CONTROLLING
A COMPLEX
WORLD
ANNUAL REPORT 2015
Rotork impacts people’s lives every
day. From the moment you turn on
a tap or switch on a light, put on the
kettle or fill your car up with fuel, a
flow control product is being used
somewhere in the process of delivering
that service.
We are keeping the world flowing by…
CONTROLLING
THE FLOW OF
FLUIDS AND
GASES ACROSS
THE GLOBE
The CQ compact actuator
delivers a reliable and efficient,
self-contained solution for
applications that demand
functional integrity and safety,
where space is limited.
2015 SUMMARY
ROTORK ANNUAL REPORT 2015
01
£546.5m -8.1%
REVENUE
£125.3m -20.3%
OPERATING PROFIT*
£101.9m -27.8%
PROFIT BEFORE TAX
• Expansion of
product portfolio
• Six acquisitions, including
Bifold, completed in the
year for £147.6m
• Oil and gas market
remained weak
• Successful accelerated
cost management
programme
8.6p
EARNINGS PER SHARE
-27.7%
• Full year dividend of 5.05p
Strategic Report
02 At a glance
04 Locations
06 Market overview
10 Chairman’s statement
12 Chief Executive’s statement
16 Our business model
18 Strategic framework
20 Our strategic focus
–
Innovation
– Sustainability
– Growth
– Operational excellence
28 Strategic priorities
30 Business review
– Controls
– Fluid Systems
– Gears
–
Instruments
38 Financial review
42 Key performance indicators
44 How we manage risk
46 Principal risks and uncertainties
48 Corporate social responsibility
Directors
60 Board of Directors
Governance
62 Corporate Governance Report
69 Audit Committee Report
73 Nomination Committee Report
74 Directors’ Remuneration Report
89 Report of the Directors
Financial Statements
92 Independent Auditor’s Report
to the members of Rotork Plc
98 Consolidated income statement
98 Consolidated statement of
comprehensive income
99 Consolidated balance sheet
100 Consolidated statement of
changes in equity
101 Consolidated statement of
cash flows
102 Notes to the Group
financial statements
135 Rotork plc Company
balance sheet
136 Rotork plc Company statement
of changes in equity
137 Notes to the Company
financial statements
Company Information
145 Ten year trading history
146 Share register information
147 Corporate directory
* References to adjusted profit throughout this document are defined as the IFRS profit, whether operating profit or
before tax, with £20.9m (2014: £14.9m) of amortisation of acquired intangibles added back.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 02 ROTORK ANNUAL REPORT 2015
AT A GLANCE
LEADERS
IN FLOW
CONTROL
Rotork, a leading global designer and
manufacturer of actuators used for the
automation of industrial valves and flow
control products, has managed the flow
of fluids and gases for nearly 60 years.
Rotork products are used in a wide range of
activities ranging from offshore and onshore
production, refining and petrochemicals,
water treatment, nuclear energy and
concentrating solar power.
Rotork comprises four actuation and flow
control divisions. In addition, Rotork Site
Services provides worldwide planned and
emergency actuation services.
ROTORK CONTROLS
Rotork Controls specialises in electric valve actuators for all
applications and is the largest independent manufacturer in
its sector. It has manufacturing facilities located in the UK,
the USA, China, Malaysia, India, Germany and Spain.
£286.7m
-11.7%
REVENUE
£85.5m
-18.4%
OPERATING PROFIT*
ROTORK FLUID SYSTEMS
Rotork Fluid Systems manufactures and supplies fluid power
actuators and control systems that are used in a wide range of
applications. It has manufacturing facilities located in the UK,
Germany, Italy, Sweden and the USA.
£149.2m
-17.2%
REVENUE
£15.2m
-51.2%
OPERATING PROFIT*
ROTORK ANNUAL REPORT 2015
03
END USER MARKETS
Oil and gas
Rotork products are used on upstream,
midstream and downstream activities,
ranging from offshore production facilities,
to refining and processing, to transportation,
storage and distribution.
Water
Water treatment and distribution offers
significant opportunities for Rotork through
modern state-of-the-art processes, which
maximise existing resources such as,
desalination plants and water re-use
projects, together with conventional
water and wastewater plants.
Power
Rotork products are found in traditional
power stations, including nuclear power
stations where its products are certified for
use both inside and outside containment.
They are also used for renewable energy
generation systems such as thermal solar
plants, and emission reduction processes
such as flue gas desulphurisation.
Industrial and other
Other industries served by Rotork include,
surface and underground processing
applications for mining, ship building,
heating, ventilating and air conditioning,
pulp and paper, food and beverage,
medical equipment, and tyre manufacturing.
11 See page 8 to find out more
about our end user markets
ROTORK GEARS
Rotork Gears manufactures and supplies gearboxes,
accessories and custom adaptations for valve actuation
projects throughout the world. It has manufacturing facilities
located in the UK, Netherlands, Italy, India, China and the USA.
£58.6m
+1.4%
REVENUE
£12.0m
-7.8%
OPERATING PROFIT*
ROTORK INSTRUMENTS
Rotork Instruments manufactures and supplies instrumentation
and control products for flow, pressure, temperature and
position measurement applications for a wide range of
technologies including, pneumatic, hydraulic, electro-hydraulic,
mechanical, electronic and wireless. It has manufacturing
facilities located in the UK, Korea, Italy and the USA.
£67.3m
+46.5%
REVENUE
£18.3m
+26.8%
OPERATING PROFIT*
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information
04 ROTORK ANNUAL REPORT 2015
LOCATIONS
GLOBAL
BUSINESS
Rotork has over 850 outlets worldwide,
consisting of manufacturing facilities in 11
countries, a global network of local offices,
regional centres of excellence and agents.
Our global presence is key to supporting new
customer growth, and the service and support
of our existing customers.
Customers can source Rotork’s products locally in the
knowledge that they will be supported by life-of-plant
maintenance, repairs and upgrade services wherever
they are in the world, with over 400 service engineers
available globally to provide support.
We are committed to close customer ties, with our global
network supporting operations in some of the most
remote and challenging environments. We understand
the importance of being close to our customers and
understanding their needs – this is key to driving innovation.
Rotork has more than 3,700 employees globally and
they are fundamental to maintaining our reputation for
excellence in innovation and the quality of our products
and services.
GROUP REVENUE
BY END USER DESTINATION
N. America
exc. Mexico
Asia Pacific/
Far East
E. Europe
Europe
Latin America
Middle East/
Africa
UK
2014
2015
ROTORK ANNUAL REPORT 2015
05
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
I
n
f
o
r
m
a
t
i
o
n
AMERICAS
Following the acquisitions made
in 2015, we have an additional
manufacturing site and office in
the USA. In 2016, Rotork plans to
consolidate three manufacturing
sites and one office, located in the
USA, on one site as part of our
continued accelerated cost
management programme.
EUROPE, MIDDLE EAST
AND AFRICA
Rotork has three new manufacturing
sites and three new offices due to the
acquisitions in 2015 and has opened a
new office in the UK. In 2016, Rotork
plans to open an office in Saudi Arabia
and to consolidate our facilities in Italy,
with the move of two of our businesses
to an existing manufacturing facility
in Milan.
ASIA AND AUSTRALIA
In 2015, Rotork opened a new office
in Vietnam and Korea, and acquired
an additional office in Singapore.
9
MANUFACTURING FACILITIES
17
MANUFACTURING FACILITIES
5
MANUFACTURING FACILITIES
779
EMPLOYEES
15
OFFICES
2,116
EMPLOYEES
28
OFFICES
864
EMPLOYEES
30
OFFICES
06 ROTORK ANNUAL REPORT 2015
MARKET OVERVIEW
GROWING
MARKETS
Rotork’s total addressable market grew by
3% during the year, mainly as a result of
acquisitions, whilst our total market share
reduced slightly to 14.9%. This provides
opportunities for further growth.
£3.7bn
TOTAL ADDRESSABLE MARKET
£40bn
TOTAL FLOW CONTROL MARKET
MARKET DRIVERS
Large numbers of Rotork’s products are used in structural
growth markets which provide essential infrastructure to the
global economy. These markets have long term investment
cycles, with new infrastructure needed to support the ever
increasing demand arising from urbanisation, and growing
populations that require water, food and energy. The trends
for greater automation and new technology also drive growth
in our markets.
Urbanisation
More people now live in cities than rural areas around the
world and that number is climbing. The trend towards
urbanisation, particularly in emerging markets, is increasing
demand for water and energy. Investment in private and
public sector infrastructure such as power stations, electricity
grids, water supply and water treatment plants is required to
meet this growth in demand.
Automation
Businesses and organisations around the world continue to
require greater automation in their operations to improve
efficiencies and safety, and increase precision in production.
Real-time monitoring of plant allows problems to be fixed
before they escalate, improving safety and optimising asset life.
Population growth
The growing global population is driving increased demand
for land, food, energy and water, in a back drop of dwindling
resources. Investment in new power and water facilities, and
the refurbishment of existing facilities is necessary to respond
to this need.
New technologies
There is a growing global demand for innovative products,
offering improved performance and reliability, and reducing
environmental impact.
11 See pages 8-9 for our end user
markets and opportunities for growth
ROTORK ANNUAL REPORT 2015
07
14.9%
MARKET
SHARE
Revenue
Market share by division
CONTROLS
£1,527m
18.8%
FLUID SYSTEMS
£810m
18.4%
GEARS
£273m
16.9%
INSTRUMENTS
£1,055m
6.1%
Market share based on competitors’
revenue, published market reports
and Rotork internal data.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 08 ROTORK ANNUAL REPORT 2015
MARKET OVERVIEW
CONTINUED
SHARE OF END USER MARKET
Oil and gas
• Onshore and offshore production
• Refining and petrochemicals
• Distribution and storage
• Pipelines
• LNG liquefaction and regasification
Water
• Sludge and sewage treatment
• Water treatment, desalination and re-use
• Environmental control
• Dams, reservoirs and irrigation
Power
• Fossil fuels
• Nuclear energy
• Concentrating solar power
• Geothermal and other renewables
Industrial and other
• Marine
• Pharmaceutical
• Paper and pulp
• Rail
• HVAC
• Mining
• Biomedical
11 See page 3 to find out more
about each market
53.3%
11.6%
16.4%
18.7%
GROUP
REVENUE
GROUP
REVENUE
GROUP
REVENUE
GROUP
REVENUE
ROTORK ANNUAL REPORT 2015
09
OPPORTUNITIES FOR GROWTH
Controls
• Centork (water, power and industrial)
• HVAC market
• Process actuator solutions
• Asset management developments
11 See pages 30-31 for Rotork
Controls Business Review
Fluid Systems
• Market expansion
• SI3 actuators
• Collaboration with Instruments division
• New Lucca factory
11 See pages 32-33 for Rotork
Fluid Systems Business Review
Gears
Instruments
• Roto Hammer integration
• Product range expansion
• Increased R&D investment
• Geographic expansion
• Sales channel development
• Rotork synergies
• Geographic expansion
• Product range expansion
11 See pages 34-35 for Rotork
Gears Business Review
11 See pages 36-37 for Rotork
Instruments Business Review
CHANGING THE MARKET
A PIONEERING PRODUCT
The Rotork Skilmatic SI self-contained electro-hydraulic
valve actuator combines all-electric simplicity with the
precision of hydraulic actuation and the reliability of
mechanical fail-safe operation. Typical applications for
Skilmatic actuators include functional safety related
emergency shutdown (ESD), and remotely operated
shutoff valve duties. Communication and data logging
capabilities have been increased in response to end
users’ desire to access more valve related data, both in
the field and in the control room.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 10 ROTORK ANNUAL REPORT 2015
CHAIRMAN’S STATEMENT
“ WE ARE WELL PLACED TO NAVIGATE
CURRENT MARKET TURBULENCE,
WHILST CONTINUING TO FOCUS ON OUR
STRATEGY FOR LONG TERM GROWTH.”
FOCUS ON
MEDIUM TO
LONG TERM
GROWTH
Martin Lamb
Chairman
In this my first year as Chairman, Rotork has
delivered a robust set of results despite
increasingly difficult trading conditions.
Although we do not expect conditions to
improve in the near term, the increasing
diversity of our end markets and geographies,
together with our strong market positions,
leave us well placed to navigate the current
turbulence, whilst continuing to put the building
blocks in place for superior medium to long
term growth.
At times such as these, the fundamentals of the
business are tested to the full. This includes the
appropriateness and resilience of the strategy,
the strength of our market positions, the quality
of the management, and the cohesiveness of our
culture and values. I have found Rotork to be in
good shape in all these respects.
Over many years, Rotork has established clear
leadership positions in well-defined end markets,
based on innovative technology and excellent
customer service, delivered by a team of highly
motivated and experienced employees who put
the customer at the heart of what they do. Our
asset-light model provides considerable flexibility
in prioritising resource according to the greatest
need or opportunity, whilst preserving capital for
investment in technology and innovation.
ROTORK ANNUAL REPORT 2015
11
Board composition and performance
I would like to thank my fellow
Directors for welcoming me as
their new Chairman and for their
considerable support in my first
year in the role.
The Board currently comprises three
executive Directors, four independent
non-executive Directors and myself as
Chairman. Two out of the eight
Directors are women (25%), which
remains the same as last year.
We are announcing today that Bob
Arnold will retire in August this year.
Bob has been President of Rotork
Controls Inc. since 1988 and a member
of the Board since 2001. I would like to
thank Bob for his contribution since
joining Rotork in 1978 and in particular
his significant role in supporting the
expansion of the business throughout
the Americas.
The annual performance review of
the Board is scheduled to take place
during February and March 2016, see
page 62 of the Corporate Governance
Report for further details.
Corporate Governance
The Board continues to be committed
to the highest standards of governance.
During the year, the Board and Audit
Committee were involved in continuing
consideration of, and work related to,
risk appetite, and the monitoring
and disclosure of risk following the
revisions in 2014 to the UK Corporate
Governance Code (the Code).
Further details of this work and its
outputs, our approach to governance
and our compliance with the Code
are contained in the Corporate
Governance Report on pages 62 to 68.
Our employees
I would like to thank all of our employees
for their continued high level of
commitment and professionalism during
this challenging year.
Dividend
The Board recommends a final
dividend of 3.1p per share, a 0.3%
increase over the 2014 final dividend.
Taken with the 2015 interim dividend,
the total dividend is 5.05p per share
(2014: 5.01p), representing a 0.8%
increase in the total dividend on 2014.
The final dividend will be payable on
16 May 2016 to shareholders on the
register on 8 April 2016.
Outlook
The challenging market conditions
that we saw in the first half of the year
continued for the remainder of 2015,
with many of our key markets and
geographies impacted by the
weakness of the oil price, political
instability and the slowdown in China.
We were encouraged by the progress
of our accelerated cost management
programme in 2015 and further actions
to mitigate the effect of end market
weakness will remain a key focus in
the current year. We continue to see
opportunities to gain market share by
expanding our product portfolio and
through both organic development
and acquisition. By continuing to
implement our strategy for growth
and targeted investment we will
ensure that Rotork is well placed to
make further progress over the
medium to long term.
Martin Lamb
Chairman
29 February 2016
Financial highlights
Order intake was 15.2% lower than
the prior year on an organic constant
currency (OCC) basis but the
contributions from acquisitions, which
were mainly completed in the second
half of the year, offset in part by the
0.9% currency headwind resulted in
a reported reduction of 11.7%.
Revenue of £546.5m was supported
by the order book at the start of the
year, so reduced by less than order
intake and was 11.9% lower on an
OCC basis and 8.1% lower on a
reported basis.
Adjusted* operating profit reduced
20.3% to £125.3m. Adjusted* operating
margins reduced by 350 basis points
to 22.9%, impacted by lower sales
volumes and the mix effect of newly
acquired businesses at lower margins,
partially offset by a £4.0m reduction
in overheads. The reduction at gross
margin level to 45.7% was contained
to 230 basis points, with only a small
increase in overall material cost
percentage, reflecting effective control
over material and labour costs, and
good pricing resilience in challenging
market conditions.
Acquisitions
Rotork had a very active year for
acquisitions as we continued to
implement our strategy for growth,
and we invested £147.6m on
acquisitions in total. This year we
acquired Bifold Group Ltd (Bifold),
M&M Srl, Eltav Wireless Monitoring Ltd,
all of which sit in our Instruments
division, and Roto Hammer Industries
Inc. for our Gears division. We also
acquired our agents’ businesses
in the south of France and Turkey.
The acquisition of Bifold for up to
£125m in August is the largest
acquisition completed by Rotork to
date and provides a platform for the
accelerated growth of the Instruments
division, expanding our addressable
market by a further £750m. Bifold
performed in line with our expectations
during the year.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information
12
ROTORK ANNUAL REPORT 2015
CHIEF EXECUTIVE’S STATEMENT
“ WE WILL CONTINUE TO INVEST
TO ENSURE THAT ROTORK IS
WELL PLACED TO MAKE FURTHER
PROGRESS OVER THE MEDIUM
TO LONG TERM.”
RESPONDING
TO MARKET
CONDITIONS
The challenging market conditions that we
saw in the first half of the year continued to
dominate for the remainder of 2015, with
many of our key markets and geographies
impacted by the ongoing weakness of the oil
price, political instability and the slowdown
in China. We saw lower overall activity levels
and an increased number of project deferrals
and cancellations. We continue to see
opportunities to gain market share by
expanding our product portfolio, and through
both organic development and acquisition.
By implementing our strategy for growth and
making careful investments we will ensure
that Rotork is well placed to make further
progress over the medium to long term.
The end of the year usually sees an upturn in
revenue as customers look to complete orders
and 2015 was no exception. However, fourth
quarter revenue was 10.7% lower than the
record fourth quarter of 2014, despite the
acquisitions completed in the year, and 15.1%
lower on an organic constant currency (OCC)
basis. Revenue for the year was 8.1% lower than
the previous year, which on an OCC basis was
11.9% lower.
Peter France
Chief Executive
ROTORK ANNUAL REPORT 2015
13
Programme (CSP). In 2015, RSS
opened new service centres in
Glasgow and Korea, expanded its
service provision in France and Turkey
and improved existing facilities to
accommodate the CSP and changes in
service. With 402 directly-employed
service engineers and other service
technicians employed by our agents
around the world (2014: 370),
we provide the infrastructure to
effectively support all of our
customers’ service needs.
Research and development (R&D)
Innovation continues to be a core part
of our strategy as we work with our
customers to find ways of reducing
power consumption, increasing
efficiency, lowering the costs of asset
ownership and minimising carbon
footprint. Following the acquisition
of Bifold Group Ltd, Gary Jacobson
was appointed as Group Innovation
Director in October and will head the
new Group Innovation Department.
Gary brings a wealth of experience
and technical knowledge of products
and markets relevant to Rotork and I
am delighted to have him leading our
future development in this area. 2015
saw the launch of a number of new
products across the divisions and our
spend on R&D for the year was £9.6m
or 1.8% of revenue.
Order intake is usually less driven by
this year end pattern but the fourth
quarter nevertheless showed an
improvement of 3.2% on the third
quarter on an OCC basis or 12.8% with
the inclusion of acquisitions. Full year
order intake was 11.7% below 2014, or
15.2% lower on an OCC basis. Lower
revenue was the main driver of the
20.3% reduction in adjusted* operating
profit to £125.3m. Cost control and the
accelerated cost management
programme delivered more than the
anticipated savings in the year but this
was not sufficient to offset the
reduction in revenue.
In 2015, we invested £147.6m in six
acquisitions. Further details are
contained in the Business Reviews
on pages 30 to 37. In line with our
strategy, together these businesses
bring additional products that enhance
Rotork’s product portfolio and
technology, expand our geographical
presence and give us access to new
markets. Our focus in 2016 will be to
continue to integrate the newly-
acquired businesses and drive the
potential revenue synergies. We will
also continue to look for acquisition
opportunities as part of our
growth strategy.
During the year we opened four new
sales and services offices and started
the move into the new Lucca (Italy)
factory, which is due to be completed
in the second quarter of 2016. We
now have 31 manufacturing sites,
73 national offices and 84 regional
locations in 38 countries. In total
we have over 850 sales channels in
101 countries. Strengthening our global
presence to provide local support to
our customers remains a core part of
our strategy.
Our markets
The long term drivers of our markets
remain positive with population
growth, urbanisation and automation
continuing to drive increased demand
for flow control products and services.
Our customers are also increasingly
focused on reducing power
consumption, increasing efficiency,
maximising cost reduction, improved
safety and minimising their carbon
footprints, which will drive long term
growth in our markets. See page 6 for
more details.
