128
42,244
3,528
16,910

128,472

105,976

Gross
2014

Provision
2014

86,682
21,910
10,363
3,184
8,680

(93)
(105)
(40)
(275)
(1,834)

Gross
2013

73,493
15,873
9,117
3,107
6,211

130,819

(2,347)

107,801

Provision
2013

(225)
(56)
(68)
(143)
(1,333)

(1,825)

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
26. FINANCIAL INSTRUMENTS continued
b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is 
to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, 
without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group is highly cash generative, and uses monthly cash flow forecasts to monitor cash requirements and to optimise its return on investments. 
Typically the Group ensures that it has sufficient cash on hand to meet foreseeable operational expenses; it also maintains a £7m overdraft facility 
(2013: £7m) on which interest would be payable at base rate plus 1.5%.

During 2014 the Group extended its £15m loan facility for a further 18 months to June 2016, increased the committed amount to £55m and 
renegotiated the margin from LIBOR plus 1.0% to LIBOR plus 0.55%. In May 2014 the Group also negotiated a new 364 day £20m committed 
loan facility. Interest is payable on this facility at LIBOR plus 0.35%. At year end £20m of the committed facilities were drawn resulting in 
£55m being available.

The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:

31 December 2014

Bank loans and overdrafts
Finance lease liabilities
Trade and other payables
Contingent consideration
Foreign exchange contracts
Non-redeemable preference shares

31 December 2013

Bank loans and overdrafts
Finance lease liabilities
Trade and other payables
Contingent consideration
Forward exchange contracts
Non-redeemable preference shares

Carrying 
amount

Contractual 
cash flows

Less than
12 months

1–2 years

2–5 years

More than
5 years

Analysis of contractual cash flow maturities

21,512
25
75,353
5,493
1,119
40

21,757
27
75,353
5,493
1,119
40

20,304
16
75,353
5,493
1,119
–

103,542

103,789 

102,285

254
10
–
–
–
–

264

327
1
–
–
–
–

328

872
–
–
–
–
40

912

Analysis of contractual cash flow maturities

Carrying 
amount

Contractual 
cash flows

Less than
 12 months

1–2 years

2–5 years

2,109
61
69,021
2,809
32
40

74,072

2,391
66
69,021
2,809
32
40

539
33
69,021
2,409
32
–

74,359 

72,034

308
22
–
400
–
–

730

533
11
–
–
–
–

544

More than
5 years

1,011
–
–
–
–
40

1,051

Where a counterparty experiences credit stress then the foreign exchange contracts may be settled on a net basis but standard practice is to settle 
on a gross basis and the undiscounted gross outflow in respect of these contracts is £144,706,000 (2013: £166,745,000) and the gross inflow is 
£145,566,000 (2013: £170,588,000).

c) Market risk
Market risk arises from changes in market prices, such as currency rates and interest rates, and may affect the Group’s results. The objective of 
market risk management is to manage and control market risk within suitable parameters.

i) Currency risk
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the business unit’s functional 
currency. The currencies primarily giving rise to this risk are the US dollar and related currencies and the euro. The Group hedges up to 75% of 
forecast US dollar or euro foreign currency exposures using forward exchange contracts. In respect of other non–sterling monetary assets and 
liabilities the exposures may also be hedged up to 75% where this is deemed appropriate.

As part of the Group’s cash management some of the overseas subsidiaries have loan and deposit balances where their intra–group counterparty is 
in the UK. The balances are typically in local currency for the subsidiary so the UK holds a foreign currency current asset or liability which is usually 
hedged through the use of foreign exchange swaps. At the balance sheet date only the ‘forward’ part of the swap remains and this is designated as 
a cash flow hedge to match the currency exposure of the intercompany loan asset.

117

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

26. FINANCIAL INSTRUMENTS continued
The Group classifies its forward exchange contracts (that hedge both the forecast sale and purchase transactions and the intercompany loan and 
deposit balances) as cash flow hedges and states them at fair value. The net fair value of foreign exchange contracts used as hedges at 31 
December 2014 was a £794,000 asset (2013: £3,705,000 asset) comprising an asset of £1,913,000 (2013: £3,737,000) and a liability of £1,119,000 
(2013: £32,000). Forward exchange contracts in place at 31 December 2014 mature in 2015 and 2016.