In the shorter term our markets
continue to be impacted by various
headwinds. In 2015, the oil and gas
markets remained active despite
the fall in the oil price. Oil and gas
represented 53.3% of our revenue in
2015, a decline of 360 basis points on
the previous year. In the water and
industrial markets, revenue was up on
the previous year, with water showing
a small increase of £1.3m and industrial
showing a larger increase of £10.2m
demonstrating that our strategy of
diversifying our end markets is
continuing to make progress. The
slowdown in China’s economy also
impacted our revenue for the year with
sales in the power market declining by
£7.3m (7.5%), with £6.5m of that total
attributable to China.
Rotork Site Services (RSS)
The RSS team provide service and
support to our customers locally
around the world through preventative
maintenance contracts, on-site and
workshop service, retrofit solutions
and the tailor-made Client Support
* References to adjusted profit throughout this document are defined as the IFRS profit, whether operating
profit or before tax, with £20.9m (2014: £14.9m) of amortisation of acquired intangibles added back.
Organic constant currency results are the 2015 figures restated at 2014 exchange rates and with the
OCC
incremental contribution from acquisitions removed.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 14
ROTORK ANNUAL REPORT 2015
CHIEF EXECUTIVE’S STATEMENT
CONTINUED
Corporate Social Responsibility
During 2015, we continued to focus on
how we do things at Rotork through
our Rotork Corporate Social
Responsibility (CSR) Committee,
which sets the standards that are
embedded within each of our
businesses. Our responsibilities to our
employees and our customers, as well
as the communities and environment
in which we operate, are very
important to us.
In 2015, we donated £100,000 to
WaterAid and Sightsavers and
£5,000 to Freedom Matters in
response to the earthquake in Nepal.
We encourage our employees to
support their local communities, with
local charitable causes selected by
the local charitycommittees at each
of our operating sites. The Group
contributed a further £172,000 to
support these causes bringing the
total Group contributions in the year
to £297,000 (2014: £295,000).
For more information about the CSR
Committee and the work it carries out
see pages 48 to 59.
Our people
Rotork’s culture and values are an
integral part of our business model
and are embedded in the day to day
behaviour of all employees. Our
employees act and behave as smaller
family units, part of the larger Rotork
family. This is supported by Rotork
being structured as a number of
smaller business units, with individuals
working collaboratively across teams
and projects.
Rotork aims to be an employer of
choice and is considered a great place
to work by the majority of our
employees. We foster an open and
honest culture based on the
engagement of our employees.
Our annual employee satisfaction is
used to improve the experience of
working at Rotork and has helped to
drive many changes around the Rotork
globe. Our annual survey was
completed by 2,350 employees, with
the response rate being slightly down
(71% compared to 75% last year) and
the overall satisfaction score remaining
the same as last year at 3.6. The global
results showed that on average people
are most satisfied with Rotork’s
products and services, our approach to
health and safety and our values and
ethics and they are planning to stay
with Rotork for at least another year.
Rotork had a total of 3,759 employees
at the end of 2015, an increase of 300.
From the various acquisitions, 389
employees joined the Rotork family.
Excluding the acquisitions, the total
number of employees decreased by
89 as a result of the cost management
initiatives that were implemented
during the year.
In 2015, there were two changes to our
management team, with the retirement
of Graham Ogden in March and
Gary Jacobson joining the Rotork
Management Board in October
following his appointment as Group
Innovation Director.
The success of Rotork is down to the
hard work and dedication of our
people. I would like to personally thank
each and every one of them for
making Rotork the world-class
business that it is today.
Peter France
Chief Executive
29 February 2016
ROTORK ANNUAL REPORT 2015
15
LEADING THE WAY
IN TOUGH APPLICATIONS
Smart positioners 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.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 16
ROTORK ANNUAL REPORT 2015
OUR BUSINESS MODEL
SEEKING
EXCELLENCE
TOGETHER
We provide high quality, technically advanced,
innovative products and a superior level of
local service to support our customers’
activities wherever they are in the world.
We do this in a responsible way, with CSR
values being entrenched in our business
processes. We work as a global team, seeking
excellence together, to respond rapidly to
changing business environments, introduce
new technologies, pioneer new markets, and
respond and identify business opportunities.
Our global network of offices and manufacturing sites
expands each year to ensure that we can offer local
support to our customers. Rotork’s culture of
collaboration, respect and excellence is a core
philosophy which we share with new offices and
acquired businesses 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.
COMPETITIVE STRENGTHS
Technological leadership
Rotork’s technological leadership is driven by our
employees who ensure that we remain competitive by
maintaining the technical excellence of our products and
providing solutions to our customers’ needs. We constantly
strive to improve quality and performance, even when we
are the best, we strive to be even better.
Global footprint
Our global geographic footprint is key to our continued
business success. Local relationships with customers allow
Rotork to understand long term value generation
opportunities and ensure that our innovation is relevant
to our customers’ evolving requirements. Our worldwide
presence allows us to manage complex global projects and
to support customers in the field. Rotork Site Services work
with our customers by installing and commissioning our
actuators, and by meeting our customers’ service
requirements. Our strategic manufacturing locations
optimise supply chain management and productivity.
Diverse end market exposure
Rotork’s actuators and flow control products are used
most intensively in the oil and gas, power and water
markets, but our products are used in many other markets.
Our diverse end market exposure and participation in
a wide range of industries means that wherever fluids
or gases are being moved and the process requires
automation, or to contain fail-safe controls, actuators
and flow control products are required.
Breadth of product portfolio
We have the broadest range of actuators on the market
and a growing range of complementary flow control
instruments. We continue to expand the breadth of our
product portfolio through product development and
acquisitions. Our extensive offering ensures that we
have the appropriate products for the widest range of
applications within a site or a project and increases our
cross-selling opportunities.
SEEKING
EXCELLENCE
TOGETHER
ROTORK ANNUAL REPORT 2015
17
Talented workforce
Our innovative company is built on our talented workforce.
Attracting, developing and retaining outstanding talented
people has been a key part of our success. Investment in
our employees and their continued development is a key
part of our strategy and is essential to ensure that we
remain competitive.
Asset-light business model
Our asset-light business model allows us to focus on our
core strengths. 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
and who use our tooling. Leveraging our international
supply chain allows us to achieve and maintain profitable
growth while supporting new market entry.
Quality
Rotork’s products have a reputation for technological
excellence, quality and reliability: meeting or exceeding
international technical and performance standards. The
reliability of our products is essential as they are used in
difficult environments and can be employed in critical
applications where consistency of performance and safety
is paramount. Our stringent quality control procedures,
which also extend to cover our supply chain, are central to
delivering this.
QUALITY SITE INDUSTRYCONTROL SERVICES KNOW-HOW ASSEMBLY PARTNERSHIPS MANAGEMENT PRODUCT SOURCING SALES PROJECTINNOVATE DELIVERING LONG TERM SUSTAINABLE VALUE TO SHAREHOLDERSGovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 18
ROTORK ANNUAL REPORT 2015
STRATEGIC FRAMEWORK
LEADER IN
TARGETED
MARKETS
Our strategic vision is to be the leader
in our targeted segments of the global
flow control market.
STRATEGIC FOCUS
Innovation
• Capitalise on our industry knowledge
to work with our customers, providing
them with the benefits of innovative,
technically advanced, high quality
products and associated services
related to flow/pressure control and
measurement solutions.
Sustainability
• Invest in the development of our people
to support our future growth plans.
• Recognise the benefits of diversity
amongst our employees.
• Be a good corporate citizen, supporting
our communities.
• Reduce our operational impact on
the environment.
ROTORK ANNUAL REPORT 2015
19
I N NOVATION
LO
U
C
A
L B
U
G ROWTH
F LOW
CUSTOMER
N
I
T
S
I
N
S
E
S
S
D
I
V
M
E
R
S
E
A
R
K
E
T
S
E
N
D
T
H
A S S E T- L I G
S
H
G
I
H
N
I
G
R
A
M
N
O
UISITI
A C Q
T
C
U
D
LIO
O
R
O
D P
F
P
R
O
L
D
E
U
A
C
D
T
I
O
R
G
A
N
I
C
CONTR O L
N
Q
G
U
A
L
I
T
Y
SERVICE O P E R A T O R P ORT
RLD CLASS G L O B A L B R O A
O
W
OUR STRATEGY
01
Providing high quality and
innovative products and
services to control the flow
of fluids and gases.
02
Meeting customer needs
through global expertise
delivered locally.
03
Achieving consistent and
sustainable profitable
growth.
04
Being the employer
of choice.
Growth
• Deliver profitable sales growth by focusing
on the customer, continuing to broaden
our end markets and growing global sales
of recent acquisitions.
• Acquire companies which deliver new
products, new geographical markets or a
new market sector.
• Expand our global service coverage and
capability, including the Client Support
Programme, for total lifetime support.
• Maximise shareholder value every year.
Operational excellence
• Continue to develop world-class
customer service.
• Further develop the asset-light outsourced
lean manufacturing model, managing
material costs to drive high margin.
• Adopt a standard global ERP system.
• Ensure reliability to support performance in
demanding environments and mission-
critical applications where consistency of
performance and safety are paramount.
11 See pages 28-29 for details of our strategic priorities
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information
20 ROTORK ANNUAL REPORT 2015
OUR STRATEGIC FOCUS
KEEPING
THE WORLD
ROTORK ANNUAL REPORT 2015
21
FLOWING
LEVERAGING OUR TECHNOLOGY
PROVIDING INNOVATIVE SOLUTIONS
Rotork valve actuators are at the hub of an automated
flood alleviation scheme. An extended scope contract
performed by Rotork Site Services has successfully
delivered full automation of a flood alleviation scheme
protecting the historic town of Cardigan in west Wales.
Rotork’s responsibilities included an initial survey,
removal of the old actuators and replacement with
new, installation of a PLC control cabinet with HMI for
local control and indication, interfacing with the level
sensor and telemetry system, and commissioning of
the completed installation.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
I
n
f
o
r
m
a
t
i
o
n
22
ROTORK ANNUAL REPORT 2015
OUR STRATEGIC FOCUS
KEEPING
THE WORLD
ROTORK ANNUAL REPORT 2015
23
TOGETHER
INVESTING IN THE WORLD
SUPPORTING SUSTAINABILITY
Rotork CMA electric control valve actuators have
delivered an efficient and reliable process control
solution and eliminated venting and greenhouse gas
emissions in compliance with new environmental
protection legislation at remotely sited shale gas
installations in the USA. Rotork’s customer, Setpoint
Integrated Solutions, engineered an interface to enable
CML-250 actuators to be easily fitted to installed valves
and improve the level of control, without venting gas,
and with the low power demand required for solar
powered operation.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 24 ROTORK ANNUAL REPORT 2015
OUR STRATEGIC FOCUS
KEEPING
THE WORLD
ROTORK ANNUAL REPORT 2015
25
MOVING
BROADENING OUR PORTFOLIO
REACHING NEW MARKETS
DRAX Group made the decision to invest in a brand
new state-of-the-art sustainable biomass rail freight
wagon which could carry 30% more compressed wood
pellets than the existing wagons, and also have four
hoppers per wagon instead of the conventional three
hoppers. Rotork Midland was chosen to supply the
pneumatic controls with a fully automated system, with
a design that enabled all the controls, hand valves and
visual indicators to be located in one place.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 26 ROTORK ANNUAL REPORT 2015
OUR STRATEGIC FOCUS
KEEPING
THE WORLD
ROTORK ANNUAL REPORT 2015
27
POWERED
ALWAYS STRIVING TO PROVIDE
OPERATIONAL EXCELLENCE
Following an in-depth modest integrity assessment,
EDF Energy has approved Rotork IQ3 non-intrusive
intelligent valve actuators for balance of plant
applications within its nuclear power stations. EDF
Energy operates nuclear power stations around the
world, including eight in the UK, where it hopes to build
four more reactors at two sites. Balance of plant areas
typically include the turbine hall, water treatment and
cooling systems. Approval for Rotork IQ3 technology
brings the benefits of increased functionality to the
operation of valves and dampers in these areas.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 28
ROTORK ANNUAL REPORT 2015
STRATEGIC PRIORITIES
Our aim is 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 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 2015
OBJECTIVES 2016
Sales growth
Deliver profitable sales growth by
focusing on the customer, increasing
international coverage, broadening
end markets and leveraging the
expanding product portfolio.
A regional management structure
was introduced with an increased
focus on sales opportunities.
Revenue synergies were achieved
from acquisitions. Due to the slow
down in growth, some investment
plans were delayed.
Acquisitions
Acquisitions are a core part of our
growth strategy. An acquisition will
only be considered if it will deliver
a new product, geographic market,
market sector or a combination
of these.
Service growth
Further develop after market services
capability including the Client
Support Programme.
Acquired M&M Srl, Bifold Group Ltd
and Eltav Wireless Monitoring Ltd
which sit within the Instruments
division and Roto Hammer Inc. for
our Gears division. Also acquired our
agents’ businesses in Turkey and the
south of France.
Further develop regional
management structure and continue
to develop sales channels, including
into new end markets, and strengthen
sales teams. Increase focus on large
project opportunities driven by the
new Group Project Sales Director.
Continue to drive revenue synergies
from new acquisitions using our
extensive salesforce.
Execute acquisition plan of identified
opportunities.
New service centres were opened
in Glasgow and Korea, and we
increased the number of service
engineers by 5%. Recent
acquisitions extend our service
coverage in Turkey and France.
Continue to improve customer
experience by developing the sales
channels for delivering service
support and further expanding the
sales team. Establish new, or expand
existing, service centres in response
to customer demand.
SUSTAINABILITY
STRATEGIC PRIORITIES
ACHIEVEMENTS 2015
OBJECTIVES 2016
Employee development
We will invest in our people to
support our growth strategy and
promote diversity and inclusion
throughout the Group.
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
throughout the year. The leadership
training programme was rolled out.
We expanded our online training
courses delivered throughout
the Group.
Our CSR Sub-Committees continued
to promote improvements in health
and safety, monitor initiatives to
reduce CO
training on ethical behaviour and
our employees gave their time and
money to many charities around
the world.
emissions, provide
2
Rollout the sales training programme
and further expand the training
opportunities throughout the Group.
Continue to promote diversity.
Continue to drive safety
improvements and deliver the
CSR strategy. The CSR Report is
on pages 48 to 59.
ROTORK ANNUAL REPORT 2015
29
OPERATIONAL EXCELLENCE
STRATEGIC PRIORITIES
ACHIEVEMENTS 2015
OBJECTIVES 2016
Manufacturing excellence
Continue to develop world-class
manufacturing.
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.
Cost management
We have accelerated our cost
management programme to reflect
market conditions.
INNOVATION
As part of the development of our
new ERP system, we reviewed many
of our manufacturing procedures
with a view to developing best
practice. The Lucca factory fit out
was completed with the move being
completed in 2016.
Consolidate and develop world class
manufacturing facilities delivering
market leading products and service.
Complete the consolidation of
northern Italy businesses and
complete the consolidation of
three existing facilities into one
combined site in Tulsa, USA.
Sourcing initiatives during 2015
have resulted in savings of £2.8m
in the year with an annualised value
of £5.6m.
Further develop and leverage global
supply chain for all parts of the Group,
including newly acquired companies.
Reduce overall cost of materials by
investing in supply chain.
The roll-out of RQM (quotation
system) was accelerated. Good
progress continues to be made on
the development of the
manufacturing solution.
Increase the rate of roll-out of the
global business system solution to
sales offices and start roll-out of the
manufacturing solution.
We achieved cost savings of £2.6m
in 2015.
Continue to execute cost
management programme.
STRATEGIC PRIORITIES
ACHIEVEMENTS 2015
OBJECTIVES 2016
New product
Develop and introduce new products
in each of the divisions.
There were a number of product
launches, and expansion of product
ranges and certifications during the
year in all divisions. See the Business
Reviews on pages 30 to 37 for
further details. Spend on R&D was
£9.6m or 1.8% of revenue. A new
Group Innovation Director was
appointed in October to lead future
technological development.
Develop Group wide innovation
function and infrastructure to
support the development and
introduction of new products in
each of the divisions. Launch new
products in accordance with
divisional product road maps.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 30 ROTORK ANNUAL REPORT 2015
BUSINESS REVIEW
“ WE RESPONDED TO THE DIFFICULT
MARKET CONDITIONS BY INCREASING
OUR FOCUS ON MANAGING OUR COST
BASE WHILST IMPROVING THE
RESILIENCE OF OUR SUPPLY CHAIN.”
ROTORK
CONTROLS
Order intake was £277.0m, a 13.6%
reduction compared with the prior year.
On an organic constant currency (OCC)
basis the movement was very similar to the
reported change at -13.5%, as the small
benefit from acquisitions was offset by a
modest currency headwind. Revenue was
£286.7m, 11.7% lower than the prior year,
on both a reported and OCC basis,
resulting in a £10.7m reduction in the
order book to £81.0m.
The lower revenue had a knock-on impact
on profitability for the division. Adjusted*
operating profit fell 18.4% to £85.5m, an
adjusted* operating margin of 29.8%, 250
basis points lower than 2014. The reduced
margin is largely attributable to the lower
sales volumes with the cost of components
similar to the prior year.
Grant Wood
Managing Director
Rotork Controls
ROTORK ANNUAL REPORT 2015
31
Sales to the oil and gas markets were
the most heavily impacted during the
year, with reduced revenue across
upstream, midstream and downstream
applications. The proportion of
revenue from oil and gas reduced from
51% to 48% during the year with a
majority of the division’s revenue now
coming from other markets. North
America continued to grow in total
and across all end markets (oil and gas,
water, power and industrial), with the
Middle East seeing good growth in oil
and gas and power. The gains in these
markets were insufficient to offset the
reduction in revenue in the Far East,
Controls’ largest market, where all end
markets apart from water showed a
decline. Within this region, the reduced
activity in China, in both the oil and
gas and power markets, had the
biggest impact. Latin America was
also impacted, with sales in the oil and
gas markets substantially down,
particularly in Mexico.
The integration of our Turkish sales
and services agent’s actuator business
acquired earlier in 2015 is progressing
well and resulted in us opening a
new office and expanding our team
in Turkey.
This will enable us to grow our market
share in the region. The purchase of
Servo Moteurs Service in France in
September further extended our
service coverage in southern France.
We continue to focus on product
innovation to support growth in our
markets. During the year, we launched
further variants of our IQ3 range to
target profitable niche applications.
The main variants of Centork used in
the water and power markets were
also launched in the year with the
remaining variants due to be released
in 2016. Two of our existing factories
have been set up to produce this
range, with a third factory due to
commence production in 2016 as
volumes grow. The ExMax M has been
adapted for outside applications as
part of the continued expansion of our
product range in the growing HVAC
market. A new variant of our compact
modulating actuator (CMA) was also
launched, adding further features to
the current CMA range.
OPPORTUNITIES:
• Centork (water, power
and industrial)
• HVAC market
• Process actuator solutions
• Asset management
developments
REVENUE (£M)
2015
2014
2013
2012
2011
286.7
324.5
321.9
293.2
278.0
ADJUSTED*
OPERATING PROFIT (£M)
2015
2014
2013
2012
2011
85.5
104.7
105.5
94.8
92.1
Case study
Rotork CVA fail-safe electric
process valve actuators were
selected for a critical flow control
application in the Australian coal
mining industry. Salcan Process
Technology manufactures wellhead
skids designed for coal mine
degassing duties. The remotely
sited skids are used in conjunction
with Salcan’s control and telemetry
systems to enable methane and
other flammable gases to be
extracted from underground coal
seams prior to the commencement
of mining operations.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 32
ROTORK ANNUAL REPORT 2015
BUSINESS REVIEW
“ WE CONTINUED TO FOCUS ON
DIVERSIFYING OUR END
MARKETS AND GEOGRAPHICS
AND DRIVING EFFICIENCIES IN
THE FACE OF CHALLENGING OIL
AND GAS MARKETS.”
ROTORK
FLUID
SYSTEMS
David Littlejohns
Managing Director
Rotork Fluid Systems
As the Rotork division with the largest exposure
to oil and gas, 2015 was a difficult year for
Rotork Fluid Systems (RFS). Within the other
end markets results were mixed with industrial
process sales the largest growth area but this
was insufficient to offset the decline in oil and
gas. However, oil and gas continues to provide
opportunities for RFS in some areas. Both our
comprehensive product portfolio and other end
market exposure, will continue to drive growth.
The second half of the year proved more
challenging than the first. Order intake in the
second half was 27.1% lower than the second
half of 2014, resulting in full year order intake
that was 23.4% lower than the prior year.
The currency headwind was greater than the
contribution from acquisitions, so on an organic
constant currency (OCC) basis full year order
intake was 22.2% lower than 2014. Revenue
of £149.2m was 17.2% lower, with the negative
impact of currency again greater than the
contribution from acquisitions, resulting in a
reduction in revenue on an OCC basis of 16.3%.
Volume, mix and pricing all impacted the top line
but the containment of overhead costs at all
levels was insufficient to offset this so adjusted*
operating profit was down 51.2% to £15.2m, a
margin of 10.2% compared with 17.3% last year.
ROTORK ANNUAL REPORT 2015
33
The division’s exposure to the oil and
gas market reduced once again in 2015,
down from 72% to 68% of the division’s
revenue, with upstream, midstream
and downstream all reporting a
reduction. Industrial process became
the second largest end market with
17%, whilst power remained at 9% of
a reduced divisional revenue figure.
Geographically, North America is RFS’s
largest market, and the value of its
sales remained constant year-on-year.
Canada continued to grow, despite the
difficult market conditions. In the USA
we had a good year in securing key
Gulf Coast LNG project work, as well
as good project activity around gas
pipeline and compressor stations.
Western Europe also saw some growth
with most of the increase in industrial
sales coming from that region. All other
regions saw a decline in revenue, with
the weakest performer being the
Far East, where project deliveries in
Australia and India fell from historically
high levels in 2014.
The improvement and consolidation of
our existing facilities remains a focus as
part of our drive to manage costs
in the current market conditions.
Our new factory in Lucca (Italy) is due
to be fully operational in the second
quarter of 2016. In addition, in early
2016 we will complete the integration of
our three existing Milan facilities into
one combined site in Cusago (Italy) and
by the end of 2016 we expect to
complete the consolidation of three
existing Tulsa (USA) facilities into one
combined site. The integration of
Masso, our marine focused business
acquired at the end of 2014, is
progressing well and Masso is starting
to benefit from being part of the
Rotork Group and from our global
sales network.
We continue to develop our supply
chain in India, China and Malaysia for
our higher volume products to control
and accelerate material cost reductions.
We also continue to realise synergistic
initiatives with the expanding range of
devices within the Instruments division.
Product development continues to be a
focus for RFS as we look to build on
opportunities to extend or improve our
product range to address new or
existing market requirements. During
the year we launched SI3, our third
generation Skilmatic SI electric fail-safe
actuator with IQ3 technology, and the
CQ range of actuators. CQ can be used
in harsh environments where safety is
required and where space is limited.
During the year we also expanded our
range of K-Tork actuators (used in
power and industrial markets) by
introducing a wider range of sizes and
made further progress with our nuclear
qualification programme.
OPPORTUNITIES:
• Market expansion
• SI3 actuators
• Collaboration with
Instruments division
• New Lucca factory
REVENUE (£M)
2015
2014
2013
2012
2011
149.2
180.3
187.0
160.9
132.6
ADJUSTED*
OPERATING PROFIT (£M)
2015
2014
2013
2012
2011
15.2
31.2
31.0
24.6
17.1
Case study
Rotork GO gas-over-oil actuators
were supplied for vital fail-safe
valve control duties on a new
cryogenic LNG pipeline in
Venezuela. In addition to providing
the best technical solution for the
application, the actuators were
selected because of the high level
of local support available from
Rotork’s well established company
in Venezuela.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 34 ROTORK ANNUAL REPORT 2015
BUSINESS REVIEW
“ OUR INDUSTRY LEADING EXPERTISE
ENABLES US TO DELIVER INNOVATIVE
SOLUTIONS TO MEET OUR CUSTOMERS’
INDIVIDUAL VALVE GEARBOX AND
ACCESSORY REQUIREMENTS, DRAWING
ON A WIDE RANGE OF PRODUCTS.”
ROTORK
GEARS
The Gears division made progress during
the year, developing its addressable market,
identifying new customers, markets and
products, and completing the acquisition of
Roto Hammer Industries Inc. (Roto Hammer)
in the USA. Our industry leading expertise
enables us to deliver innovative solutions to
meet our customers’ individual valve gearbox
and accessory requirements, drawing on a
wide range of products. We maintained our
focus on profitability, return on sales and
world class service. We also continued our
efforts to streamline production processes
and reduce costs.
Order intake and revenue grew modestly during
2015 on both a reported and organic constant
currency (OCC) basis. Order intake was 0.4%
higher than 2014, and revenue 1.3% higher, both
on an OCC basis. Whilst currency was neutral
for divisional revenue in the first half of the year,
it was a headwind in the second half but the
second half also benefited from the acquisition
of Roto Hammer in September. Revenue was
£58.6m, 1.4% ahead of last year, fractionally
ahead of order intake, so the order book
reduced 6.0% to £10.1m at the end of the
year. Gears saw the largest adverse impact
of currency on reported margins as a result
of its combination of factory locations and
supply channels.
Pamela Bingham
Managing Director
Rotork Gears
ROTORK ANNUAL REPORT 2015
35
Adjusted* operating profit of £12.0m
(2014: £13.0m) gives a margin of
20.5%, 200 basis points lower than
2014, but on an OCC basis this gap
narrows to 100 basis points. This
margin reduction can be attributed to
the reduction in oil and gas sales which
were largely replaced by sales into the
power and industrial markets, which
are typically at a lower margin.
The £8.2m acquisition of Roto
Hammer, a US-based manufacturer of
custom designed chain wheel manual
valve operators, adds a new product
line to the Gears’ product range and
increases our presence in the
important US market. Gears further
developed its global sales and service
network, providing local support to
our customers around the world. We
secured new OEM accounts in the
growth markets of Korea, Japan,
China, India and Eastern Europe. In
addition, we saw growth in our sub sea
business, and in the USA we developed
‘Factory Stores’ short lead-time sales.
Oil and gas remained our largest end
market but reduced from 57% to 50%
of sales, whilst sales in power, water
and industrial all grew as we continued
to diversify our end market exposure.
In terms of the regional split of sales,
North America reduced, despite the
contribution from Roto Hammer
from September, as did the Far East.
Western Europe was the best
performing region and is our largest
end destination market, representing
31% of sales, up from 28% in the
prior year.
Our Leeds facility is the worldwide
headquarters of Gears. Gearboxes
are manufactured here and also at our
facilities in China, India, the USA and
Continental Europe. Our Leeds based
team is responsible for research,
product development and
product testing.
We continue to work closely with our
customers, providing them with the
benefits of innovative, technically
advanced, high quality products and
associated services. Our dedicated
R&D team are responsible for new
product design and development,
from concept to customer. During
2015, we further strengthened our
diverse product range with the launch
of the AB550M and HOS/MPR gearbox
ranges. The AB550M is motorised for
quarter-turn applications, whilst the
HOS/MPR is a hand operated spur
gearbox offering comprehensive
solutions for multi-turn valves.
OPPORTUNITIES:
• Roto Hammer integration
• Product range expansion
• Increased R&D investment
• Geographic expansion
REVENUE (£M)
2015
2014
2013
2012
2011
58.6
57.8
56.0
52.9
46.6
ADJUSTED*
OPERATING PROFIT (£M)
2015
2014
2013
2012
2011
12.0
13.0
13.0
12.1
10.3
Case study
Rotork IQ3 actuators and MTW
gearboxes were chosen to replace
unreliable actuators for the
operation of radial gates on an
important river management weir
on the River Thames. Hambleden
Weir plays a critical role in
maintaining the level and flow in
an area that is used extensively for
recreational activities, including the
stretch of river that hosts the world
famous Henley Regatta.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 36 ROTORK ANNUAL REPORT 2015
BUSINESS REVIEW
“ 2015 WAS ANOTHER STRONG YEAR
OF GROWTH, WITH THE COMPLETION
OF THREE ACQUISITIONS, DOUBLING
OUR ADDRESSABLE MARKET,
PROVIDING INSTRUMENTS WITH
EXCELLENT FOUNDATIONS FOR
THE FUTURE.”
ROTORK
INSTRUMENTS
Alan Paine
Managing Director
Rotork Instruments
2015 was another year of strong growth
for the Instruments division, with the completion
of three acquisitions doubling our addressable
market and providing Instruments with excellent
foundations for the future. During the year, we
focused on: the integration of Soldo and YTC;
continuing to widen our product range through
synergistic acquisitions and innovating our existing
products; leveraging our sales synergies through
our global sales network; and delivering cost
reduction and productivity improvements.
Order intake grew 43.0% in the year due to the
significant contribution from acquisitions and
supported by a currency tailwind. On an organic
constant currency (OCC) basis order intake was 9.1%
lower than the prior year, with Soldo and Rotork
Midland affected by the lower oil and gas activity and
Rotork Midland also impacted by the lumpy nature of
its rail projects. The pattern with revenue was similar,
being 46.5% higher as reported at £67.3m but this was
5.8% lower on an OCC basis. Gross margins were 50
basis points lower than the prior year on an OCC basis,
with the mix impact of lower margin acquisitions
reducing gross margin by a further 200 basis points,
down to 46.3%. Adjusted* operating profit was
£18.3m, 26.8% higher than 2014, a 27.2% adjusted*
operating margin. OCC adjusted* operating profit was
£12.3m, 14.5% lower than 2014, a margin of 28.5%.
In August, we completed the acquisition of Bifold
Group Ltd (Bifold) which has operations in Manchester
and Taunton in the UK, for up to £125m. Bifold is a
manufacturer of pneumatic and hydraulic instrument
valves focused on the oil and gas industry and wider
industrial markets, with expertise in a number of niche
sectors such as subsea and wellhead control systems
and was a long held target of Rotork’s. It has market-
leading technology in areas that include the
ROTORK ANNUAL REPORT 2015
37
development of solenoid valves with
ultra-low power requirements. The
combination of Bifold’s extensive
product portfolio and leading
technology with Rotork’s international
sales network and geographic reach will
support the continued growth of the
Instruments division in the future. Bifold
performed in line with expectations
during the year.
In August, we also acquired M&M
International Srl (M&M), based in
Bergamo, Italy. M&M is a manufacturer
of solenoid valves, piston actuated
valves and automatic drain valves for use
in commercial and industrial flow control
industries, and will complement Rotork
Midland’s range of solenoid valves.
Our third acquisition for the year was
Eltav Technologies. Eltav produces an
innovative industrial wireless monitoring
solution for actuated valves. Its
diagnostic software enables predictive
maintenance on actuated valves,
reducing capital and operational
expenses while increasing safety
and productivity in the plant. These
acquisitions support our strategy of
broadening our product portfolio and
expanding our addressable markets.
Activities to integrate our routes to
market, train the sales teams on the
broader product portfolio and align our
product development strategies are all
well under way and progressing
according to plan.
Instruments had less exposure than the
other divisions to the oil and gas market
in 2015, although it was still the largest
end market at 44% of divisional revenue
and that proportion will increase in the
current year with a full year contribution
from Bifold. There was a decline in oil
and gas sales in some areas but these
were offset by gains in other areas.
We have continued to be successful in
gaining traction in new geographic
markets through selling our growing
product portfolio through our
integrated global sales channels. In
particular, Rotork Midland and YTC
saw good growth in India, Korea,
China and the USA.
In 2015, each of the businesses
developed extensions to their existing
product ranges and new variants of
products, supporting global expansion
and key end markets. Soldo developed
ECL, a multi-turn manual switch box, in
collaboration with Rotork Gears; Rotork
Midland developed a pioneering control
system on a biomass wagon for the
Drax power station that controls the
door opening and locking process;
YTC’s new TMP-3000 industrial
positioner will open new markets for
YTC in the control of piston valves; and
Bifold continues to expand its range of
products for the wellhead market with
electro-hydraulic power packs and
pressure transmitters and switches.
OPPORTUNITIES:
• Sales channel development
• Rotork synergies
• Geographic expansion
• Product range expansion
REVENUE (£M)
2015
2014
2013
2012
24.9
16.4
2011
1.4
67.3
46.0
ADJUSTED*
OPERATING PROFIT (£M)
18.3
14.4
2015
2014
2013
2012
2011
0.4
7.8
5.1
Case study
Bifold solenoid manifolds were
supplied on a topside hydraulic
power unit. This was for eight
generic FPSO’s for offshore Brazil.
These particular solenoid manifolds
were selected for their modular
design, compact size and reduced
weight for this application which is
vital in the smooth and efficient
running of this system. Along with
these features, they were chosen
due to their ease of installation.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 38
ROTORK ANNUAL REPORT 2015
FINANCIAL REVIEW
“ THIS YEAR SAW MORE FOCUS ON
MEASURES TO CONTAIN COSTS AND
TO ACCELERATE COST REDUCTIONS
IN SOME AREAS IN RESPONSE TO
MARKET CONDITIONS.”
Jonathan Davis
Finance Director
Underlying market conditions were challenging
in 2015 with a number of factors negatively
impacting the Group. Despite these headwinds
we continued to look for growth opportunities
wherever we could, investing in new products
and new sales channels, and continuing to
explore opportunities for both organic
development and acquisitions. This year also
saw more focus on measures to contain costs
and to accelerate cost reductions in some areas
in response to market conditions.
The second half of the year saw a reduction in
both order intake and revenue compared with the
first half of the year on both a reported and
organic constant currency (OCC) basis, with OCC
order intake 8.6% lower in the second half and
revenue 1.1% lower. Full year order intake of
£526.0m was 11.7% below 2014 but on an OCC
basis this was a 15.2% reduction as the currency
headwind was more than offset by the
contribution from acquisitions. Revenue of
£546.5m was 8.1% lower than the prior year,
or 11.9% on an OCC basis, and as this exceeded
order intake resulted in the order book reducing
in the year by £17.5m (9.5%).
The reduction in revenue resulted in lower margins
with gross margins reducing from 48.0% to 45.7%,
although the key elements within cost of sales
were managed closely to mitigate the effect of the
adverse conditions during the year. Material costs
are the largest element of cost of sales and are an
area where sourcing initiatives have consistently
driven savings. This year these initiatives were
accelerated and as a result the material cost
percentage increased by just 100 basis points.
Our diverse product portfolio means that breaking
this down into cost, sales price and mix impacts
is particularly challenging but this does illustrate
that the impact of pricing pressure was contained.
Labour costs were managed through a
recruitment freeze and reduced overtime and so
remained at the same percentage of sales as in
2014. The largely fixed cost associated with our
factories and service facilities accounted for the
remaining reduction in gross margins.
ROTORK ANNUAL REPORT 2015
39
£546.5m -8.1%
REVENUE
£125.3m -20.3%
ADJUSTED* OPERATING PROFIT
Adjusted* operating profit was
£125.3m, 20.3% lower than the prior
year and the corresponding margin
reduced by 350 basis points to 22.9%.
The lower gross profit was offset by a
£4.0m reduction in overheads from
the recruitment freeze and other cost
containment initiatives. On an OCC
basis the overheads reduced by £7.9m
but adjusted* operating profit fell
23.4% to £120.4m. Net finance costs
rose £1.4m to £2.5m with higher net
bank interest payable (£0.6m), larger
net currency losses (£0.4m) and a
higher interest charge in respect of
the pension schemes (£0.4m) all
contributing to the increase. This
resulted in adjusted* profit before tax
of £122.8m, a 21.4% reduction on the
prior year however, a 40 basis point
reduction in the effective tax rate
offset some of this movement so that
adjusted* earnings per share was 21.0%
lower than 2014 at 10.4p.
Acquisitions
In August, we completed the
acquisition of Bifold, the largest single
acquisitions in our history. Taken with
M&M, Roto Hammer, SMS, Eltav and
the purchase of the sales and service
activities of our agent in Turkey,
acquisition spend was £136.7m in
the year with a further £10.9m of
contingent consideration most of
which is in respect of Bifold. Each of
these acquisitions provides a new
product range, access to a new
end-user market or access to a
new geographic market or some
combination of these benefits in line
with our stated acquisition strategy.
Taking all these acquisitions together,
£66.7m of the consideration was
attributed to intangible assets which
will be amortised and £74.5m is
goodwill which will be subject
to an annual impairment review.
The increased value of acquisitions this
year, and last year, led to a rise in the
amortisation charge related to acquired
intangible assets to £20.9m
(2014: £14.9m). In order to adjust
the income statement to show a
like-for-like period for each acquisition,
2015 revenue has to be reduced by
£26.8m and adjusted* operating
profit by £6.0m. The profit margin
of the acquired business was slightly
dilutive in aggregate, at 22.2%. The
professional fees associated with
the acquisitions amounted to £1.3m
(2014: £0.6m) and are included in
adjusted* operating profit.
Accelerated cost
management programme
At our half year results in August
we presented an accelerated cost
management programme as part of
our response to the changing market
conditions. The programme identified
£8m of annualised savings, split equally
between material costs and overheads
with £2m of these savings due to be
realised in 2015. The sourcing initiatives
launched in 2015 have been
implemented quicker than anticipated,
with annualised savings of £5.6m
identified and introduced, and with a
material cost benefit of £2.8m in the
year. This helped contain the material
cost percentage so that the net impact
of pricing, mix, and material cost was
only an 80 basis point increase.
The initiatives to reduce overheads also
delivered greater savings in the year
than anticipated with the income
statement benefiting from £2.6m of
savings which when annualised will be
£4.6m. Not replacing leavers and
consolidating roles led to a net
headcount reduction of 89 people in
the year, including some senior posts,
before the 389 people added with
acquisitions are reflected. This was the
largest contributor to both the savings
in the year and the annualised total.
Facility consolidation is under way in a
number of locations and is most
advanced in Milan. As these moves
were completed in early 2016, the
benefit will only start to be felt in the
current year.
Overall, the accelerated cost
management programme produced
savings of £5.4m in 2015 which on
an annualised basis will increase to
£10.2m. In addition to these savings,
2015 benefited from a reduction in
variable pay as bonuses at all levels of
the organisation were lower than the
prior year. Excluding the impact of
acquisitions and removing the benefit
of the specific cost management
programme changes identified above,
the like-for-like payroll cost decreased
marginally but the cost of bonuses
and similar variable benefits reduced
by £11m.
Currency
The overall impact of currency on our
reported results for 2015 was closer to
neutral than in 2014. This was
particularly true in the first half of the
year when the adjustment to revenue
to restate it at 2014 rates was a net nil.
In the second half of the year both the
US dollar and euro strengthened
relative to sterling, resulting in a £4.3m
(0.8%) headwind to revenue for the
full year. Within this our two main
currencies fared very differently, with
US dollar average rates strengthening
7.2% and the euro weakening 11.0%
for the year. Amongst the other
16 currencies that are home currencies
to one or more of our subsidiaries,
there was a net weakening of
currencies with seven of the currencies
weakening by more than 10%.
The impact of currency on the Group
is both translational and transactional.
Given the locations in which we have
operations and the international nature
of our supply base and sales currencies,
the impact of transaction differences
can be very different from the
translation impact. We are able to
partially mitigate the transaction
impact through matching supply
currency with sales currency, but
ultimately we are still net sellers of both
US dollars and euros. It is the net sale of
these currencies which we principally
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 40 ROTORK ANNUAL REPORT 2015
FINANCIAL REVIEW
CONTINUED
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
adjusted* operating profit was £1.1m
(0.7%) lower than it would have been
at 2014 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 £235,000 adjustment
to profit and for US dollar, and dollar
related currencies, a 1 cent movement
equates to approximately a £400,000
adjustment. Both these adjustments
were lower compared with the
equivalent figures in 2014 as a result of
the lower underlying currency flows.
If current exchange rates were to apply
for the whole of 2016, this would be a
7% tailwind to both revenue and profit
compared with the average rates
for 2015.
employed, which rose 31% to £496m.
With the larger acquisitions taking
place in the second half of the year and
therefore only contributing a part year
profit together with the lower organic
sales, ROCE reduced to 28.6%.
Group tax policy
The Group’s approach to tax continues
to be to operate on the basis of full
disclosure and co-operation with all tax
authorities and, where possible, to
mitigate the burden of tax within the
framework of local legislation.
This approach to tax balances the
various interests of shareholders,
governments, employees and the
communities in which we operate and
is aligned with our strategy, enhancing
shareholder value whilst protecting the
Group’s reputation. In an increasingly
complex international environment and
with the broad geographic spread of
our businesses, a degree of tax risk is
inevitable. We manage and control
these risks proactively seeking local
professional advice where needed.