Changes in the fair value of foreign exchange contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which 
no hedge accounting is applied, are recognised in the Income Statement.

Sensitivity analysis
It is estimated that, with all other variables held equal (in particular other exchange rates), a general change of one cent in the value of euro against 
sterling would have had an impact on the Group’s operating profit for the year ended 31 December 2014 of £325,000 (2013: £325,000) and a change 
of one cent in the value of US dollar against sterling would have had an impact of the Group’s operating profit for the year ended 31 December 2014 
of £550,000 (2013: £450,000). The method of estimation, which has been applied consistently, involves assessing the transaction impact of US 
dollar and euro cash flows and the translation impact of US dollar and euro profits.

The following significant exchange rates applied during the year:

US dollar
Euro

Average rate

Closing rate

2014

1.65
1.24

2013

1.56
1.18

2014

1.55
1.28

2013

1.66
1.20

ii) Interest rate risk
The Group does not undertake any hedging activity in this area. All cash deposits are made at prevailing interest rates and the majority is available 
with same day notice, though deposits are sometimes made with a maturity of no more than three months. The main element of interest rate risk 
concerns sterling, US dollar, euro and renminbi deposits, all of which are on a floating rate basis.

The interest rate profile of the Group’s financial liabilities at 31 December was as follows:

Fixed rate financial liabilities
Floating rate financial liabilities

2014

512
21,065

21,577

2013

1,010
1,200

2,210

The fixed and floating rate financial liabilities comprise finance leases, preference shares and bank loans. The floating rate lease obligations bear 
interest at rates determined by reference to the relevant LIBOR or equivalent rate.

The weighted average interest rate of the fixed rate financial liabilities is 1.7% or 1.9% excluding the zero rate debt (2013: 1.6% or 2.0%). 
The weighted average period for which (non zero) interest rates on the fixed rate financial liabilities are fixed is 2.5 years.

The maturity profile of the Group’s financial liabilities at 31 December was as follows:

In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years

Total

2014

20,274
237
267
799

21,577

2013

532
297
470
911

2,210

118

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
26. FINANCIAL INSTRUMENTS continued
d) Capital risk management
The primary objective of the Group’s capital management is to ensure it maintains sufficient capital in order to support its business and maximise 
shareholder value. The group has an asset-light business model and uses cash generated from operations to either invest organically or by 
acquisition. The Group manages its capital structure and makes adjustments to it in light of changes in economic and market conditions. To 
maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares.

The Group defines capital as net funds and equity attributable to shareholders (see note 17). There are no externally imposed restrictions on the 
Group’s capital structure.

The Group monitors capital using the following indicators:

i) Group net funds

Total borrowings
Cash and cash equivalents (note 16)

Group net funds

ii) Return on capital employed

Operating profit before the amortisation of intangible assets
Operating profit 
Amortisation of acquired intangible assets

Capital employed
Shareholders’ funds 

Cash and cash equivalents (note 16)
Interest bearing loans and borrowings

Net cash

Pension deficit net of deferred tax

Average capital employed
Return on capital employed

2014

 2013

(21,577)
46,816

(2,210)
68,873

25,239

66,663

2014

 2013

142,227
14,940

139,265
12,147

157,167

151,412

376,795

332,079

(46,816)
21,577

(68,873)
2,210

(25,239)

(66,663)

27,950

15,552

379,506

280,968

330,237
47.6%

256,203
59.1%

119

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
 
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

26. FINANCIAL INSTRUMENTS continued
e) Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, were as follows:

Loans and receivables
Trade receivables
Other receivables

Financial assets
Cash and cash equivalents

Designated cash flow hedges
Foreign exchange contracts:
– Financial assets
– Financial liabilities

Financial liabilities at amortised cost
Bank loans
Trade and other payables
Contingent consideration
Preference shares
Finance lease liabilities