Return on capital employed (ROCE)
Our asset-light business model and
strong profit margins mean Rotork
generates a high ROCE. Our definition
of ROCE is based on adjusted*
operating profit as a return on the
average net assets excluding net debt
and the pension scheme liability net
of the related deferred tax. This means
that as we make acquisitions our capital
base grows when the associated
intangible assets and goodwill are
recognised. During the year intangibles
and goodwill increased by a net £119m
in total which, after allowing for the
related deferred tax, accounted for
more than 23% of the increase in capital
The Group’s effective tax rate reduced
from 26.9% to 26.5%. The Group
continues to operate in many
jurisdictions where local profits are
taxed at their national statutory rates,
ranging from nil to over 35%, compared
to a UK statutory rate of 20.25% for the
year. In the year, the change in profit
mix across the Group resulted in a
decrease in the effective tax rate of
0.4 percentage points. In contrast,
the Group benefitted from the
reduction in the UK Corporation Tax
rate, generating a one off 0.6% rate
benefit. In addition, the Group
continues to benefit from the UK patent
box regime and R&D tax relief.
Cash generation
Following the acquisition of Bifold our
net debt position at the end of the year
was £71.1m compared with net cash
at the start of the year of £25.2m.
The three largest categories of cash
expenditure were: £138.4m on
acquisitions, £43.8m of dividends and
£35.7m of tax paid. The increase in
acquisition spend, from £82.7m last
year, was the largest increase and
was funded by a £98.3m net increase
in bank borrowing during the year.
Capital expenditure was £11.8m
compared with £17.5m in 2014, with the
£3.8m spent on the fit out of the new
Lucca facility the only major project
during taking place during the year.
Our cash generation KPI shows a
conversion of 115.4% of operating profit
into operating cash. Control of working
capital as defined in the cashflow
statement, using average exchange
rates and excluding acquisitions, is key
to achieving this performance measure.
Looking at the balance sheet figures,
inventory increased £6.1m to £87.2m
in the year and represented 16.0% of
annual revenue but on an OCC basis
was a decrease of £0.7m, 15.3% of
revenue. Trade receivables fell £9.7m as
reported, with debtor days outstanding
increasing 2 days to 62 days. In total,
net working capital increased to 31.0%
of annual revenue compared with
28.5% in December 2014.This year the
combination of acquisitions taking
place late in the year and currency
movements at the end of the year
affecting the balance sheet values of
working capital impacted this measure
in 2015.
Organic Constant Currency
2015 as
reported
Constant
currency
adjustment
2015 at 2014
exchange
rates
Remove
acquisitions
546.5
(297.0)
249.5
(124.2)
4.2
(2.1)
2.1
(1.0)
45.7%
22.7%
550.7
(299.1)
251.6
(125.2)
(26.8)
15.9
(10.9)
4.9
45.9%
23.0%
45.7%
22.7%
£m
Revenue
Cost of sales
Gross profit
Overheads
Adjusted*
Organic
business at
2014
exchange
rates
523.9
(283.2)
240.7
(120.3)
2014 as
reported
594.7
(309.2)
285.5
(128.3)
48.0%
21.6%
operating profit 22.9%
125.3
1.1
22.9%
126.4
(6.0)
23.0%
120.4
26.4%
157.2
Financial income/
expenses
Adjusted* profit
before tax
(2.5)
-
(2.5)
0.3
(2.2)
(1.1)
22.5%
122.8
1.1
22.5%
123.9
(5.7)
22.6%
118.2
26.2%
156.1
ROTORK ANNUAL REPORT 2015
41
£103.8m -1%
CASH FLOW FROM
OPERATING ACTIVITIES
£5.05p +0.8%
FULL YEAR DIVIDEND
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
and in companies where the insurance
cover operates, the authorisation
process works in conjunction with
the insurer, taking advantage of their
market intelligence. We actively
expanded the coverage of the credit
insurance policy during the year and
have cover in place for 94% of
receivables in those companies now
using the policy. 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, triggered by the
acquisition of Bifold, we restructured
our committed facilities with a view
to not only providing a higher total
borrowing capacity but also to extend
the tenor of the loans. In August, we
established three committed facilities
with two different lenders comprising
a one year £20m facility expiring in
August 2016, a £90m three year facility
expiring in August 2018 and a five year
£60m facility expiring in August 2020.
Dividends
The Board is proposing a 0.3% increase
in the final dividend to 3.1p per share.
When taken together with the 1.95p
interim dividend paid in September,
this represents a 0.8% increase in
dividends over the prior year, having
taken into account the 10 for one share
split which took place in May 2015.
This gives dividend cover of 1.7 times
(2014: 2.4 times), with the reduction in
cover reflecting the reduction in profits
in 2015. Our long-standing 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.
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 2015 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 was
been agreed with the Trustees resulting
in required 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 reduced from £36.1m to
£23.3m and the funding level improved
from 81% to 87%. The company paid
total contributions of £8.3m in the year
but the scheme assets decreased
slightly in value, offsetting this however
the largest drivers of the reduced
deficit were the higher discount rate
and new mortality assumptions coming
from the latest projections.
* References to adjusted profit throughout
this document are defined as the IFRS profit,
whether operating profit or profit before tax,
with £20.9m (2014: £14.9m) of amortisation
of acquired intangibles added back.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 42 ROTORK ANNUAL REPORT 2015
KEY 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 key performance indicators (KPIs) used to monitor the
financial performance of the business are set out below.
Sales revenue growth
Return on sales
Cash generation
Return on capital employed
Earnings per share growth
Accident frequency rate
Carbon emissions
Employee satisfaction
-8.1%
2015
-8.1
2014
2013
2012
2011
2.8
13.0
14.3
17.7
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.
How we calculate
Change in sales revenue
year-on-year divided by
prior year sales revenue.
Comments on results
The challenging market
conditions experienced in
the year were the result of
a number of significant
headwinds. Despite our
diversified end market
and geographic market
exposure, these headwinds
affected all divisions, and as
a result revenue was lower
than the prior year.
22.5%
115.4% 28.6%
-21.0% 0.25
+18.8% 3.6
2015
2014
2013
2012
2011
22.5
26.2
26.0
25.7
26.0
2015
2014
2013
2012
2011
115.4
2015
28.6
97.4
99.6
95.4
89.6
2014
2013
2012
2011
47.6
59.1
61.9
74.0
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.
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.
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.
Adjusted* profit before tax
(after financing and interest)
shown as a percentage of
sales revenue.
Cash flow from operating
activities before tax
outflows and the pension
charge to cash adjustment
as a percentage of adjusted
operating profit*.
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 133.
The measurement of
earnings per share (EPS)
reflects all aspects of the
The accident frequency
rate (AFR) is used as
one measure of the
This KPI compares this
year’s carbon emissions
stated as a function of
The survey as a whole
enabled the Group to get
feedback from across the
income statement including,
effectiveness of our health
revenue with last year’s and
businesses on how we
management of the Group’s
and safety procedures.
is a broad measure of our
relate to our employees and
tax rate.
impact on the environment.
what we can do better.
Change in adjusted basic
EPS (based on adjusted*
The formula we have used
Energy usage data (scope 1
Employees scored their
for calculating our AFR is
and 2) is collected and
profit after tax) year-on-year
the number of reportable
divided by the prior year
injuries divided by the
adjusted basic EPS.
number of hours worked
multiplied by 100,000.
responses directly into a
prepared survey with one
being very dissatisfied
and five being very satisfied.
converted to equivalent
tonnes of CO2 and then
reported as a function of
revenue. Further detail is
contained in the Corporate
Social Responsibility Report
on page 53.
The reduction in revenue
during the year was
mitigated to an extent by
cost control measures but
these were not sufficient
to prevent a reduction in
this KPI.
Net working capital,
excluding that added
through acquisitions and
impact of exchange rates,
reduced during the year
generating a net cash
inflow which is reflected
in this KPI.
The reduction in adjusted*
operating profit and an
increase in capital employed
as a result of the acquisitions
in the year contributed in
broadly equal measure to
this reduction in return on
capital employed.
The reduction in the Group’s
The investment in health
The reduction in revenue
effective tax rate was the
and safety training, audits
and a number of global
The number of employees
completing the survey was
result of the lower tax rate in
to monitor compliance
weather events generated
2,350, a 71% response rate
the UK but this was only a
with procedures and
an increase. We continue to
(4% down on the previous
marginal benefit and the
reduction in underlying
profit led to this decline
in EPS.
initiatives to embed safe
working practices led to
a further reduction in this
KPI this year.
look for ways of reducing
year). The highest scoring
energy consumption further.
questions were those on
employees planning on
staying at least another
year with Rotork, being
proud of the products and
services we provide our
customers, our approach to
health and safety, and our
values and ethics.
ROTORK ANNUAL REPORT 2015
43
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.
Sales revenue growth
Return on sales
Cash generation
Return on capital employed
Earnings per share growth
Accident frequency rate
Carbon emissions
Employee satisfaction
-8.1%
22.5%
115.4% 28.6%
-21.0% 0.25
+18.8% 3.6
Reasons for choice
This is reported in detail for
This measure brings
This is used as a measure of
Rotork has an asset-light
operating segments and is a
together the combined
performance where a target
business model by design
key driver for the business.
effects of procurement
of 85% is regarded as a
and reporting this ratio
This measure enables us to
costs and pricing as well
base level of achievement.
internally helps management
track our overall success in
as the leveraging of our
Cash generation is also one
at Group level monitor our
specific project activity and
operating assets. It is also
of the constituent parts of
adherence to this philosophy.
our progress in increasing
a check on the quality of
the senior management
our market share by
product and by region.
revenue growth but is
heavily influenced by
divisional mix.
reward system.
How we calculate
2015
-21.0
2014
2013
2012
2011
5.4
14.3
13.6
17.5
2015
2014
2013
2012
2011
0.25
0.31
0.33
0.46
0.46
2015
2014
2013
2012
2011
22.8
19.2
17.9
19.2
2015
2014
2013
2012
2011
3.6
3.6
3.6
3.6
3.5
The measurement of
earnings per share (EPS)
reflects all aspects of the
income statement including,
management of the Group’s
tax rate.
The accident frequency
rate (AFR) is used as
one measure of the
effectiveness of our health
and safety procedures.
This KPI compares this
year’s carbon emissions
stated as a function of
revenue with last year’s and
is a broad measure of our
impact on the environment.
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.
Change in sales revenue
year-on-year divided by
prior year sales revenue.
Adjusted* profit before tax
Cash flow from operating
Adjusted* operating profit
(after financing and interest)
activities before tax
as a percentage of average
shown as a percentage of
outflows and the pension
capital employed. Capital
sales revenue.
charge to cash adjustment
employed is defined as
as a percentage of adjusted
shareholders’ funds less net
operating profit*.
Change in adjusted basic
EPS (based on adjusted*
profit after tax) year-on-year
divided by the prior year
adjusted basic EPS.
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.
Energy usage data (scope 1
and 2) is collected and
converted to equivalent
tonnes of CO2 and then
reported as a function of
revenue. Further detail is
contained in the Corporate
Social Responsibility Report
on page 53.
Employees scored their
responses directly into a
prepared survey with one
being very dissatisfied
and five being very satisfied.
cash held, with the pension
fund deficit net of related
deferred tax asset added
back. The calculation is
shown on page 133.
The challenging market
The reduction in revenue
conditions experienced in
during the year was
Net working capital,
excluding that added
The reduction in adjusted*
operating profit and an
the year were the result of
mitigated to an extent by
through acquisitions and
increase in capital employed
cost control measures but
impact of exchange rates,
as a result of the acquisitions
these were not sufficient
to prevent a reduction in
this KPI.
reduced during the year
generating a net cash
inflow which is reflected
in this KPI.
in the year contributed in
broadly equal measure to
this reduction in return on
capital employed.
The reduction in the Group’s
effective tax rate was the
result of the lower tax rate in
the UK but this was only a
marginal benefit and the
reduction in underlying
profit led to this decline
in EPS.
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.
The reduction in revenue
and a number of global
weather events generated
an increase. We continue to
look for ways of reducing
energy consumption further.
Comments on results
a number of significant
headwinds. Despite our
diversified end market
and geographic market
exposure, these headwinds
affected all divisions, and as
a result revenue was lower
than the prior year.
The number of employees
completing the survey was
2,350, a 71% response rate
(4% down on the previous
year). The highest scoring
questions were those on
employees planning on
staying at least another
year with Rotork, being
proud of the products and
services we provide our
customers, our approach to
health and safety, and our
values and ethics.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 44 ROTORK ANNUAL REPORT 2015
HOW WE MANAGE RISK
ESSENTIAL TO
LONG TERM
SUCCESS
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
at 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 62.
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 this year has led the
development of the Risk Appetite
Framework. The Board approves
risk appetite for the Group and
considers the consequential actions
in terms of mitigation where possible
and appropriate.
Determining 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 year we have implemented
a more structured approach to
determine and document the Board’s
risk appetite and then to measure the
business against this appetite through
a quarterly Executive Risk Summary.
The approach taken is explained in
more detail on pages 62 to 68 of the
Corporate Governance Statement.
Risk management process
The major risks affecting the Group are
first identified and considered by the
divisional boards during their regular
meetings. Risks are categorised on a
matrix reflecting likelihood and impact
on the business. The assessment of
impact is measured before allowing for
mitigation, such as insurance
recoveries, whilst likelihood is
considered after allowing for the
effect of mitigation. The impact scale
is determined as a function firstly of
annual profit so that each division has
an appropriate benchmark. Secondly,
each risk is then reviewed on a three
year timeframe and likelihood and
impact reassessed for that longer
time period. 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.
Each risk in the risk register is owned
by one or more Director. Some risks
are addressed at a divisional level, so
the ownership rests with a member of
the divisional board. These are then
consolidated at the management
board level and are ultimately owned
by either the Chief Executive or Group
Finance Director at PLC Board level.
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
Board, 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.
ROTORK ANNUAL REPORT 2015
45
Overall responsibility
for maintaining the risk
management process
and determining risk
appetite.
Audit Committee
provides oversight
of the internal
control framework.
ROTORK PLC BOARD
ROTORK PLC BOARD
AUDIT COMMITTEE
AUDIT COMMITTEE
Executive and senior
management consider
risk management for
the Group as a whole.
INTEGRATED BUSINESS RISK MANAGEMENT
INTEGRATED BUSINESS RISK MANAGEMENT
INCORPORATING REVIEW BY THE MANAGEMENT TEAM
INCORPORATING REVIEW BY THE MANAGEMENT TEAM
Detailed risk assessment
and consideration of
mitigation is carried out
at the divisional level.
CONTROLS
CONTROLS
DIVISION
DIVISION
FLUID
FLUID
SYSTEMS
SYSTEMS
DIVISION
DIVISION
GEARS
DIVISION
GEARS
DIVISION
INSTRUMENTS
DIVISION
INSTRUMENTS
DIVISION
CORPORATE
CORPORATE
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
46 to 47. These are categorised by the three main risk areas identified on this
page. 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
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 46 ROTORK ANNUAL REPORT 2015
PRINCIPAL RISKS AND UNCERTAINTIES
STRATEGIC RISKS
Description
Potential impact
Mitigation
Competition on price, for
example 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 but, as we have
seen this year, may not fully mitigate a change in the
larger end markets.
FINANCIAL RISKS
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.
Political instability in a key
end market.
Growth of the defined
benefit pension
scheme deficit.
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 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.
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.
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.
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.
ROTORK ANNUAL REPORT 2015
47
OPERATIONAL RISKS
Description
Potential impact
Mitigation
A comprehensive set of quality control and new
product introduction 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.
RISK TREND
Increasing
Stable
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 write down 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 cyberattack. This data
might contain technically or commercially
sensitive information which would
provide a competitor with an advantage.
Viability Statement
The Directors have assessed the viability of the Group over a three
year period taking account of the Group’s current position and
the potential impact of the principal risks as documented above.
A robust assessment of the principal risks facing this business was
conducted through the year with the documentation of the Risk
Appetite Framework contributing to a fuller review of those risks
which might impact the business model or future performance.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over a three year period.
The lookout period for the analysis is three years which is aligned
with our planning horizon at both Group and divisional level.
In making this statement, the Directors have considered each of
the principal risks and the potential impact they could have in
severe but plausible scenarios. Given the current position of the
Group and the likely effectiveness of mitigating actions, the Board
has assessed the impact these would have on the business model,
future performance, solvency and liquidity over the period.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 48 ROTORK ANNUAL REPORT 2015
CORPORATE SOCIAL RESPONSIBILITY
MAKING A
POSITIVE
IMPACT
Rotork believes that being a
responsible business leads to being
the best business. It benefits our
operational effectiveness, builds on
the trust of our stakeholders and
protects our reputation.
Sustainability is an integral part of our
business model and strategy. Achieving a
positive impact around the world lies at the
heart of our commitment to corporate social
responsibility (CSR) and it represents a
valuable opportunity to ensure that Rotork
continues to be successful in the long term.
We are committed to embedding CSR across
all our processes and ways of working.
3,759
EMPLOYEES WORLDWIDE
DIRECT PRESENCE IN
38
COUNTRIES
Rotork’s office in The Netherlands donates
toys to Reinier de Graaf hospital
Rotork Malaysia Flood
Victim charity drive
ROTORK ANNUAL REPORT 2015
49
ETHICS COMMITTEE
CORPORATE
SOCIAL
RESPONSIBILITY
COMMITTEE
SOCIAL ISSUES COMMITTEE
ENVIRONMENTAL COMMITTEE
HEALTH AND SAFETY COMMITTEE
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 countries
in which it operates, and to make
sure it is compliant with any legal
and regulatory requirements. Our
compliance contributes to sustaining
the environment and brings cost
savings by reducing the consumption
of energy, water and waste and
recycling. The environmental
programme is described in more
detail on pages 50 to 53.
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
to bribery and corruption worldwide,
and selecting suppliers with sound
reputations in the marketplace are
important principles for the Group to
adhere to. More details of the Group’s
ethics and values can be found on
pages 54 to 55.
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 56 to 57.
Community involvement
We consider it important to contribute
and engage positively in the
communities we operate in and to be
a good community neighbour around
the world. One of our corporate values
is to produce a positive and beneficial
impact in the areas in which we
operate. Further details on community
involvement can be found on pages 58
to 59.
Rotork has been a member of the
UN Global Compact since 2003 and
continues to be included in the
FTSE4Good index where we maintain
an above average score in the global
rankings, UK rankings and industry
sector rankings.
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.
Our 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 opposite. 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 above sets out our
CSR committee structure.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 50 ROTORK ANNUAL REPORT 2015
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
HELPING THE
ENVIRONMENT
Rotork is fully committed to the
prevention of pollution, to comply with
all legal and 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 in the majority of
our energy being used on lighting, heating and
cooling, and IT systems. With the acquisition
of a number of businesses through the year
the profile has changed to include machining
processes. As a responsible global entity
we continue to influence the environmental
performance of our supply chain through our
supplier assessment programme.
Tom Whittingham from the Bath office,
completed the Edinburgh marathon and
raised over £8,000 for ME Research UK
ROTORK ANNUAL REPORT 2015
51
ELECTRICITY (MWh)
(Absolute)
ELECTRICITY (MWh)
(Exc. new acquisitions)
GAS (1,000m3)
(Absolute)
2015
2014
2013
2012
13,943
12,605
11,184
11,193
2015
2014
2013
2012
12,659
12,605
11,184
11,193
2015
2014
2013
2012
885
769
761
594
GAS (1,000m3)
(Exc. new acquisitions)
LPG (1,000 litres)
(Absolute)
LPG (1,000 litres)
(Exc. new acquisitions)
2015
2014
2013
2012
OIL (litres)
(Absolute)
822
769
761
594
2015
2014
2013
2012
355
338
300
279
2015
2014
2013
2012
354
338
300
279
OIL (litres)
(Exc. new acquisitions)
2015
2014
2013
2012
30,893
10,445
23,470
29,305
2015
2014
2013
2012
19,657
10,445
23,470
29,305
Strategy
• We will improve our operational
efficiency and enhance our
environmental performance in
order to secure the continued
sustainability of the Group.
• We will work as a business, and in
the local communities where we
operate, to ensure that the
environment on which we depend is
maintained for future generations.
• We will continue to work in
partnership with our regulatory
bodies and respect the regulatory
framework in which we work.
• As an environmentally responsible
business, we will be open and
transparent and report regularly to
all relevant stakeholders on our
environmental performance.
Corporate objectives
Our environmental objectives fall in line
with our reporting year. There is
a corporate objective of a 3% reduction
in tonnes of CO2 generated in scope 1
and scope 2 emissions per £m turnover.
Organisational boundaries
The environmental report covers all
operations and processes within the
physical boundaries of the facilities
and business transportation by
company cars or vans, or any private
cars and hire cars used for business
purposes only. Transportation of
products by third parties are not
covered by the report. Where energy
consumption cannot be verified,
normally due to the size of the facility,
then an estimation on the energy use
per square metre of floor space
occupied will be made. This estimation
is based on the Chartered Institution of
Building Services Engineers (CIBSE)
Guide F – Energy Efficiency in
Buildings. This estimation equates to
0.57% of total emissions declared.
Progress
The baseline year remains at 2012.
A number of acquisitions have
occurred since 2012 that have affected
the overall energy consumption, like
for like figures have been published to
show the underlying trends in the
organisation.
Energy consumption
Due to the growth through acquisition
of the Group during 2015 absolute
energy consumption has increased by
10.6% on the previous year and by
24.5% on the baseline of 2012.
Consumption excluding acquisitions
increased by 0.42% compared to 2014
and increased by 13.1% on the baseline
of 2012. Absolute gas consumption
increased by 14.9% on the previous
year and 48.8% on the baseline year
of 2012. A majority of the gas that is
consumed is for heating which can
be linked directly to cold weather
conditions. On sites excluding new
acquisitions, during 2015 gas
consumption increased by 6.8%
compared to 2014 and increased by
38.4% since 2012.
In 2015, Liquid Petroleum Gas (LPG)
consumption increased by 5% on the
previous year and there was an
increase of 27.7% on the baseline of
2012. LPG is used predominantly for
ancillary equipment and occasionally
on heating. Oil consumption increased
by 195.8% on the previous year and by
5.4% on the baseline of 2012. Excluding
new acquisitions, oil consumption
increased on the previous year by 118%
but decreased by 33% on the baseline
of 2012. Oil is used in back-up
generators and heating systems.
The energy projects that were rolled
out during 2014 have shown a benefit
in reduced energy consumption this
year. Rochester (USA) has shown a
reduction of 9.4% in their electricity
consumption and Melle (Germany) has
shown a reduction of 19.9% in
electricity consumption. A number of
other energy reduction projects which
are currently being implemented have
already started to show their benefits.
Bath (UK) has already shown a
reduction of 1.8% in electricity
consumption against last year and
Winston-Salem (USA) has realised a
2.4% reduction in electricity
consumption compared to last year.
These projects are expected to show
greater reductions when they have
been completed.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information
52
ROTORK ANNUAL REPORT 2015
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
As we develop new sites or upgrade
our existing sites we will be
introducing energy efficient solutions
into the building design, and stabilising
our energy supply to minimise the use
of backup generators, which will help
to reduce the environmental impact
of our business going forward.
Water consumption
Absolute water consumption across
the Group has increased by 11.8% on
the previous year and by 25.4% on the
baseline year. Consumption, excluding
new acquisitions, has increased by 5%
on the previous year and by 17.7% on
the baseline of 2012. 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.
Waste and recycling
There are a number of local
programmes in place to promote
recycling and reduce waste across the
Group, this has resulted in a reduction
of waste generated by 18 tonnes in
absolute terms and an increase in
recycling rates from 77% to 79%.
Rotork Singapore employees
blood donation
WATER (1,000 litres)
(Absolute)
WASTE GENERATED (tonnes)
(Absolute)
2015
2014
2013
2012
44.5
39.8
35.8
35.5
2015
2014
2013
2012
2,783
2,801
2,436
2,580
WATER (1,000 litres)
(Exc. new acquisitions)
RECYCLE RATE (%)
(Absolute)
2015
2014
2013
2012
41.8
39.8
38.8
35.5
2015
2014
2013
2012
79.0
76.3
71.2
73.6
ROTORK ANNUAL REPORT 2015
53
SCOPE 1 AND 2 EMISSIONS
(TnCO2e) (Absolute)
2015
2014
2013
2012
5,725
5,231
5,024
4,448
6,741
6,182
5,317
5,396
SCOPE 1 AND 2 EMISSIONS
(TnCO2e) (Exc. new acquisitions)
2015
2014
2013
2012
5,528
6,174
4,854
4,844
4,448
5,367
5,006
5,396
Absolute scope 1 and scope 2
emissions have increased by 9.2%
on 2014 and by 26.6% on 2012.
Excluding new acquisitions, scope 1
and 2 emissions have increased by
2.8% on 2014 and by 19.2% on 2012.
Environmental incidents
There have been no reportable
environmental incidents during 2015.
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 2016, EEF undertook an
assurance audit of the greenhouse gas
(GHG) emissions 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. No significant issues were
identified during the assurance audit.
GHG 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 that 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.
Absolute scope 1 and scope 2
emissions have increased by 9.2% on
2014 and by 26.6% on 2012. Excluding
new acquisitions, scope 1 and 2
emissions have increased by 14.5% on
2014 and by 18.9% on 2012. Emissions
per £m revenue have increased from
19.2TnCo2e to 22.8TnCo2e which is an
increase of 18.8%.
Conclusions
A number of global weather events
have impacted on the energy
consumption of the Group over the
previous year.
High temperatures across Central and
Southern Europe in June and July
caused an increase in electricity
consumption by approximately
14,000kWh that was linked to having
to run additional air conditioning.
Continuing cold starts to the year
have seen a further increase of gas
consumption in our facilities in the
northern areas of USA and Canada.
Since 2012, gas consumption has
increased in these areas by 46%.
Overall emissions have increased as
the size of the Group has increased.
Whilst there are a number of projects
that will start to show benefit through
2016, this work needs to accelerate to
gain greater savings.
2016 targets
To support the increase in the number
of energy related projects that are
occurring across the Group the
following targets have been set for all
of our large energy consuming sites:
• A full energy balance will be
required for each large facility.
• All ‘easy wins’ and low effort/high
impact projects will be
implemented.
• A further large energy saving
project will be scoped and, where
practicable, implemented at each
large facility.
Local more stringent targets can be
set where needed to support the
energy reduction programme of
the Group.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 54 ROTORK ANNUAL REPORT 2015
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
ETHICS
AND VALUES
Ethics and values are central
to the way we do business.
Rotork’s Ethics and Values
Statement can be viewed on
our website, in a number of
languages, at www.rotork.
com/en/master-record/4433.
Our ethics and values can be
split into four strands:
Human Rights and Ethical Business
Rotork 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. Rotork does not accept any
form of child or forced labour and
embraces the UN Global Compact
principles throughout the business
demonstrating this commitment.
During the year the Board has
considered the content of the Modern
Slavery Act and associated guidance.
Rotork recognises that an open and
honest culture is key to understanding
concerns within the business and will
investigate any potential wrongdoing.
Rotork has a whistleblowing policy
(which can be found on Rotork’s
website), with an independent external
whistleblowing hotline, to facilitate the
reporting of any concerns of
wrongdoing confidentially.
Employees
Rotork has a firm commitment to all its
employees regarding wellbeing and
development. Some of Rotork’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 (see pages 58 to 59).
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
because of their age, race, nationality,
ethnic origin, disability, sex, sexual
orientation, religion, belief or marital
status. All employees 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.
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 Institution of Mechanical
Engineers (IMechE) to support its
engineers in gaining incorporated and
chartered accreditation. Rotork also
continues to work with IMechE.
Leeds which has an IMechE industrial
liaison team who support members of
the Institution and help to promote it
internally and to the wider
engineering community.
Rotork supports apprenticeship
schemes for young men and women
which helps to increase access into all
aspects of Rotork’s business.
Rotork is committed to improving
diversity across the Group.
We currently have eight Board
Directors of which six are male and
two are female. As at 31 December
2015, we had a total of 3,759
employees of which 3,030 were male
and 729 were female. We also had
93 senior managers (excluding Board
directors), 88 of which were male and
five were female. Full details of
Rotork’s diversity policy and targets
can be found in the Corporate
Governance Report on page 67.
ROTORK ANNUAL REPORT 2015
55
Progress
• All new suppliers to Rotork’s Bath manufacturing
facility were assessed and passed the approval
system satisfactorily.
2016 targets
• Continue to make progress in increasing diversity
across Rotork.
• Ensure Rotork’s diversity policy in its broadest sense
• Membership of FTSE4Good and UN Global Compact
is communicated across the Group.
was maintained.
• Presentations relating to bribery and corruption were
given by Rotork’s legal department to general managers
and sales managers.
• The whistleblowing policy was communicated to
all employees in each edition of the internal Rotork
e-newsletter.
• Bribery and corruption training was provided to relevant
employees in Dutch and Turkish, in addition to French,
Italian, Japanese, Portuguese, Russian, Thai, English,
Korean, German, Spanish and Chinese.
• Awareness of bribery and corruption issues were further
increased by circulating information to agents in the form
of a tailored booklet.
• Continue to communicate the whistleblowing policy
regularly through the Rotork e-newsletter.
• Provide a refresher course in 2016 to all employees who
have received online bribery and corruption training over
12 months ago.
• Ensure agents confirm in writing they have read and
understand the information in the bribery and corruption
booklet tailored for agents.
• Ensure a Group wide bribery and corruption risk
assessment exercise is undertaken in 2016.
Bribery and corruption
Rotork has a zero tolerance policy on
bribery and corruption worldwide,
irrespective of country or business
culture. Rotork’s Ethics and Values
Statement makes it clear that our
employees will never offer, pay or
solicit bribes in any form. Rotork does
not make political contributions in cash
or kind anywhere in the world.
Rotork’s whistleblowing policy gives
whistleblowers various ways to alert
senior management, anonymously if
required, to any suspected bribery or
corruption. All whistleblowing
concerns, however received, are
investigated and reported to the Audit
Committee. During 2015, the
whistleblowing hotline received nine
calls covering issues related to health
and safety, employment and dishonest
behaviour issues. All were resolved
satisfactorily. The ESS for 2015 showed
a continuing trend of increased
understanding of how to raise a
wrongdoing concern using the
whistleblowing hotline. During the year
further steps were taken to publicise
and promote the hotline.
Rotork frequently makes use of
detailed background checks provided
by specialist bribery and corruption
due diligence consultants before
dealing with unknown third parties
(including agents, on prospective
acquisitions and suppliers) particularly
where they are operating in higher risk
jurisdictions or market sectors.
Rotork also makes use of objective
guidance on country risk, such as the
Corruption Perception Index by
Transparency International. When
working with unknown third parties,
after the initial detailed background
checks, Rotork continues to screen
these third parties via a large number
of international sources, which can
detect unethical behaviour including
watchlists, sanctions lists and the
media, using its due diligence
consultants’ proprietary databases.
Rotork 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 new
employees from acquisitions.
During 2016, those employees who
have completed the course over 12
months ago will receive a refresher
course. Last year, all the Company’s
agents received a bribery and
corruption booklet which is required
to be read by all employees of the
agent working on the Rotork account.
The relevant manager for the agent is
required to sign off that this has
been done.
Suppliers
Rotork operates 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 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.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 56 ROTORK ANNUAL REPORT 2015
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
HEALTH
AND SAFETY
Rotork is fully committed
to the health, safety and
well-being 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 well-being of our
employees during their working day.
Occupational health
There have been no occupational
diseases reported during 2015.
Rotork continues to promote the
well-being of its employees.
For example, in Chennai (India) a
welfare camp was run with a particular
focus on bone mineral and bone
density checks. 120 employees
participated in the camp which aimed
to identify those at risk of developing
osteoporosis in later life. Lifestyle
advice was given by a therapist and
some employees had a consultation
with an appointed doctor.
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 Bergamo (Italy),
Leeds (UK), Wolverhampton (UK)
and Singapore.
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 objective for 2015 was to have an
Accident Frequency Rate (AFR) below
a target of 0.37. The actual AFR for
2015 was 0.25 which is a decrease of
19% on the previous year and a
decrease of 55% since 2009.
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 has increased by
0.3%. This has been significantly
impacted by an incident that occurred
in 2014 where lost time continued
into 2015.
The number of minor injuries has
increased by 9.6% and near misses
have increased by 38%. These
increases are believed to be due to
improved reporting of minor injuries
and near misses rather than a decrease
in health and safety performance.
ROTORK ANNUAL REPORT 2015
57
Dave Boulton, Alison Cox MBE, June Boulton and
John Inverdale for Cardiac Risk in the Young
Employee satisfaction Survey
During 2015, 71% of the workforce
completed an employee satisfaction
survey. For the question ‘I believe that
Rotork cares about my health and
safety’ overall satisfaction was at 81%,
this was a slight increase of 1% on the
previous year. For the question ‘In the
last year, I have seen actions taken to
maintain safety at my workplace’ there
was an increase from 76.8% to 79.2%.
Conclusions
Throughout the year we continued
to keep health and safety as a priority
for employees and contractors which
can be seen by the positive results in
the employee satisfaction survey.
We continue to learn from events,
audits and inspections which enables
us 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 continue to
improve in this area.
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 2016 at 0.30.
ACCIDENT FREQUENCY RATE
2015
2014
2013
2012
2011
2010
2009
0.25
0.31
0.33
0.46
0.46
0.38
0.56
Accident frequency rate (AFR) =
three day events / average hours
worked X 100,000
Assurance Activities
In 2015, the audit protocol was
rebalanced to ensure a greater
consistency in scoring and to focus on
risk management processes and
control. As a result, 51 subsidiaries
were subject to a compliance audit
during 2015. It was expected that the
audit rebalancing would cause
subsidiaries to have a reduced
audit score (by between 5% and 10%)
for previously audited sites.
At manufacturing facilities, the
average audit score dropped from 84%
to 78% which is within the predicted
scoring range. Sales and service
subsidiaries performed better than
expected with the audit score falling
from 84% to 81%, a reduction below
the predicted fall. The average overall
score for existing subsidiaries dropped
from 84% to 80% which is better than
predicted. With new subsidiaries
added into the audit score the average
has fallen from 84% to 78%.
No immediate actions were identified
at any of the audits that were
conducted. Corrective action plans are
in place to ensure that issues raised
during the internal audit process are
tracked to closure.
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 58
ROTORK ANNUAL REPORT 2015
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
COMMUNITY
INVOLVEMENT
Rotork 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 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 Rotork
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. Rotork aims to
contribute 0.1% of profits to local
charitable causes.
Local community involvement
highlights from the year include:
• Leeds (UK) engaged in the Right to
Read project that assisted pupils at
a local primary school with reading.
• Dallas (USA) employees organised
a food drive for North Texas Food
Bank that raised a total of 737lbs of
canned foods and non-perishable
items. Their contribution provided
access to over 600 meals for
hungry children, families and
seniors in north Texas.
• Shah Alam (Malaysia) deployed
volunteers to the east coast of
Malaysia for a relief mission
following the worst flood the
country had seen in 30 years.
The volunteers distributed
food and helped clean local
community homes.
• Wolverhampton (UK) employees
donated £250 to local charity
Compton Hospice, which provides
care and support to people with life
limiting conditions.
• Winston-Salem (USA) employees
raised more than US$4,000 for the
Hospice & Palliative Care Center of
Forsyth County by fundraising and
participating in the Annual Hospice
Hope Run.
Apprenticeship programmes are now
well established 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.
We have also forged links with local
universities, colleges and schools in
a number of the locations where
we operate.
In addition to local charitable and
educational activities, Rotork has
supported two major charities in 2015,
WaterAid and Sightsavers. Following
the progress of the Jeldu Woreda
Project in Ethiopia which we
supported in 2014, a new project,
situated in the South East Asian state
of Timor-Leste, was selected for 2015.
Our selected project (supported with a
donation of £60,000) aims to improve
the lives of families living in 12
communities in rural Timor-Leste over
three years. WaterAid will work with
the communities to build gravity flow
systems to deliver clean, safe water to
the communities. They will run hygiene
programmes to raise awareness about
handwashing and provide support for
the communities to build handwashing
facilities such as tippy taps. They will
ROTORK ANNUAL REPORT 2015
59
Progress
• £60,000 contributed by the Group to WaterAid.
• £40,000 contributed to Sightsavers.
• £5,000 contributed to Freedom Matters.
• Variety of donations made to charitable causes relevant to
the local communities of Rotork’s operating sites.
2016 targets
• 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 site.
• Continue to support WaterAid, and in particular the
Timor-Leste Project.
• Continue to support Sightsavers, specifically urban
based projects in India.
provide training about the importance
of toilets to health, inspiring community
members to build their own toilets with
guidance from local partners.
In addition to our ongoing support for
WaterAid, we have also continued our
support for Sightsavers, an international
charity that works with partners in the
developing world to combat avoidable
blindness. Last year, we focused our
support on two regions in Ghana,
specifically the trachoma and river
blindness programmes. This year
Rotork has supported their Urban Eye
Project in Kolkata.
Furthermore, following the devastating
Nepal earthquake and aftershocks in
April and May, the CSR Committee
made a donation of £5,000 to
Freedom Matters. Freedom Matters is a
charity working on the ground in Nepal
to deliver relief supplies to people who,
before the earthquake had very little,
and afterwards had virtually nothing.
They are delivering basic food supplies,
their strategy being that if a family can
be provided with enough basic food to
meet their immediate needs, they can
spend their time rebuilding the other
parts of their lives, step-by-step.
Sightsavers
Credit:
WaterAid/Tom Greenwood
GovernanceStrategic ReportDirectorsFinancial StatementsCompany Information 60 ROTORK ANNUAL REPORT 2015
BOARD OF DIRECTORS
1
2
3
4
EXPERIENCE
1. Martin Lamb
Chairman
2. Bob Arnold
President:
Rotork Controls Inc.
3. Peter France
Chief Executive
4. Sally James
Non-Executive
Director
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.
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.
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.
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
2014
2001
2006
2012
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
Nomination
Audit
Remuneration
Denotes chair of committee
Chairman of the Bath
Education Trust
Non-executive director
of Towry Limited
Non-executive director of
Moneysupermarket.com
Group PLC
Trustee of Legal Education
Foundation
Non-executive director
of Bank of America
Merrill Lynch
International Limited
ROTORK ANNUAL REPORT 2015
61
5
6
7
8
5. John Nicholas
6. Lucinda Bell
7. Jonathan Davis
8. Gary Bullard
Senior Independent
Director
Non-Executive
Director
Group Finance Director
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.
Lucinda is Chief Financial
Officer of The British Land
Company plc. She has
served on the board of
British Land since 2011
and has held a range of
finance roles in the real
estate industry.
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.
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.
2008
2014
2010
2010
Chairman of Diploma plc
Non-executive director
of Mondi plc
Non-executive director
of Hunting plc
Chief Financial Officer
of The British Land
Company plc
Founder and CEO of
Catquin Ltd
Chairman of New Model
Identity Ltd
GovernanceFinancial StatementsCompany InformationDirectorsStrategic Report 62
ROTORK ANNUAL REPORT 2015
CORPORATE GOVERNANCE REPORT
Martin Lamb
Chairman
Statement from the Chairman
I am pleased to set out our Corporate Governance Report
on pages 62 to 68. The aim of this report is to provide a
clear and comprehensive explanation of Rotork’s
governance framework and how it is applied day to day.
Whilst ensuring we provide detailed reporting in our
Corporate Governance Report, we have sought to place
emphasis on explaining how the principles of the UK
Corporate Governance Code (the Code) are applied across
our Group.
As Peter France describes in his Chief Executive’s Statement
on pages 12 to 14, 2015 presented challenges for Rotork as a
result of difficult trading conditions across most of Rotork’s
key markets and geographies. I believe strong corporate
governance has a key role to play in protecting our business
and its long term success, especially in challenging
conditions. It is clear from the conversations I have had with
a range of key shareholders since becoming Chairman, that
the strength of the Board and its approach to corporate
governance remains a highly valued component of Rotork’s
overall investment proposition.
There has been a natural focus by the Board on broader
strategic issues throughout the year – these strategies
encompass both short term measures designed to manage
the current downturn in the Group’s markets (such as the
acceleration of planned cost saving measures), but also
longer term strategies to effectively position the Group in
changing markets.
Our consideration of strategy has been aided by the
significant work undertaken by the Board on both risk
assessment and risk appetite during the course of the
year, ensuring that not only do we, as a Board, accurately
identify and quantify the risks faced by the Group, but
that the Board’s appetite for risk informs decision making
throughout the Group, so we can prudently take advantage
of the opportunities that those changing markets will
inevitably present. This work is explained in more
detail below.
Rotork is subject to the Code, which was revised in 2014.
The revised version of the Code applied to this financial
year, and I am happy to report that throughout 2015 Rotork
has complied with the revised Code, save in two respects.
First, the annual performance review of the Board is
scheduled to take place during February and March 2016,
shortly after the end of the financial year covered by this
report. I felt it was important for me to have sufficient time
to deepen my understanding of the dynamics and operation
of the Board and its individual members before formulating,
in conjunction with an external facilitator, an expanded
review process from that adopted in recent years.
Second, in line with the revised Code, we have taken further
steps during the year to facilitate improved ongoing
oversight by the Board of the Group’s risk management and
internal control processes. The new reporting structures
have been designed and were implemented during the
fourth quarter of the year under review. Accordingly, the
Board believes that the Company was in compliance with
this element of the Code during the fourth quarter of 2015.