Carrying
amount
2014

Fair value
2014

Carrying
amount
2013

Fair value
2013

128,472
14,562

128,472
14,562

105,976
13,684

105,976
13,684

46,816

46,816

68,873

68,873

1,913
(1,119)

1,913
(1,119)

3,737
(32)

3,737
(32)

(21,512)
(75,353)
(5,493)
(40)
(25)

(21,512)
(75,353)
(5,493)
(40)
(25)

(2,109)
(69,021)
(2,809)
(40)
(61)

(2,109)
(69,021)
(2,809)
(40)
(61)

88,221

88,221

118,198

118,198

Fair value hierarchy
The fair value of the Group’s outstanding derivative financial assets and liabilities consisted of foreign exchange contracts and swaps and were 
estimated using year 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. 

The other financial instruments are classified as level 3 in the fair value hierarchy and are valued as follows:

i) Trade and other receivables/payables
As the majority of receivables/payables have a remaining life of less than one year, the notional amount is deemed to reflect the fair value.

ii) Contingent consideration
As all the contingent consideration is contractually due for payment within 12 months (2013: 18 months), the carrying amount is equal to the fair value.

27. OPERATING LEASES
Non-cancellable operating lease rentals are payable as follows:

Less than one year
Between one and five years
More than five years

2014

4,785
8,714
518

14,017

2013

4,568
10,349
988

15,905

Of the £14,017,000 (2013: £15,905,000), £10,206,000 (2013: £12,396,000) relates to property and the balance to plant and equipment.

120

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28. CAPITAL COMMITMENTS
Capital commitments at 31 December for which no provision has been made in these accounts were:

Contracted

29. CONTINGENCIES

Performance guarantees and indemnities

2014

1,037

2013

4,617

2014

3,735

2013

5,660

The performance guarantees and indemnities have been entered into in the normal course of business. A liability would only arise in the event of 
the Group failing to fulfil its contractual obligations.

30. 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 on pages 
125 to 126 of these financial statements. Transactions between two subsidiaries for the sale and purchase of products or the subsidiary and parent 
Company for management charges are priced on an arms length basis.

MJ Lamb became a non-executive director of Rotork plc during the year. Severn Trent plc is a related party of Rotork plc by virtue of MJ Lamb’s 
non-executive directorship. Sales to subsidiaries and associates of Severn Trent plc totalled £1,352,000 during the year and £226,000 was 
outstanding at 31 December 2014.

UBS Investment Bank are a related party by virtue of non-executive director SA James’s directorship of UBS Limited. UBS Investment Bank 
provides the Group financial advice and stockbroking services.  The current arrangement with UBS Investment Limited is that out of pocket 
expenses will be reimbursed and no fees will be charged for their regular advisory or broking services. Expenses of £8,000 have been reimbursed in 
the year (2013: £4,000) and no balance was outstanding at 31 December 2014 (2013: £nil).

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

Emoluments including social security costs
Post employment benefits
Pension supplement
Share-based payments

2014

4,594
298
251
1,134

6,277

2013

4,816
287
206
1,465

6,774

121

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
ROTORK PLC COMPANY BALANCE SHEET
At 31 December 2014

Fixed assets
Tangible assets
Investments

Current assets
Debtors
Cash at bank and in hand

Creditors:
Amounts falling due within one year

Net current assets

Total assets less current liabilities

Creditors:
Amounts falling due after more than one year

Net assets

Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account

Equity shareholders’ funds

Note

2014
£000

2013
£000

c
d

f
e

g

h

j
j
j
j

1,125
43,205

44,330

1,183
43,205

44,388

78,010
148

78,158

79,411
4,277

83,688

4,121

8,045

74,037

75,643

118,367

120,031

40

40

118,327

119,991

4,346
9,422
1,644
102,915

4,344
8,840
1,644
105,163

118,327

119,991

These Company financial statements were approved by the Board of Directors on 2 March 2015 and were signed on its behalf by:  

PI France and JM Davis, Directors.

122

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2014

A) ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial 
statements. Notes a to k relate to the Company rather than the Group.

Basis of preparation
The financial statements have been prepared under the historical cost convention and in accordance with applicable UK GAAP.

Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account.

The Company meets the definition of a qualifying entity under FRS100 issued by the Financial Reporting Council (FRC). Accordingly, in the year 
ending 31 December 2015 the Company intends to transition to reporting under FRS101 as issued by the FRC.  The Company intends to take 
advantage of the disclosure exemptions available under that standard.  Any shareholders who objects to this proposal should write to the company 
secretary at the Registered Office address as set out at the back of the Annual Report and Accounts.

Under FRS 1 the Company is exempt from the requirement to prepare a cash flow statement on the grounds that the Group includes the Company 
in its own published consolidated financial statements.

The Company has taken advantage of the exemption available under FRS8 and has not disclosed transactions with entities which are subsidiaries of 
the Group.

The Group financial statements contain financial instruments disclosures which comply with FRS29 ‘Financial Instruments: Disclosures’. 
Consequently, the Company has taken advantage of the exemption in FRS29 not to present separate financial instrument disclosures for 
the Company.

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company 
considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a 
contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. The Company 
continues to account for intra–group cross guarantees under FRS12.

Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities 
denominated in foreign currencies are translated using the rate of exchange at the balance sheet date and the gains or losses on translation are 
included in the profit and loss account.

Investments
Investments are measured at cost less any provision for impairment and comprise investments in subsidiary companies.

Depreciation and amortisation
Freehold land is not depreciated. Long leasehold buildings are amortised over 50 years or the expected useful life of the building where less than 
50 years. Other assets are depreciated by equal annual instalments by reference to their estimated useful lives and residual values at the following 
annual rates:

Freehold buildings 
Plant and equipment 

2% to 4%
10% to 33%

Post-retirement benefits
The Company participates in a UK Group pension scheme providing benefits based on final pensionable salary. The assets of the scheme are held 
separately from those of the Company. The Company is unable to identify its share of the underlying assets and liabilities of the scheme on a 
consistent and reasonable basis and therefore, as required by FRS 17 Retirement benefits, accounts for the scheme as if it were a defined 
contribution scheme. As a result, the amount charged to the profit and loss account represents the contributions payable to the scheme in respect 
of the accounting period.

Classification of preference shares
Following the adoption of the presentation elements of FRS 25, Financial Instruments, the cumulative redeemable preference shares issued by the 
Company are classified as long term debt. The preference dividends are charged within interest payable.

Share-based payments
The Company has adopted FRS 20 and the accounting policies followed are in all material respects the same as the Group’s policy under IFRS 2. This 
policy is shown in note 1 to the Group financial statements. Costs in relation to share-based awards made to other Group company employees are 
recharged to each subsidiary company.

123

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

A) ACCOUNTING POLICIES continued
Deferred taxation
Deferred tax is provided in full, without discounting, on timing differences that result in an obligation at the balance sheet date to pay more tax, or a 
right to pay less tax, at a future date at rates expected to apply when they crystallise based on current tax rates and law, except for the items 
explained below. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from 
those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed 
assets where there is no commitment to sell the assets or on unremitted earnings of subsidiaries where there is no commitment to remit those 
earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.

Dividends
Interim dividends are recorded in the financial statements when they are paid. Final dividends are recorded in the financial statements in the period 
which they are approved by the Company’s shareholders.

B) PERSONNEL EXPENSES IN THE COMPANY PROFIT AND LOSS ACCOUNT

Wages and salaries (including bonus and incentive plans)
Social security costs
Pension costs
Share-based payments

2014

3,064
295
439
551

4,349

2013

3,131
457
368
663

4,619

During the year there were 13 (2013: 12) employees of Rotork plc plus the four (2013: 4) executive directors. The personnel costs accounted for 
within the Company include the full costs of the employees, the Group Finance Director, the Group Chief Executive, but the full costs of the other 
two executive directors who are reported within the subsidiary where they are based.

Disclosures required by paragraph 1 of schedule 5 of SI2008/410 are set out in the Director’s Remuneration Report on pages 64 to 77.