ROTORK ANNUAL REPORT 2015
63
A number of initiatives to further strengthen the
governance and internal controls within Rotork were
undertaken during the course of the year. First, the Audit
Committee undertook a detailed review of the Group’s
internal audit function, supported by an independent
quality assessment by PwC. This review resulted in the
identification of the need for a new Head of Risk and
Internal Audit, who has been recruited and will start in
April 2016. Further information on this review is set out
in the Audit Committee Report on pages 69 to 72.
Second, as noted above, significant focus was placed
on risk management by the Board. This comprised two
principal elements:
• the adoption of a Risk Appetite Framework and
improved risk reporting procedures; and
• a robust assessment of the principal risks facing the
Group in accordance with the requirements of the Code.
The centrepiece of the Board’s work on risk was a risk
workshop following both the March and April Board
meetings, which was externally facilitated by Deloitte, with
additional sessions throughout the year during which the
outcomes from the initial workshop were analysed and
refined. The principal output of the risk workshop was the
Risk Appetite Framework, which is discussed in more detail
below. This framework was developed by the full Board
working together as a group, and I am grateful to them for
their full engagement in the process; I believe this has led
to a qualitatively better assessment and understanding of
the risks facing our business, and improved procedures to
ensure that a prudent analysis of risk is incorporated into
our decision making processes. Further information on
the risk review process is set out on pages 44 to 45, and a
description of the principal risks facing the Group, and how
the Board seeks to mitigate these risks, is set out on pages
46 to 47.
Finally, the Audit Committee has led the Board’s work on
the new longer term viability statement introduced by the
revised Code, which looks at the prospects for the Group
over the next three years. The statement is set out on
page 47.
A summary of the business the Board considered during
2015 is set out page 64. However, I firmly believe that
corporate governance does not stop at the boardroom
door. It is important that the strong governance principles
demonstrated by the Board are carried on throughout the
Group at every level and in every location. As we continue
to grow through acquisition, it becomes increasingly
important to ensure that the culture of sound governance is
applied worldwide in a consistent and unified way to ensure
Rotork’s unique culture is retained and developed.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 64 ROTORK ANNUAL REPORT 2015
CORPORATE GOVERNANCE REPORT
CONTINUED
Dates of Board meetings
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
Jul 15
Aug 15
Sept 15
Oct 15
Nov 15
Dec 15
Board activity 2015
Financial performance
• Received regular financial
performance updates from the
Group Finance Director .
• Approval of 2016 budget.
• Consideration of 2014 financial
statements.
• Approval of 2014 final dividend
recommendation and 2015 interim
dividend declaration.
People
• Approval of MJ Lamb as Chairman,
following the Nomination
Committee’s recommendation.
• Consideration of Lord Davies’ Fourth
Annual Review and Five Year
Summary and proposed.
recommendations for 2020 targets.
• Received regular briefings on
potential acquisition targets from
the Chief Executive.
•
Governance and stakeholders
• Series of meetings undertaken
between the Chairman and
key shareholders to discuss
governance issues.
• Approval of 2014 Annual Report
and AGM business.
• Approval of Interim Report and
trading updates.
Implemented changes to the Group’s
governance structure to reflect
changes to the Code, including focus
on risk analysis and ongoing viability.
• Regular review of feedback from
institutional shareholders.
People
a
n
G
d
o
s
t
v
a
e
r
k
e
n
a
n
c
e
h
o
l
d
e
r
s
n tr ols, audit
n a g e m ent
o
k m a
I n t e r n a l c
a n d
i
s
r
nce
cial
a
n
rm
a
in
o
F
f
r
e
P
s
t
r
a
B
t
u
e
g
s
i
n
y
e
a
n
s
s r
e
d
a
c
q
vie
w,
uisitions
Business review, strategy and acquisitions
• Received regular performance and business
updates from the Chief Executive.
• Set the Group’s strategy and vision, with an
emphasis on addressing the challenges
facing the Group as a result of adverse
changes in its markets during the year.
• Received presentations from divisional and
Group business function managers within
the Group to consolidate understanding
and awareness of activities and
performance within the relevant divisions
and business functions.
• Consideration and approval of all
acquisitions completed during the year.
• Received regular briefings on potential
acquisition targets from the Chief Executive.
Internal controls, audit and risk management
Implemented new quarterly Executive
•
Risk Report programme with effect from
fourth quarter.
• Attendance at an externally facilitated Board
risk workshop and further follow-up sessions.
• Undertook assessment of principal risks and
established Group risk appetite.
• Approval of insurances for the Group,
including levels of cover.
• Discussion of Audit Committee analysis
of internal audit processes.
ROTORK ANNUAL REPORT 2015
65
UK Corporate Governance Code Compliance Statement
The following section on pages 65 to 68 is a summary of
the system of corporate governance adopted by Rotork.
Throughout the year ended 31 December 2015, Rotork fully
complied with the Code, save in two respects, which are set
out below.
Formal Board evaluation
The formal performance evaluation of the Board in
accordance with Code Provision B.6 is scheduled to take
place in February and March 2016, falling outside the
financial year under review. The review was delayed until
after the end of the financial year to enable the Chairman to
have sufficient time, following his appointment in April 2015,
to formulate a clear understanding of the dynamics of the
operation of the Board under his Chairmanship, together
with his own assessment of the strengths and weaknesses
of individual Board members. These insights were used to
develop an improved performance review.
Length of tenure of independent non-executive Directors
as at 31 December 2015
0 – 3 years
3 – 6 years
6 – 9 years
2
1
1
Balance of independent non-executive Directors
and executive Directors as at 31 December 2015
3
1
4
Non-executive
Chairman
Independent
Non-executive
Directors
Executive
Directors
Balance between male and female Directors on the Board
as at 31 December 2015
2
Male
Female
6
Ongoing monitoring of risk management and
internal controls
Provision C.2.3 of the revised Code states that the Board
should monitor the Group’s risk management and internal
controls. This represents a shift in emphasis to ongoing
oversight by the Board as a whole. Existing oversight has
been improved by new reporting structures, including a
new quarterly Executive Risk Summary, which have been
implemented with effect from the fourth quarter of 2015.
Further information on the new reporting structures is set
out below.
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 eight
members: the Chairman, four independent non-executive
Directors and three 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.
Rotork is compliant with the recommendations of
Lord Davies’ ‘Women on Boards’ initiative, with female
representation on the Board standing at 25% as at
31 December 2015.
The biographies of the Directors and details of Board
committee membership are set out on pages 60 to 61.
All Directors are subject to annual re-election at the AGM in
line with the Code.
Directors’ attendance at Board and Committee
meetings during 2015
RH Arnold
LM Bell
GB Bullard
JM Davis
PI France
SA James
MJ Lamb
RC Lockwood(ii)
JE Nicholas
GM Ogden(iii)
Board
13
13
12
13
13
13
12
5
13
3
No. of meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
3(i)
5
5
6(i)
6(i)
6
6
2(i)
6
n/a
1(i)
5
4
1(i)
5(i)
5
4
2(i)
5
1(i)
1(i)
3
2
1(i)
3
3
1
2
3
1(i)
(i) By invitation.
(ii) RC Lockwood retired from the Board on 24 April 2015.
(iii) GM Ogden retired from the Board on 31 March 2015.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 66 ROTORK ANNUAL REPORT 2015
CORPORATE GOVERNANCE REPORT
CONTINUED
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. The
division of responsibilities was reviewed and updated
during 2015 following MJ Lamb’s appointment as Chairman.
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, because of their importance in the context
of the Group’s operations, it is not considered appropriate
to do this. The Board therefore has a formal and
documented schedule of matters reserved for its decision.
The schedule of reserved matters can be found on the
Company’s website at www.rotork.com.
In 2015, the Board met 10 times at scheduled meetings and
three times at additional meetings.
The Chairman, through the Company Secretary, ensures
that the Board agenda and all relevant information is
circulated to the Directors sufficiently in advance of the
meeting. During 2015, the Company transitioned to a new,
secure, web-based platform for the hosting of Board
information, including Board packs, relevant documentation
and minutes of previous meetings of the Board and its
Committees. This has greatly improved the availability of
information for the Directors, and the platform also
facilitates rapid communication between all members of the
Board. 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 2015,
the Board visited Rotork’s manufacturing facility in
Shanghai, China and met with and received presentations
from local management.
Location of Board meetings
■ 2015 – Shanghai, China
■ 2014 – Winston-Salem, USA
■ 2014 – Leeds, UK
■ 2013 – Lucca, Italy
■ 2012 – Chennai, India
■ 2011 – Houston, USA
All Directors constructively challenge executive
management at Board meetings and are entitled to
unfettered access to information and management across
the Group. Rotork’s executive directors understand the
distinction between their roles as executive managers and
as Board directors. 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 principal purpose of the
presentations is to consolidate the Board’s understanding
of the Group’s operations, and in particular current strategic
and operational issues facing divisional management. The
presentations are structured such that the Board has the
opportunity to ask questions and constructively challenge
senior management following their presentations.
Management presentations normally take place
immediately before the meeting so that any issues raised in
them can be considered in wider Board discussions,
particularly around strategy and risk. In 2015, the Board
received presentations from management of all four
business divisions, together with the management from
Group business functions, including sales and IT.
The Chief Executive and Group Finance Director present to
the Board the content of full and half year results
announcements, together with all trading updates issued
by the Company, and the Board is invited to comment on
and approve those announcements.
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. No new Director
appointments were made in 2015. However, additional
induction activities were undertaken by MJ Lamb as a result
of his appointment as Chairman in April 2015. This included
a number of site visits to Rotork facilities in both the UK and
overseas, together with meetings with investors.
Directors are encouraged to continually update their
professional skills and knowledge. During 2015,
development activities for the Directors included
participation in external training seminars.
The Chairman is responsible for reviewing the level and
nature of training given to the Directors at least annually.
Performance evaluations
During February 2016, the Board commenced a detailed
review of its performance. As noted in the statement from
the Chairman on page 62, the annual performance review
was delayed until after the end of the financial year to allow
MJ Lamb additional time to assess the performance and
operation of the Board in his role as Chairman. As in
previous years, the review process was externally facilitated
by Vivienne Cassley of Useful Thinking, an independent
external consultancy. This year, the written questionnaire
which formed the basis of previous performance reviews
was augmented by a series of one-on-one interviews
between Vivienne Cassley and the Directors, held during
February 2016, during which the performance of the Board
and each of its members was critically examined.
The Chairman is due to formally report on the outcome of
the evaluation process at the March Board meeting, with
individual feedback meetings with Directors being held in
March ahead of that meeting.
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 currently has 25% female representation on the
Board, in line with the recommendations of Lord Davies’
'Women on Boards' initiative. The Board is cognisant of
the 'next step recommendations' set out in Lord Davies’
five year summary report published in October 2015 and,
as part of the Group’s continuing commitment to fostering
diversity in its business (described in more detail in the
report of the Nomination Committee on page 73), will
continue to pursue initiatives designed to increase diversity
at all levels within the Group.
ROTORK ANNUAL REPORT 2015
67
Internal controls and risk management
The Board has placed considerable focus on risk
management and mitigation during the year, partly in
response to the current market conditions and partly
as a result of the changes to the Code and associated
new guidance issued by the Financial Reporting Council
(FRC) in relation to risk management, internal control and
related reporting.
Details of the principal risks faced by the Group during the
year and details of the processes to manage these risks,
including the Board’s approach to the principal risks the
Group is willing to take in achieving its specific objectives
(its ‘risk appetite’), can be found on pages 44 to 47.
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. This risk management
process has been improved throughout the year as
described below.
Adoption of Risk Appetite Framework and improved
monitoring of risk management and internal controls
The Group has adopted a risk review process at a divisional
level for many years, resulting in a 'bottom up' assessment
and consolidation of the risks facing the Group. This
process fed into a biannual review and assessment by the
Board of the principal risks facing the Group. This existing
risk management structure has been revised during the
course of the year, aided by external consultancy provided
by Deloitte. The key outputs of this process were:
• the adoption of a new Risk Appetite Framework (RAF),
designed to:
– Enhance the incorporation of risk into strategic
decision making at Board and divisional
management levels;
– Improve quantitative and qualitative insight into
principal risks and associated trends;
– Enable the Board to lead by example in creating a
risk-aware culture and ensure consistency in decision
making; and
– Facilitate proactive risk mitigation.
• the implementation of new quarterly Executive Risk
Summary, in order to ensure continuous oversight by the
Group’s risk management and internal controls, with
quarterly reporting being supplemented as necessary by
monthly reporting to the Board by the executive
management team on new or evolving risks.
In addition to the new reporting framework described
above, all members of the Board receive full Audit
Committee papers and prior meeting minutes, which
contain the Audit Committee’s assessment of the
effectiveness of the Group’s risk management and internal
control systems. All non-executive Directors attend Audit
Committee meetings. 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.
In the course of its activities during the year, the internal
audit team identifies improvement recommendations at all
locations visited. These are discussed with local management
at the end of the audit and they are charged with
implementing the agreed improvements. The issues
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 68 ROTORK ANNUAL REPORT 2015
CORPORATE GOVERNANCE REPORT
CONTINUED
identified during the year did not have a material impact on
the financial statements but the Board continues to look for
ways to strengthen the Group’s control environment.
During the year MJ Lamb had a series of individual
meetings with current and potential principal shareholders
in his new capacity as Chairman. Full written reports on
these meetings were provided to the Board.
This includes the recruitment of a new Head of Risk and
Internal Audit and the appointment of regional finance
managers in more regions. These regional finance
managers have a focus on internal controls, as well as
operational performance, and will provide an increased
level of review and contact for the finance teams operating
within the sales subsidiaries.
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 the Directors and the shareholders.
Main features of the Group’s risk management and
internal control systems
Risk management and 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.
The systems cover controls which enable Rotork to respond
appropriately to financial, operational, compliance and any
other risks. 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
• 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.
The systems have been augmented throughout the year by
the improved processes described above in order to comply
with the revised Code and the FRC’s Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting. The Board considers that it was in
compliance with the revised Code and the Guidance with
effect from the fourth quarter of 2015.
Relations with shareholders
Communication with shareholders is a priority for Rotork
and the Company maintains a regular dialogue with its
major shareholders. In 2015 the Board, and in particular the
Chief Executive and Group Finance Director, have engaged
with shareholders in a number of ways including:
• Hosting conference calls;
• Hosting webcasts;
• Attending shareholder events, including a Capital
Markets Day held in November in Leeds;
• 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. In addition, the Board receives reports from
its brokers which give anonymised feedback from investors.
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.
Board 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.
The Committees have authority to take external,
independent professional advice at Rotork’s expense for
matters relating to the discharge of their duties.
Composition of Board and Committees showing Chairmen
PLC Board
(MJ Lamb)
Audit
Committee
(SA James)
Nomination
Committee
(MJ Lamb)
Remuneration
Committee
(GB Bullard)
The Audit Committee Report is on pages 69 to 72 and the
Nomination Committee Report is on page 73. The work of
the Remuneration Committee is described in the Directors'
Remuneration Report on pages 74 to 88.
AUDIT COMMITTEE REPORT
ROTORK ANNUAL REPORT 2015
69
During 2015, in addition to its usual schedule of work,
the Committee focused on three key elements:
• The effectiveness of the Group’s internal audit processes,
which was supported by an independent quality
assessment by PwC;
• Contribution to the Risk Appetite Framework and wider
review of the Group’s risk management and internal
controls; and
• Consideration of the longer term Viability Statement
mandated by the revised version of the UK Corporate
Governance Code (the Code).
The membership of the Committee was unchanged during
the year, save for the resignation of MJ Lamb from the
Committee following his appointment as Chairman in
April 2015. 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 60 to 61. The Chairman, Chief
Executive, Group Finance Director, Group Financial
Controller, Internal Audit Coordinator 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
• Whistleblowing and other Group policies as relevant.
Sally James
Audit Committee Chairman
Members: John Nicholas, Gary Bullard
and Lucinda Bell
Activities of the Audit Committee during the year
The Audit Committee maintains a rolling programme of
activities which is kept under review and forms the basis of
its scheduled meetings throughout the year. This rolling
programme is supplemented by consideration of specific
issues as and when they arise. The Committee met six times
during the year (once in February, April, July and August
and twice in November). Meetings of the Committee are
arranged to coordinate with the Group’s financial reporting
timetable to ensure appropriate scrutiny by the Committee
of such announcements, including, in particular, review of
year end and interim financial reports, in addition to other
trading updates made during the year. A summary of its
principal activities is set out on page 70.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 70 ROTORK ANNUAL REPORT 2015
AUDIT COMMITTEE REPORT
CONTINUED
Summary of 2015 Audit Committee business
Financial reporting
Review of the full year accounts including material judgements and estimates, the draft
Annual Report 2014, governance reports and draft results announcements
Review of Interim Report including material judgements, estimates and draft results
announcements
Review of the 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 quarterly trading updates
Internal controls and risk
management
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
Commissioning and review of PwC’s independent quality assessment in respect of the
Group’s internal audit function (PwC Report)
Review of recommendations from the PwC Report and agreement to take these forward
led by a Head of Risk and Internal Audit, a new senior appointment
External audit
Consideration of, and reporting to, the Board on the external Auditor’s independence,
objectivity and effectiveness including the annual audit
Review of the Auditor’s representation letter, views on the control environment and fraud
risk management
Meeting with the external Auditor without the presence of management
Review of non-audit services undertaken by the external Auditor and consideration of
policy on non-audit work
Consideration of audit fees, engagement terms and risk of the external Auditor leaving
the market
Consideration of retendering the external audit contract
Review of policies on the employment of ex-employees of the external Auditor
Other work
Review of bribery and corruption policy and procedures including training and
communication
Review of the whistleblowing policy and procedures including training and communication
Consideration of accounting and corporate governance developments
Review of Audit Committee effectiveness and Terms of Reference
Introduction of requirement for annual presentations to the Committee from the Group
Treasurer and Head of Tax
Financial 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 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. They also present on the scope for the next full
year audit for consideration by the Committee.
The principal matters of judgement considered by the
Committee in relation to the 2015 accounts and how they
were addressed were:
• Goodwill impairment testing: The year end balance sheet
includes goodwill of £222.1m, this represents
approximately 31.7% of the Group’s 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;
ROTORK ANNUAL REPORT 2015
71
• Acquired intangible assets: During 2015, the Group
acquired a number of businesses, the largest of which
was Bifold Group Ltd, which was acquired in August.
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 Annual 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; and
• Valuation of inventory: The Group has £87.2m of
inventory which 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. Management confirmed to the Committee
that there have been no significant changes to the
approach used to estimate inventory provisions
compared with the 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 judgements that
had been exercised and valuation methodology were
appropriate and that the provisions were appropriately
stated at year end.
External Auditor
The year under review marks the second year during
which Deloitte LLP has been the Group’s external Auditor.
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 (FRC) audit quality
review (AQR) report on selected audits undertaken
by Deloitte.
Having completed this review, the Committee agreed that
the audit process, independence and quality of the external
audit were satisfactory.
During the year, the 2014 external audit of the Group was
subject to review by the FRC’s AQR team. There were no
significant findings and only one issue was formally
reported. The final report and the action to address the
reported finding was discussed and agreed at the
November Committee meeting, and has been addressed in
the 2015 external audit. The Committee is satisfied that
there was nothing arising from the FRC review which
impacted the proposed reappointment of Deloitte as
external Auditors.
Consideration was given to the possibility of retendering
the external work during the course of the year. The Audit
Committee has recommended that Deloitte LLP be re-
appointed Auditors for the 2016 financial year and Deloitte’s
continuing appointment will be subject to shareholder
approval at the 2016 AGM.
Statement of compliance
The Company confirms that it has complied with the terms
of The Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order
2014 (the Order) throughout the year.
In addition to requiring mandatory audit retendering at
least every 10 years for FTSE 350 companies, the Order
provides that only the Committee, acting collectively or
through its Chairman, and for and on behalf of the Board,
is permitted:
• To the extent permissible by law and regulations, to
negotiate and agree the statutory audit fee and the
scope of the statutory audit;
• To initiate and supervise a competitive tender process;
• To make recommendations to the Directors as to the
auditor appointment pursuant to a competitive tender
process;
• To influence the appointment of the audit engagement
partner; and
• To authorise an auditor to provide any non-audit services
to the Group, prior to the commencement of those
non-audit services.
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.
For work within the policy scope, namely anything other
than audit, half year review or tax compliance work,
authority has been delegated to the Group 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.
At each Committee meeting, a summary is provided of all
non-audit services awarded to the external Auditor during
the year.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 72
ROTORK ANNUAL REPORT 2015
AUDIT COMMITTEE REPORT
CONTINUED
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 2015
represent 8.9% of the total Deloitte audit fee.