Share-based payments
The share-based payment charge relates to employees of the Company participating in the Long Term Incentive Plan (LTIP). The disclosures 
required under FRS 20 can be found in note 25 to the Group Financial Statements. The table below sets out the movement of share options under 
the LTIP for employees of the Company.

2011 Award
2012 Award
2013 Award
2014 Award

Outstanding
at start
of year

44,386
43,503
32,616
–

Granted 
during
year

–
–
–
31,692

Vested
during
year

(29,735)
–
–
–

Lapsed
during
year

Outstanding  
at end 
of year

(14,651)  

–
–
–

–
43,503
32,616
31,692

120,505

31,692

(29,735)

(14,651)

107,811

At the date of vesting the 2011 awards were valued at £27.63. The weighted average remaining life of awards outstanding at the year end is 
one year.

124

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
C) TANGIBLE ASSETS IN THE COMPANY BALANCE SHEET

Cost
At 1 January 2014
Additions

At 31 December 2014

Depreciation
At 1 January 2014
Charge for year

At 31 December 2014

Net book value
at 31 December 2013

at 31 December 2014

Net book value of land and buildings can be analysed between:
Freehold land
Freehold buildings

Net book value at 31 December

D) INVESTMENTS IN THE COMPANY BALANCE SHEET
Shares in Group companies

At 1 January
Increased investment in subsidiary undertakings

At 31 December

A listing of the principal subsidiaries of the Group, all of which are wholly owned, is set out below:

Land and
buildings

Plant and
equipment

1,468
–

1,468

435
28

463

1,033

1,005

172
3

175

22
33

55

150

120

2014

60
945

Total

1,640
3

1,643

457
61

518

1,183

1,125

2013

60
973

1,005

1,033

2014

2013

43,205
–

43,205

43,205
–

43,205

Company and country of incorporation

Rotork Overseas Ltd, England and Wales

Rotork Inc, USA
  1Rotork Controls Inc, USA
  1Remote Control Inc, USA
  1Flow–Quip Inc, USA
  1Ralph A. Hiller Company, USA
  1Rotork (Thailand) Ltd, Thailand
  1Ranger Acquisition Corp, USA
  2Fairchild Industrial Products Company, USA
  2K–Tork International Inc, USA
  2Rotork Valvekits Inc, USA
  3Rotork Dallas Inc, USA
  Rotork Controls (Iberia) SL, Spain
  4Centork Valve Control SL, Spain
Rotork (Actuation) Sdn Bhd, Malaysia
Rotork Controls (Deutschland) GmbH, Germany
Rotork Fluid Systems Srl, Italy
Rotork Sweden AB, Sweden
Rotork Controls (Canada) Ltd, Canada
Rotork Motorisation SAS, France
Rotork BV, Netherlands
Rotork Controls (Singapore) Pte Ltd, Singapore
Rotork Australia Pty Ltd, Australia
Rotork Controls de Venezuela SA, Venezuela
Rotork Ltd, Hong Kong
Rotork (Malaysia) Sdn Bhd, Malaysia

Nature of business

Intermediate holding company for the following:

Intermediate holding company.
Manufacture and sale of actuators.
““
Assemble and distribute fluid power solutions.
Manufacture and sale of actuators.
Sale of actuators.
Intermediate holding company.
Manufacture of high precision pneumatic controls.
Intermediate holding company.
Manufacture of valve adaption kits
Manufacture and sale of vane actuators.
Sale of valve actuators.
Manufacture and sale of actuators.
““
““
““
““
Sale of actuators.
““
““
““
““
““
““
““