Risk management
The Committee has responsibility for reviewing and
monitoring the effectiveness of the Group’s control
environment, internal audit and risk management process.
As explained in the Corporate Governance Report, this year
has seen particular focus on the Group’s approach to risk
and its internal control environment.
In the final quarter of 2014, the Audit Committee
commenced work with the Board on a review of the Group’s
internal control and risk management systems in order to
comply with the Code, which provides that the Board
should undertake a robust assessment of the principal risks
facing the Group and monitor the Group’s risk management
and internal controls.
This work continued into 2015, and was led by me, as Chair
of the Audit Committee in conjunction with the Group
Finance Director. The key outputs of the work, comprising a
Risk Appetite Framework and new reporting procedures are
summarised in the Corporate Governance Report on pages
62 to 68, with the result that both the Audit Committee and
the Board are satisfied that the Company was in compliance
with the requirements of the revised Code with regard to
risk management during the fourth quarter of 2015.
The Audit Committee will be primarily responsible for
oversight and review of the new reporting frameworks
which have been introduced in order to ensure that these
operate effectively during their first full year of
implementation.
Internal controls
The second area of focus was on improving the quality of
the Group’s internal control procedures. The steps taken to
improve the Group’s internal controls during the year are
summarised on pages 67 to 68.
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
and whistleblowing events from the Company Secretary.
Internal audit
The final area of focus was on improving the quality of the
Group’s internal audit processes. PwC was commissioned to
produce an independent quality assessment into the
Group’s internal audit function. PwC’s review was
undertaken through a series of one to one interviews with
relevant personnel, peer comparison and review of internal
audit procedure documentation.
The PwC report highlighted a number of improvements
which could be made to the methodology and structure of
the internal audit, including the appointment of a new Head
of Risk and Internal Audit. These recommendations are
being implemented, including the recruitment of a new
Head of Risk and Internal Audit. This recruitment has been
completed and the position will be filled in April 2016. The
Head of Risk and Internal Audit will be supported by the
Internal Audit Coordinator who was appointed in 2014.
During the year, the internal audit coordinator has initiated
improvements to the reports to the Committee and the
reports issued to management on completion of an audit as
well as introduced a risk based assessment to setting the
audit visit plan. These improvements will be developed
further in the coming year.
The Group does not have an independent internal audit
function but does have a well established internal audit
approach, 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. External resource was used during the
year to supplement the internal team where specific
technical or language expertise was required.
Whilst the Audit Committee is satisfied that this 'peer
review' model remains appropriate for the Group’s current
internal audit objectives, it has noted PwC’s observations
that an independent function may be warranted in the
future. Accordingly, the Audit Committee will, as in previous
years, keep the need for an internal audit function under
close review. The Head of Risk and Internal Audit will,
however, provide increased independence and strategic
direction whilst the peer review model is retained.
Alongside the PwC review and oversight of the
implementation of its recommendations, the Committee
continued to receive a report at each meeting on internal
audit activity, any significant matters arising and the
management response.
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 a questionnaire, including how it discharged its
responsibilities and Terms of Reference. Following this
review, a number of actions will be undertaken during 2016
to improve the Committee’s effectiveness.
The Committee’s activities were also reviewed as part of the
Board evaluation process referred to on page 67.
Throughout the year, the Committee also considered
relevant accounting and corporate governance
developments, in addition to those in relation to risk and
internal controls discussed above.
Areas of focus for 2016
In the coming year, further development of the internal
control environment and risk management processes will
remain a priority. Increasing the resources and expertise in
this area through the appointment of a Head of Risk and
Internal Audit is the next step in this evolution.
NOMINATION COMMITTEE REPORT
ROTORK ANNUAL REPORT 2015
73
During the year, the Committee recommended to the Board
the appointment of MJ Lamb as Chairman, with the
appointment taking effect from the conclusion of the AGM
held in April following Board approval of the appointment.
MJ Lamb did not attend the Committee meeting at which
his appointment was considered.
MJ Lamb’s appointment as non-executive Director in
2014 was externally facilitated by Korn Ferry, an external
search consultancy, in a process which contemplated
his subsequent appointment as Chairman, subject to
satisfactory performance. Korn Ferry has no other
connection with the Company.
The 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.
Further action on succession planning in the context of the
Group’s strategic objectives will constitute the main focus
for the Committee in 2016, with constructive initial dialogue
between the non-executive Directors having taken place
following the Committee meeting in November 2015, at
which the FRC discussion paper on board succession
planning was discussed.
Diversity policy
As part of its commitment to maintaining an appropriate
balance of skills, knowledge and experience, 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.
Rotork currently has 25% female representation on the
Board, in line with the recommendations of Lord Davies’
'Women on Boards' initiative. The Board is cognisant of the
'next step recommendations' set out in Lord Davies’ five
year summary report published in October 2015.
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.
Martin Lamb
Nomination Committee Chairman
Members: Peter France, John Nicholas,
Sally James, Gary Bullard and Lucinda Bell
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 three times during the year (in
February, March and November). A summary of principal
activities is set out below:
Summary of 2015 Nomination Committee business
Appointment
recommendation
Recommendation that MJ Lamb be
appointed as Chairman
Succession
planning
Consideration of paper from the
Chief Executive on executive
succession planning
Consideration of paper from
the Group Finance Director on
future development of the Group’s
internal finance function and
related appointments
Consideration of FRC discussion paper
on board succession planning
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 74 ROTORK ANNUAL REPORT 2015
DIRECTORS' REMUNERATION REPORT
Gary Bullard
Remuneration Committee Chairman
Members: John Nicholas, Sally James
and Lucinda Bell
STATEMENT FROM THE CHAIRMAN
OF THE REMUNERATION COMMITTEE
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 2016 AGM.
During 2015, 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. 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.
Remuneration for 2015
As set out in the Annual Report on Remuneration, following
a challenging year, the Company’s performance against
2015 incentive targets resulted in an annual cash bonus
payout of 18.8% of the maximum bonus opportunity
available and a Long Term Incentive Plan (LTIP) vesting
rate of nil for the 2013 award (which was based on earnings
per share (EPS) and total shareholder return (TSR)
performance over the three years to 31 December 2015).
The cash bonus payment reflected the achievement of cash
flow and accident frequency targets.
Remuneration for 2016
The Committee continues to be mindful of employee
remuneration conditions around the Group and salary
increases for executive Directors in 2016 will be 1%,
which is broadly in line with the typical increase for other
UK employees.
During the year, the Committee approved revised and
simplified cash bonus criteria for the executive Directors for
2016, within the parameters of the existing Policy Report.
In response to the challenging conditions facing the Group,
the revised criteria reflect an increased emphasis on annual
profit performance, with the balance based on the strategic
and personal performance, cash generation performance,
and accident frequency rate. Further details of the revised
criteria are set out on page 88. The maximum cash bonus
potential remains 125% of salary for the Chief Executive and
100% of salary for other executive Directors.
The LTIP awards will continue to be based on EPS and
TSR performance (each accounting for 50% of the award).
The TSR performance condition will be the same as set for
previous awards. The EPS performance target for the 2016
awards will require 9% to 35% EPS growth over the three
year performance period (for 15% to 100% vesting for this
part of the award)1. The LTIP award levels for 2016 will be
150% of salary for the Chief Executive, 125% of salary for the
Group Finance Director and 100% of salary for the President
ROTORK ANNUAL REPORT 2015
75
of Rotork Controls Inc. (increased from 125% for the Chief Executive and 100% for the Group Finance Director in 2015).
These increased award levels are within the Policy Report maximum of 150% of salary and are designed to increase the
competitiveness of the long term incentive opportunity. The Committee is satisfied that the performance targets are
appropriately challenging taking into account expected performance and the proposed award levels.
Planning ahead for the 2017 AGM
During 2016, the Committee intends to review the Policy Report 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. This review will coincide with the requirement for the Company to submit the
Policy Report to shareholders for approval at the 2017 AGM, and the outcome of the review and the Policy Report itself will
be communicated in next year’s remuneration report. Any significant changes will be subject to prior consultation with
major shareholders.
Activities of the Committee during the year
The Remuneration Committee maintains a rolling programme of activities which forms the basis of its scheduled meetings
throughout the year. This rolling programme is supplemented by consideration of specific issues as and when they arise.
The Committee met five times during the year (in February, March, July, September and December). A summary of its
principal activities is set out below:
Summary of 2015 Remuneration Committee business
Setting executive salary
Setting of basic salary for executive Directors for 2016
Consideration of report from New Bridge Street on executive remuneration
Setting Chairman’s remuneration
Setting the remuneration of MJ Lamb as Chairman
Setting LTIP and bonus
opportunities
Approval of LTIP award levels and bonus opportunity for 2016 for executive Directors
and other members of senior management
Reporting
Other
Setting of financial and non-financial bonus targets
Review of LTIP performance during the year
Approval of the Directors’ Remuneration Report 2014
Consideration of current investor guidance from institutional investors on remuneration
Consideration of legal and corporate governance developments
Consideration of remuneration market trends
Approval of the Committee’s schedule of work for 2016
Directors’ Remuneration Report
The Directors’ Remuneration Report is presented to shareholders by the Board at the AGM. 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. The 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 graphs on page 81 have
been updated to reflect the current salaries of the executive Directors.
Role of the 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 into account 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.
1 The EPS target range for the 2015 LTIP awards was RPI + 10% to RPI + 25%. Further details on the 2015 LTIP grants are set out on page 83.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report
76 ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Consideration of conditions elsewhere in the Company
The Committee is sensitive to employee remuneration conditions in the Group and in determining remuneration takes
account of remuneration conditions throughout the Group. 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 Policy Report, the Committee takes into account guidance issued by shareholder representative bodies,
including the Investment Association, the Pensions and Lifetime Savings Association (formerly the NAPF) and the
Institutional Shareholders' Service. 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 Policy Report or any significant proposed changes to the
way in which it is implemented.
Overview of the Policy Report
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.
Framework used to assess
performance
N/A
N/A
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.
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 include 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.
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.
Benefits
To attract and
retain executive
Directors of the
right calibre by
providing a market
competitive level of
benefit provision.
ROTORK ANNUAL REPORT 2015
77
Element 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.
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, EPS 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.
Policy update: as noted on
page 74, and as permitted
under the Policy Report, the
Committee has approved
revised bonus measures for
2016. Bonuses for 2016 will
be based on annual profit,
cash generation, strategic
and personal targets and
the accident frequency rate.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 78
ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Element of
remuneration
Purpose and how it
supports the strategy
How the element operates
(including maximum amounts payable)
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 2016 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
Awards under the LTIP are
currently subject to two
performance conditions.
Half of the awards are
subject to an EPS
performance condition and
half of the awards are
subject to a relative 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.
Pension
To provide a market
competitive
remuneration
package to enable
the recruitment
and retention of
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
Further details on the Company’s policy on
pension arrangements (including maximum
entitlements) are set out below.
Life assurance is provided for executive Directors
based in the UK only.
ROTORK ANNUAL REPORT 2015
79
Element of
remuneration
Purpose and how it
supports the strategy
How the element operates
(including maximum amounts payable)
Framework used to assess
performance
Chairman and
non-executive
Directors’ fees
To attract and retain
non-executive
Directors of the
right calibre.
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.
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 (Pension Scheme), a defined
benefit pension scheme. If they remain active members of the 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 £149,400 per annum for 2016) 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 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 was a preserved member of the Pension Scheme and received a cash
allowance of 44% of salary in lieu of pension until his retirement on 31 March 2015 when he became a pensioner. 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 the 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.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report
80 ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Differences 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.
Service contracts and policy on payments for loss
of office
Under the executive Directors’ service contracts, 12 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 12 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).
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 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.
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 Report.
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.
ROTORK ANNUAL REPORT 2015
81
Illustration of the application of the Policy Report
The charts below illustrate how the Policy Report would function for minimum, on target and maximum performance for
2016 for each executive Director.
£
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
£
1,750,000
1,500,000
1,250,000
1,000,000
750,000
500,000
250,000
0
PI France
£1,801,100
£1,041,100
13%
31%
£606,800
33%
33%
100%
56%
34%
Minimum
On target
Maximum
JM Davis
£641,600
11%
28%
61%
£405,500
100%
£1,069,400
30%
30%
40%
Minimum
On target
Maximum
RH Arnold
£396,400
11%
26%
63%
£598,700
29%
29%
42%
On target
Maximum
£261,500
100%
Minimum
Fixed remuneration
Annual variable
remuneration
Multiple period
variable remuneration
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 2016. Taxable benefits are shown as the cost to the Company of supplying those benefits for the year ending 31 December 2015.
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:
RH Arnold is 100% of salary; PI France from 2016 is 150% of salary; and JM Davis from 2016 is 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 has been excluded.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 82
ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
ANNUAL REPORT ON REMUNERATION
Single figure of remuneration (£000s) (audited)
Executive Directors
Salary
Benefits(i)
Annual cash bonus
LTIP(ii)(iv)
Name
RH Arnold(iii)
JM Davis
PI France
GM Ogden(v)
2015
264
292
430
52
2014
232
285
422
205
2015
2014
2015
18
18
18
13
17
18
18
18
50
55
101
10
2014
153
188
348
135
2015
–
–
–
28
Pension and related
benefits
Total remuneration
2014
99
113
173
84
2015
413
88
147
23
2014
84
80
131
90
2015
745
453
696
126
2014
585
684
1,092
532
(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 2015 figures relate to the vesting of the 2013 LTIP award. The threshold performance targets for the award (which were based on performance
over the three financial years to 31 December 2015) were not achieved and the award will lapse in March 2016.
(iii)RH Arnold is paid in US dollars.
(iv)The 2014 figures have been updated to reflect the actual share price on vesting of the 2012 LTIP award.
(v) GM Ogden retired from the Board on 31 March 2015.
(vi)This figure includes an amount of £28,457 which relates to pro rata vesting of GM Ogden’s 2013 LTIP award. GM Ogden’s 2014 award will, following
exercise of the Committee’s discretion for the award not to lapse after consideration of its performance, vest in whole part or not at all based on
performance at the end of the three year performance period on a pro rata basis.
Directors not performing an executive function (£000s)
Name
LM Bell
GB Bullard
SA James
MJ Lamb
RC Lockwood(i)
JE Nicholas
Base fees
Additional fees
Total remuneration
2015
43
43
43
137
45
43
2014
20
43
43
25
140
43
2015
2014
–
7
8
–
–
8
–
7
4
–
–
8
2015
43
50
51
137
45
51
2014
20
50
47
25
140
51
(i) RC Lockwood retired as a director of the Company on 24 April 2015.
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 2015
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 2015 are as follows:
Accident frequency rate
CO2 reduction
Cash generation
EPS growth
Three year profit growth
Annual profit target
Total
Performance
required to
trigger
bonus
payment
Performance
required at
target
% payable at
target
performance
Performance
required at
maximum
% payable at
maximum
Performance
outcome
% bonus
awarded
0.37
-1%
85%
>13.2p
<0.37
-3%
100%
14.5p
>£146.5m £176.0m
>£149.3m £155.3m
<0.37
5%
-3%
5%
100%
10%
10%
14.5p
15% £196.3m
15% £159.4m
0.25
5%
+18.9%
5%
115.4%
10%
10%
10.4p
25% £125.3m
25% £125.3m
5.0%
0.0%
10.0%
0.0%
0.0%
0.0%
–
–
60%
–
80%
–
15.0%
Overall this resulted in the following bonus payments:
• RH Arnold – £50,000 (18.8% of salary);
• JM Davis – £55,000 (18.8% of salary);
• PI France – £101,000 (23.4% of salary); and
• GM Ogden – £10,000 (18.8% of salary) based on pro rata payment following his retirement on 31 March 2015.
ROTORK ANNUAL REPORT 2015
83
LTIP
The LTIP rewards the creation of shareholder value which is a strategic priority. Performance is measured over a three year
period using a combination of EPS, growth and 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(v)
Note
Year of grant
(i)
(ii)
(iii)
(iv)
(i)
(ii)
(iii)
(iv)
(i)
(ii)
(iii)
(iv)
(i)
(ii)
(iii)
2012
2013
2014
2015
2012
2013
2014
2015
2012
2013
2014
2015
2012
2013
2014
Awards at
1 January
20151
111,140
83,620
83,080
–
Awards
granted
during the
year
–
–
–
100,840
Awards
vesting
during the
year
(41,060)
–
–
–
Awards
lapsed
during the
year
Awards at
31 December
2015
(70,080)
–
–
–
–
83,620
83,080
100,840
277,840 100,840
(41,060)
(70,080) 267,540
126,540
92,920
103,560
–
–
–
–
117,120
(46,750)
–
–
–
(79,790)
–
–
–
–
92,920
103,560
117,120
323,020
117,120
(46,750)
(79,790) 313,600
193,140
141,820
153,440
–
–
–
–
215,500
(71,360)
–
–
–
(121,780)
–
–
–
–
141,820
153,440
215,500
488,400
215,500
(71,360)
(121,780) 510,760
94,120
69,840
74,600
238,560
–
–
–
–
(34,770)
(13,590)
–
(59,350)
(56,250)
(43,520)
–
–
31,080
(48,360)
(159,120)
31,080
Vesting date
5 March 2015
3 March 2016
7 March 2017
6 March 2018
5 March 2015
3 March 2016
7 March 2017
6 March 2018
5 March 2015
3 March 2016
7 March 2017
6 March 2018
5 March 2015
3 March 2016
7 March 2017
1 Restated to reflect subdivision of ordinary 5p shares into 0.5p shares.
(i) 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 193,9401. The shares vested on 5 March 2015 and the share price on the date of vesting was £2.501.
(ii) 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.
Rotork’s actual TSR performance was 0% and the EPS growth was -16.4% resulting in the minimum performance criteria not being achieved. The
awards will lapse in March 2016.
(iii) 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).
(iv) The 2015 awards were granted on 6 March 2015 and are subject to the same performance targets as the 2012, 2013 and 2014 awards (albeit based
on performance to 31 December 2017). Further details on the awards are set out in the table below.
(v) GM Ogden retired from the Board on 31 March 2015. He had been treated as a good leaver in respect of his outstanding LTIP awards (see page 87).
The awards continue to vest subject to performance and a time pro rata reduction. For the 2013 LTIP award, performance was measured to the
date of cessation of employment. The TSR element of the award did not vest. The EPS element of the award vested at 52.6%. For the 2014 LTIP
award, performance will be measured at the end of the performance period (31 December 2016).
LTIP awards made during the year (audited)
RH Arnold
JM Davis
PI France
Share awards
made during
20151
100,840
117,120
215,500
Basis on which award made
Number of
shares vesting
for minimum
performance(i)
Number of
shares vesting
for maximum
performance
Face value
of award
100% of salary £251,000
100% of salary £292,000
125% of salary £538,000
20,168
23,424
43,100
100,840
117,120
215,500
End of
performance period
31 December 2017
31 December 2017
31 December 2017
1 Restated to reflect subdivision of ordinary 5p shares into 0.5p shares.
(i) Vesting if the minimum performance EPS and TSR conditions are achieved (20% of the maximum award). The share price used to determine the
number of shares under the award was £2.491, being the share price immediately prior to the date of the award.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 84 ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Free 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 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 2015 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(i)
JM Davis
PI France
GM Ogden(ii)
Date of grant
8 April 2015
8 April 2015
8 April 2015
8 April 2015
Free share
awards made
during the year1
Basis on which award made
1,420
1,420
1,420
–
Non performance based
Non performance based
Non performance based
Non performance based
Face value
of award
£3,587
£3,587
£3,587
–
1 Restated to reflect subdivision of ordinary 5p shares into 0.5p shares.
(i) 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.
(ii) GM Ogden retired on 31 March 2015 prior to the date of grant and received £6,792.25 in cash being the grossed up amount in lieu of a share award.
The share price used for the award was £2.531, based on the average share price for the three business days prior to the date of the award.
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 2015 are shown in the
table below:
RH Arnold
JM Davis
PI France
GM Ogden
Partnership share interest as
at 31 December 2015
N/A
8,309
3,445
–
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 the six months following the lapse of the options.