125

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

D) INVESTMENTS IN THE COMPANY BALANCE SHEET continued

Company and country of incorporation

Nature of business

Rotork Controls (Korea) Co. Ltd, South Korea
Rotork Africa (Pty) Limited, South Africa
Rotork Japan Co. Ltd, Japan
Rotork RUS Ltd, Russia
Rotork Controls Comercio de Atuadores LTDA, Brazil
Rotork Norge AS, Norway
Rotork Middle East FZE, Jebel Ali, Dubai
Rotork Servo Controles de Mexico SA de CV, Mexico
Rotork Controls Italia Srl, Italy
  5Rotork Gears Srl, Italy
Rotork Gears BV, Netherlands
Rotork Italy Holdings Srl, Italy
  6GT Attuatori Srl, Italy
  6Soldo Srl, Italy
  7Soldo Controls USA Inc, USA
  7Soldo Asia Pacific Pte Limited, Singapore
  Masso Ind S.p.A. Italy
Rotork Germany Holdings GmbH, Germany
  8Schischek Produktion Technischer Geräte GmbH, Germany
  8Schischek GmbH, Germany
  8Max Process GmbH, Germany
  9GT Attuatori Europe GmbH, Germany
Schischek AG, Switzerland 
  10Schischek EURL, France
  10Schischek Srl, Italy
  10Schischek Ltd, England and Wales 
  10Schischek Inc, USA
Rotork Midland Ltd, England and Wales
Young Tech Co., Ltd, South Korea 

Sale of actuators.
““
““
““
““
““
““
““
““
Manufacture and sale of gearboxes for actuators.
““
Intermediate holding company.
Manufacturer of pneumatic rack and pinion.
Design & Manufactures control accessories for automation.
Sale of control accessories.
Sale of control accessories.
Marine valve remote control system manufacturer.
Intermediate holding company.
Manufacturer of explosion-proof electric actuators.
Sale of explosion-proof electric actuators.
Manufacturer of pneumatic rack and pinion.
“”
Sale of explosion-proof electric actuators.
“”
“”
“”
“”
Manufacture and sale of solenoid valves and instruments.
Manufacture and sale of valve positioners and accessories.

Rotork Controls Ltd, England and Wales

Manufacture and sale of actuators, and intermediate holding company for 

the following:

Manufacture and sale of gearboxes and actuators.
Manufacture and sale of gearboxes and actuators.
Sale of gearboxes and actuators.
Manufacture and sale of actuators.

Rotork UK Ltd, England
Rotork Actuation (Shanghai) Co. Ltd, China
Rotork Trading (Shanghai) Co. Ltd, China
Rotork Controls (India) Private Ltd, India

1Owned by Rotork Inc, USA
2Owned by Ranger Acquisition Corp, USA
3Owned by K–Tork International Inc, USA
4Owned by Rotork Controls (Iberia) SL, Spain
5Owned by Rotork Controls Italia Srl, Italy
6Owned by Rotork Italy Holdings Srl, Italy
7Owned by Soldo Srl, Italy
8Owned by Rotork Germany Holdings GmbH, Germany
9Owned by Max Process GmbH, Germany
10Owned by Schischek AG, Switzerland

The Company has taken advantage of the exemption under Section 410(2) of the Companies Act 2006 by providing information only in relation to 
subsidiary undertakings whose results or financial position, in the opinion of the Directors, principally affected the financial statements.

A complete list of subsidiary and associated undertakings is attached to the annual return of Rotork plc filed at Companies House.

126

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
E) CASH AT BANK AND IN HAND IN THE COMPANY BALANCE SHEET

Bank balances

Cash at bank and in hand

F) DEBTORS DUE WITHIN ONE YEAR IN THE COMPANY BALANCE SHEET

Amounts owed by Group undertakings
Other debtors
Prepayments and accrued income
Corporation tax
Deferred taxation

2014

148

148

2013

4,277

4,277

2014

2013

77,649
35
55
–
271

78,010

78,377
39
249
474
272

79,411

A deferred tax asset of £271,000 (2013: £272,000) has been recognised. This asset principally relates to timing differences in respect of share-
based payments. The directors are of the opinion, based on recent and forecast trading that the level of future and current profits make it more 
likely than not that the asset will be recovered.

G) CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR IN THE COMPANY BALANCE SHEET

Trade creditors
Amounts owed to Group undertakings
Other taxes and social security
Corporation tax
Other creditors
Accruals and deferred income

The Company has a £25m gross overdraft facility (2013: £25m) and is part of a UK banking arrangement, see note i.

H) CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR IN THE COMPANY BALANCE SHEET

Preference shares classified as debt

This debt is not redeemable at any fixed future date.

I) CONTINGENCIES IN THE COMPANY

2014

151
1,051
43
143
1,817
916

4,121

2013

80
3,653
39
–
3,766
507

8,045

2014

40

2013

40

The UK banking arrangements are subject to cross-guarantees between the Company and its UK subsidiaries. These accounts are subject to a 
right of set-off. The performance guarantees and indemnities have been entered into in the normal course of business. A liability would only arise in 
the event of the Group failing to fulfil its contractual obligations.

During 2014 the Company extended its £15m loan facility for a further 18 months to June 2016, increased the committed amount to £55m and 
renegotiated the margin from LIBOR plus 1.0% to LIBOR plus 0.55%. In May 2014 the Group also negotiated a new 364 day £20m committed loan 
facility. Interest is payable on this facility at LIBOR plus 0.35%. These facilities are available to the Company, Rotork Controls Limited, Rotork 
Overseas Limited and Rotork Controls Inc. Of the committed facility £20m was drawn by one of these companies at year end resulting in £55m 
being available.

127

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 
 
 
 
 
 
FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014

J) CAPITAL AND RESERVES IN THE COMPANY BALANCE SHEET

Balance at 1 January 2014
Profit for the year
Equity settled share-based payment transactions net of tax
Share options exercised by employees
Own ordinary shares acquired
Own ordinary shares awarded under share schemes
Dividends

Balance at 31 December 2014

Share
capital

4,344
–
–
2
–
–
–

4,346

Share
premium

Capital
redemption
reserve

Retained
earnings

105,163
38,528
2,799
–
(6,300)
5,427
(42,702)

Equity
shareholders’
funds

119,991
38,528
2,799
584
(6,300)
5,427
(42,702)

1,644
–
–
–
–
–
–

1,644

102,915

118,327

8,840
–
–
582
–
–
–

9,422

Details of the number of ordinary shares in issue and dividends paid in the year are given in note 17 to the Group Financial Statements.

Profit for the financial year in the accounts of the Company is £38,528,000 (2013: £55,122,000).

K) CAPITAL RISK MANAGEMENT IN THE COMPANY
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns 
for shareholders and benefits for other stakeholders and to maintain an optimal capital structure.

In order to maintain or adjust the capital structure the Company may adjust the amount of dividends paid to shareholders, return capital to 
shareholders or issue new shares.

The Company’s net funds at the balance sheet date were:

Preference shares
Cash at bank and in hand

Company net funds

2014

(40)
148

108

2013

(40)
4,277

4,237

128 ROTORK ANNUAL REPORT 2014

 
 
TEN YEAR TRADING HISTORY

Revenue

594,739

578,440

511,747

447,833

380,560

353,521

320,207

235,688

206,709

174,839

2014
£000

2013
£000

2012
£000

2011
£000

2010
£000

2009
£000

2008
£000

2007
£000

2006
£000

2005
£000

Cost of sales

Gross profit

(309,280)

(304,066)

(272,199)

(236,359)

(199,742)

(187,600)

(176,046)

(127,748)

(115,603)

(95,358)

285,459

274,374

239,548

211,474

180,818

165,921

144,161

107,940

91,106

79,481

Overheads

(143,232)

(135,109)

(115,081)

(99,474)

(83,094)

(74,384)

(69,272)

(52,553)

(46,017)

(42,951)

Operating profit

142,227

139,265

124,467

112,000

97,724

91,537

74,889

55,387

45,089

36,530

Adjusted* operating 

profit 

Amortisation of acquired 

intangible assets
Disposal of property

157,167

151,412

131,866

115,921

99,442

92,103

76,014

55,461

45,187

36,709

(14,940)
–

(12,147)
–

(7,399)
–

(3,921)
–

(1,718)
–

(1,153)
587

(1,125)
–

(74)
–

(98)
–

(179)
–

Operating profit

142,227

139,265

124,467

112,000

97,724

91,537

74,889

55,387

45,089

36,530

Net interest 

(1,062)

(1,268)

(273)

550

131

(621)

862

1,866

972

127

Profit before taxation
Tax expense

141,165
(37,963)

137,997
(38,488)

124,194
(34,879)

112,550
(32,149)

97,855
(28,334)

90,916
(26,884)

75,751
(22,331)

57,253
(17,957)

46,061
(14,728)

36,657
(12,043)

Profit for the year

103,202

99,509

89,315

80,401

69,521

64,032

53,420

39,296

31,333

24,614

Dividends

42,702

38,735

33,924

49,534

35,912

24,102

29,970

24,732

24,140

13,437

Basic EPS
Adjusted* EPS
Diluted EPS

119.0p
131.6p
118.5p

114.8p
124.9p
114.3p

103.1p
109.3p
102.6p

93.0p
96.2p
92.6p

80.5p
81.9p
80.2p

74.2p
74.7p
73.9p

62.0p
62.9p
61.6p

45.6p
45.7p
45.2p

36.4p
36.5p
36.1p

28.6p
28.7p
28.4p

* Adjusted is before the amortisation of acquired intangible assets and the disposal of property.

129

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsCompany InformationFinancial Statements 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SHARE REGISTER INFORMATION

The tables below show the split of shareholder and size of shareholding in Rotork plc.

Ordinary shareholder by type

Individuals
Bank or nominees
Other company
Other corporate body

Size of shareholding

1 – 1,000
1,001 – 2,000
2,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 +

Source: Equiniti

Number of holdings

2,026
898
43
24

2,991

Number of shareholders

1,856
364
314
134
168
49
106

2,991

%

67.7
30.0
1.5
0.8

100.0

%

62.1
12.2
10.5
4.5
5.6
1.6
3.5

Number of shares

2,578,655
83,236,953
130,118
983,434

%

3.0
95.8
0.1
1.1

86,929,160

100.0

Number of shares

623,474
541,430
989,180
937,431
3,772,200
3,553,083
76,512,362

%

0.7
0.6
1.1
1.1
4.4
4.1
88.0

100.0

86,929,160

100.0

DIVIDEND INFORMATION
The table below details the amounts of interim, final and additional dividends declared in respect of each of the last five years.

2014
2013
2012
2011
2010

FINANCIAL CALENDAR
3 March 2015 
9 April 2015 
10 April 2015 
24 April 2015 
18 May 2015 
4 August 2015 

Preliminary announcement of annual results for 2014
Ex-dividend date for final proposed 2014 dividend
Record date for final proposed 2014 dividend
Annual General Meeting held at Rotork House, Brassmill Lane, Bath, BA1 3JQ
Payment date for final proposed 2014 dividend
Announcement of interim financial results for 2015

Interim 
dividend
(P)

19.20
18.05
16.40
14.50
12.75

Final
dividend
(P)

30.90
30.00
26.60
22.75
19.75

Additional 
interim 
dividends
(P)

–
–
–
23.00
11.50

Total 
dividend
(P)

50.10
48.05
43.00
60.25
44.00

130

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014 
 
 
 
 
 
 
 
CORPORATE DIRECTORY

Company Secretary
Stephen Rhys Jones

Registered Office
Rotork plc
Rotork House
Brassmill Lane
Bath BA1 3JQ

Company Number
00578327

Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA

Stockbrokers
UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP

Citigroup Global Markets Ltd
Citigroup Centre
33 Canada Square
London E14 5LB

Financial Advisers
UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP

Citigroup Global Markets Ltd
Citigroup Centre
33 Canada Square
London E14 5LB

Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ

Financial Public Relations
FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD

Solicitors
Messrs. Osborne Clarke
No.2 Temple Back East
Temple Quay
Bristol BS1 6EG

131

ROTORK ANNUAL REPORT 2014GovernanceStrategic ReportDirectorsCompany InformationFinancial StatementsNOTES

132

FINANCIAL STATEMENTSROTORK ANNUAL REPORT 2014A

N

N

U

A

L

R

E

P

O

R

T

2

0

1

4

Rotork plc
Brassmill Lane
Bath
BA1 3JQ
UK

T: +44 1225 733200
F: +44 1225 333467
E: mail@rotork.com

www.rotork.com