Shares
under
option
Basis on which award made
JM Davis
PI France
12,162 Non performance based
20,270 Non performance based
1 Restated to reflect subdivision of ordinary 5p shares into 0.5p shares.
Option
price1
£1.48
£1.48
Duration
3 years
5 years
Date of grant
Date of vesting
13 October 2015
13 October 2015
1 December 2018
1 December 2020
ROTORK ANNUAL REPORT 2015
85
Sharesave accounts closed/options exercised in 2015
Shares
under
option1
Basis on which
award made
Option
Price
Duration
Date of grant
Date of Vesting
Status
JM Davis
4,100
JM Davis
4,020
PI France
11,790
PI France
6,770
GM Ogden(i)
4,100
GM Ogden(i)
4,020
Non
performance
based
Non
performance
based
Non
performance
based
Non
performance
based
Non
performance
based
Non
performance
based
£2.194
3 years
2013 1 December 2016
30
September
£2.236
3 years
2014 1 December 2017
30
September
5
October
£1.31
5 years
2010 1 December 2015
30
September
£2.236
5 years
2014 1 December 2019
£2.194
3 years
2013 1 December 2016
30
September
£2.236
3 years
2014 1 December 2017
30
September
Cancelled 23
September
2015
Cancelled 23
September
2015
Exercised 23
December
2015(ii)
Cancelled 24
September
2015
Cancelled 18
September
2015
Cancelled 18
September
2015
1 Restated to reflect subdivision of ordinary 5p shares into 0.5p shares.
(i) GM Odgen retired on 31 March 2015. Following retirement, Sharesave participants can continue saving and buy a reduced number of shares within
six months of leaving, using the savings accumulated up to that point.
(ii) The share price on the date of exercise was £1.87.
Statement of Directors’ shareholding and share interests (audited)
The table below shows total beneficial shareholdings of the Directors as at 31 December 2015.
RH Arnold
JM Davis
PI France
GM Ogden(ii)
LM Bell
GB Bullard
SA James
MJ Lamb
RC Lockwood
JE Nicholas
Beneficial shares held
2015
20141
Outstanding
LTIP awards
2015
Outstanding
options
2015
414,419
203,969
639,865
351,004
7,150
45,161
10,500
70,000
5,000
5,000
387,030
185,720
613,910
388,710
–
35,060
10,500
20,000
5,000
5,000
267,450
313,600
510,760
31,080
–
–
–
–
–
–
–
12,162
20,270
–
–
–
–
–
–
–
%
Shareholding
of salary
achieved(i)
2015
194%
128%
272%
–
N/A
N/A
N/A
N/A
N/A
N/A
1 Restated to reflect subdivision of ordinary 5p shares into 0.5p shares.
(i) The share price used to determine the percentage of the shareholding of salary achieved is 182.7p being the share price as at 31 December 2015.
(ii) GM Ogden retired as a Director on 31 March 2015.
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,
except JM Davis who, due to the share price falling during the year, is now at a shareholding of 128% of salary. There has
been no change in the Directors’ interests in the ordinary share capital of the Company between 31 December 2015 and
29 February 2016.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 86 ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Total pension entitlements (audited)
Total accrued
pension in the
defined benefit
scheme as at
31 December
2015 (£ per
annum)
Normal
retirement age
65
65
60
60
150,934
31,226
66,185
101,198*
Value of pension-related benefits (£) accrued during Company financial year to:
31 December 2014
31 December 2015
Defined
benefit
scheme
83,250
53,900
67,360
–
Cash in lieu
of pension
–
25,920
63,293
90,332
Total
83,250
79,820
130,653
90,332
Defined
benefit
scheme
412,800
61,960
82,880
–
Cash in lieu
of pension
–
26,339
63,945
22,990
Total
412,800
88,299
146,825
22,990
Director
RH Arnold
JM Davis
PI France
GM Ogden
* Please refer to note 2 below.
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 2015 is that which would be paid annually on retirement from normal
pension age, based on service to 31 December 2015, except for GM Ogden who became a preserved member of the Rotork Pension and Life
Assurance Scheme on 5 April 2012 and began drawing his benefits from 5 April 2015. The figure shown for GM Ogden’s total benefit as at
31 December 2015 includes deferred revaluation applied to the date he began drawing benefits and deduction for annual allowance tax charges,
but does not include any reduction applied for early retirement or exchanging pension for a cash sum, or any subsequent pension increases
applied before 31 December 2015.
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 2015. He receives a
cash allowance of 44% of basic salary in lieu of this pension benefit, which amounted to £22,990 in 2015 (up to the date of his retirement).
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 £145,800 for 2015. In lieu 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. During 2015, this resulted in additional cash allowances of
£63,945 and £26,339 respectively.
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 (which is the cause of the large
increase in value over 2015) and are therefore not directly comparable with the directors in the UK scheme. If exchange rates had been unchanged
from those used for 2014, then the increase in the value of RH Arnold’s benefit over 2015 would have been £94,060. We have assumed that
RH Arnold does not contribute to this arrangement.
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.
TSR performance graph
600
500
400
300
200
100
0
Jan 09
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Rotork plc
FTSE Industrial
Engineering Sector
Historic Chief Executive remuneration table
Year
2015
2014
2013
2012
2011
2010
2009
ROTORK ANNUAL REPORT 2015
87
Chief
Executive
single figure
remuneration
(£000s)
Annual cash
bonus as a %
of maximum
opportunity
LTIP vesting
rate as a % of
maximum
opportunity
696
1,092
1,452
1,539
1,182
1,288
1,062
23.4%
66.0%
94.4%
91.3%
88.9%
91.9%
99.5%
0%
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
PI France
Percentage change in remuneration of Director undertaking the role of Chief Executive
This shows the percentage change in remuneration (salary, benefits and bonus) between 2014 and 2015 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 2%. However, this comparison is
distorted by currency movements as the average salary increase between 2014 and 2015 for overseas employees was 2.8%
and for the UK workforce was 1.9%.
Base salary
Benefits
Bonus
PI France Chief Executive
Average per UK employee
2015
% change from 2014
2015
% change from 2014
1.8%
3.4%
(71%)
1.9%
(14.6%)
(40%)
Relative importance of spend on pay
The following table 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.
Employee remuneration (£000s)
Dividends (£000s)(i)
(i) Dividends paid were the only distributions to shareholders during the year.
2015
2014
139,136
43,765
143,579
42,702
%
change
(3.2%)
2.5%
Retirement of GM Ogden
GM Ogden retired from the Company on 31 March 2015. He did not receive any compensation for loss of office. He received
a prorated annual cash bonus for 2015 as set out in the single figure of remuneration table on page 82. The Committee has
exercised its discretion in relation to his outstanding LTIP awards for 2013 and 2014 for them not to lapse on his retirement
in line with the relevant scheme rules applicable for each award. The Committee considered that the use of its discretion in
this way was justified given GM Ogden’s length of service as an employee and overall contribution to the Group. The
awards remained eligible for vesting subject to performance and a time pro rata reduction to reflect the proportion of the
performance period served. For the 2013 award, under the plan rules, performance was measured to the date of cessation
of employment. This resulted in 13,600 of shares vesting to GM Ogden with respect to the 2013 award. For the 2014 award
performance is measured until the end of the outstanding performance period being 31 December 2016 and there will be a
pro rata vesting in the event that the performance criteria are achieved. Any outstanding Sharesave or SIP awards will vest
in accordance with their terms.
Retirement of RH Arnold
As announced in March 2016, RH Arnold will retire from Rotork in August 2016, following 38 years' of service with the
Group, including 28 years as President of Rotork Controls Inc.. He will not receive any compensation for loss of office. He
will be eligible to receive a prorated annual cash bonus for 2016 based on the period worked. The Committee has exercised
its discretion in relation to his outstanding LTIP awards for them not to lapse on his retirement in line with the relevant
scheme rules applicable for each award. The Committee considered that the use of its discretion in this way was justified
given his length of service and overall contribution to the Group. The awards will remain eligible for vesting (on the normal
vesting date) subject to performance and a time pro rata reduction to reflect the proportion of the performance period
served. Any outstanding OPLSS awards will vest in accordance with their terms.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 88
ROTORK ANNUAL REPORT 2015
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Statement of implementation of the remuneration policy in 2016
The base salaries for the executive Directors were reviewed in December 2015 and the percentage increases shown below
(effective from 1 January 2016) were agreed by the Committee. This is consistent with the typical increase for the UK
workforce (which was 1%).
The salaries from 1 January 2016 are therefore as follows:
• RH Arnold – US$393,657 (1%);
• JM Davis – £295,046 (1%); and
• PI France – £434,300 (1%).
Following a review, the Committee decided to make certain changes to the annual cash bonus for 2016. The three year
profit growth and EPS target will be removed, and strategic and personal targets are being introduced to more
appropriately reflect the business strategy. The annual cash bonus for 2016 will therefore be based on annual profit target
(60%), cash generation (15%), accident frequency rate (5%), and strategic and personal target objectives (20%). As was the
case in 2015, the maximum cash bonus potential is 100% of basic salary for executive Directors, except for the Chief
Executive where the bonus potential is 125% of basic salary. The specific targets relating to the cash 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.
The LTIP award levels for 2016 will be 150% of salary for the Chief Executive, 125% of salary for the Group Finance Director
and 100% of salary for the President of Rotork Controls Inc. (increased from 125% for the Chief Executive and 100% for the
Group Finance Director in 2015). These increased award levels are within the Policy Report maximum of 150% of salary and
are designed to increase the competiveness of the long term incentive opportunity.
Consistent with the approach used in previous years, the LTIP 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 9% for 15% vesting,
increasing on a straight-line basis to full vesting for EPS growth of 35% and above. The revised target range, which is no
longer referenced to the UK RPI, reflects the increasingly international nature of the Company and the expected future
outlook for the business given the uncertain macro-economic environment. The Committee is satisfied that the EPS targets
remain appropriately challenging given the current outlook for the Group and the proposed award levels.
The fees for the non-executive Directors were reviewed in December 2015. The fee for the Chairman was reviewed in March
2015 as part of the search process for a successor Chairman. The current fee policy is:
• Chairman: £180,000;
• Base Board fee: £47,000;
• Additional fee for chairing the Audit Committee £10,000;
• Additional fee for chairing the Remuneration Committee £8,000; and
• Additional fee for the role of Senior Independent Director £8,000.
Consideration by the Directors of matters relating to Directors’ remuneration
The members of the Committee are: GB Bullard (Chairman), LM Bell, SA James and JE Nicholas. MJ Lamb ceased to be a
member when he became Chairman of the Board. 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 adviser to the
Committee.
In 2015, the Company paid £54,926 (2014: £52,068) to New Bridge Street for services to the Committee.
Statement of voting at general meeting
At the 2015 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 Report
Votes cast
‘for’
Votes cast
‘against’
Votes
‘withheld’
99.6
0.40%
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.
REPORT 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 2015 as set out
on pages 98 to 144. 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 60 to 61. RC Lockwood and GM Ogden
were Directors during the year and resigned from the Board
on 31 March 2015 and 24 April 2015, respectively.
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 reappointment by the
shareholders. In accordance with the recommendations of
the UK Corporate Governance Code (Code), each member
of the Board submits themselves 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 3.1p per
ordinary share (2014: 3.09p) for the year, payable on
16 May 2016 to shareholders on the register on 8 April 2016.
An interim dividend for 2015 of 1.95p per ordinary share
(2014: 1.92p) was paid on 25 September 2015.
Dividend information has been restated to reflect the
subdivision of the Company’s ordinary share capital
referred to below.
Information required in the Report of the Directors
set out in the Strategic Report
Information relating to likely future developments of the
Company and its subsidiaries and information relating to
the R&D activities of the Company and its subsidiaries is
set out in the Strategic Report on pages 2 to 59.
ROTORK ANNUAL REPORT 2015
89
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.
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.
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 2015 are summarised in note
17 of the financial statements. On 18 May 2015, each of the
Company’s ordinary shares of 5p were subdivided into 10
ordinary shares of 0.5p each. 0.5p 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 24 April 2015, 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 the
shareholders. These authorities expire at the 2016 AGM
and appropriate renewals will be sought.
The Company did not acquire any of its own shares in 2015.
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.
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 90 ROTORK ANNUAL REPORT 2015
REPORT OF THE DIRECTORS
CONTINUED
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 53.
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 54.
Substantial shareholders
As at 31 December 2015, 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.
Identity
AXA Investment Managers S.A.
APG Asset Management NV
Blackrock Inc.
Fiera Capital Corporation
Mondrian Investment Partners Limited
Size of
holding
Nature of
holding
5.01% Indirect
5.01%
Direct
4.86% Indirect
4.23% Indirect
5.01%1
Indirect
1 The Company was informed on 18 February 2016 that Mondrian
Investment Partners Limited had decreased the size of its holding to
4.91% 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 29 February 2016.
Corporate Governance
The Company’s Corporate Governance Report can be found
on pages 62 to 68.
Disclosure of information to auditors
The Directors who held office at the date of approval of this
report of the Directors 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 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.
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.
ROTORK ANNUAL REPORT 2015
91
Directors’ statement pursuant to the Disclosure and
Transparency Rules
Each of the Directors, whose names and functions are listed
on pages 60 to 61, 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 Report of the Directors 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
29 February 2016
DirectorsFinancial StatementsCompany InformationGovernanceStrategic Report 92
ROTORK ANNUAL REPORT 2015
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROTORK PLC
Opinion on financial
statements of Rotork plc
Going concern
Independence
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 2015 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 including FRS 101
‘Reduced Disclosure Framework’; 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) including
FRS 101 ‘Reduced Disclosure Framework’.
As required by the Listing Rules we have reviewed the directors’ statement regarding the
appropriateness of the going concern basis of accounting contained within note 1 to the
financial statements and the directors’ statement on the longer-term viability of the Group
contained within the Strategic Report on page 47.
We have nothing material to add or draw attention to in relation to:
• the directors’ confirmation on page 91 that they have carried out a robust assessment of
the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity;
• the disclosures on pages 44 to 47 that describe those risks and explain how they are
being managed or mitigated;
• the directors’ statement in note 1 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing
them and their identification of any material uncertainties to the Group’s ability to
continue to do so over a period of at least 12 months from the date of approval of the
financial statements;
• the director’s explanation on page 47 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We agreed with the directors’ adoption of the going concern basis of accounting and we did
not identify any such material uncertainties. 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.
We are required to comply with the Financial Reporting Council’s Ethical Standards for
Auditors and we confirm that we are independent of the group and we have fulfilled our
other ethical responsibilities in accordance with those standards. We also confirm we have
not provided any of the prohibited non-audit services referred to in those standards.
ROTORK ANNUAL REPORT 2015
93
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:
Risk
How the scope of our audit responded to the risk
The risks identified are the same risks as identified in the prior year:
Impairment of the carrying value of goodwill
The gross carrying value of goodwill at 31 December 2015
was £222.1m. Details of its valuation are included by
management in the ‘critical accounting estimates and
judgements’ section on page 106 and note 10 to
the accounts.
Management perform an impairment review under IAS 36
‘Impairment of Assets’ on an annual basis and whenever
an indication of impairment exists.
Assessment of the carrying value of goodwill and
intangible assets is a significant risk due to the quantum
of the balance and the number of judgements involved in
assessing impairment, in particular in relation to the
revenue and profit growth assumptions and the discount
rates used for each cash generating unit (‘CGU’).
During the period management combined a number of
the CGUs with the Instruments division to form the
Instruments sub group. This new CGU consists of the
Fairchild, Soldo, YTC and Midland acquisitions. Following
changes in the businesses post acquisition, and cross
selling of products within the division it is no longer
possible to identify independent cash flows attributable
to each of them.
Valuation of acquired intangibles
During the year, the Group has acquired six businesses,
Bifold, Eltav, M&M, OMAS Teknik, Roto Hammer and SMS
for total consideration of £147.6m. £66.7m 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 106 and note 3 to
the accounts.
The Bifold acquisition is individually significant with
separately identifiable intangible assets valued at £53.6m.
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.
Identified intangibles include brands, customer
relationships, order book, intellectual property and
product patent design.
We challenged the reasonableness of the assumptions used
in the forecast cashflow model with reference to the budgets
approved by the Board.
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.
We evaluated the change in identified CGUs against how
goodwill is monitored within the business and the extent to
which sale of products are made between the businesses.
We also reviewed management’s assessment that there was
no impairment of the individual CGU’s prior
to the aggregation.
We have reviewed the disclosures made in the financial
statements and assessed compliance with IAS 36.
Our audit of the acquired intangible assets focused on
management’s valuation model. We challenged the key
assumptions including discount rates, growth rates and
royalty rates. We used our internal valuation specialists to
support our assessment of the discount 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
related financial due diligence reports.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 94 ROTORK ANNUAL REPORT 2015
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROTORK PLC
CONTINUED
Risk
How the scope of our audit responded to the risk
Valuation of inventory
The Group had inventory of £87.2m at 31 December 2015,
held in numerous global locations across several product
lines. Details of its valuation are included by management
in the ‘critical accounting estimates and judgements’
section on page 106 and note 14 to the accounts.
There is a risk of 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. The calculation of the provisions
requires application of judgement by management.
There is a risk that local systems can present inconsistent
data and/or management override occurs.
Defined benefit pension liability valuation
The Group has a defined benefit pension net liability of
£23.3m (gross liabilities of £180.4m) at 31 December
2015. Details of the valuation of the liability is included by
management in the ‘critical accounting estimates and
judgements’ section on page 106 and note 24 to
the accounts.
Our audit work assessed the design and implementation
of controls in relation to the valuation of inventory with
a specific focus on the key judgements related to
inventory provisions.
At our in-scope components we compared the
methodology applied in calculating the provision to the
Group’s policy. We investigated manual overrides to the
application of the policy and obtained evidence to support
any significant adjustments.
Our work on provisions included agreeing the provision
calculations to historical inventory usage and ageing data.
We recalculated provisions based on this data.
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 and
determined whether the key assumptions are reasonable.
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
rate, can have a signficant effect on the valuation
of the liability.
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.
Our application of
materiality
The description of risks above should be read in conjunction with the significant issues
considered by the Audit Committee discussed on pages 70 and 71.
These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
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 £5.3m (2014: £6.9m), which is 5% of pre-tax
profit. The decrease in materiality is a result of the reduction in profit before tax compared
to the prior year.
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £106,000 (2014: £138,000), 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.
ROTORK ANNUAL REPORT 2015
95
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 32 components. 24 components were subject to a full scope
audit and audit procedures were performed on key account balances at the other eight
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.
85%
REVENUE
95%
PROFIT
BEFORE
TAX
The 32 locations represent the principal business units within the Group’s four reportable
segments across 16 countries and account for 85% of the Group’s revenues, 95% 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 £1.9m to £2.9m.
Due to the significance to the group audit of the 24 components’ operations subject to full
scope audits, a programme has been designed and implemented for senior members of the
group audit team to visit the key components where the group audit scope was focused at
least once every three years. As part of the 2015 audit, senior members of the group audit
team visited key components in the United Kingdom, Italy, United States of America, China,
Korea, Dubai and Australia.
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 close 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 34
components not subject to audit or audit of specified account balances. None of these
components represented more than 2% of revenue, profit before taxation or total group
net assets individually.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
96 ROTORK ANNUAL REPORT 2015
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROTORK PLC
CONTINUED
Opinion on other matters
prescribed by the
Companies Act 2006
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 Report of the Directors’ for the
financial year for which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are
required to report by
exception
Adequacy of explanations
received and accounting
records
Directors’ remuneration
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.
Corporate Governance
Statement
Under the Listing Rules we are also required to review the part of the Corporate Governance
Statement relating to the company’s compliance with certain provisions of the UK Corporate
Governance Code. We have nothing to report arising from our review.
Our duty to read other
information in the Annual
Report
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.
ROTORK ANNUAL REPORT 2015
97
Respective
responsibilities of
directors and auditor
Scope of the audit of the
financial 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). 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
29 February 2016
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 98 ROTORK ANNUAL REPORT 2015
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses
Operating profit before the amortisation of acquired 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
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
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 gain/(loss) in pension scheme net of tax
Income and expenses recognised directly in equity
Total comprehensive income for the year
Notes
2015
£000
2014
£000
2
4
5
2
7
7
8
9
18
18
18
18
546,459
(296,944)
594,739
(309,280)
249,515
427
(4,613)
(140,877)
(66)
125,272
(20,886)
285,459
277
(5,466)
(137,832)
(211)
157,167
(14,940)
104,386
142,227
1,740
(4,257)
101,869
(27,012)
1,421
(2,483)
141,165
(37,963)
74,857
103,202
8.6p
10.4p
8.6p
10.4p
11.9p1
13.2p1
11.9p1
13.1p1
2015
£000
2014
£000
74,857
103,202
(6,511)
(1,448)
(7,959)
(869)
(1,810)
(2,679)
8,049
(15,341)
90
(18,020)
74,947
85,182
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
99
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
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
Derivative financial instruments
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
Notes
2015
£000
2014
£000
10
11
12
13
15
14
15
15
23
15
16
17
19
20
13
23
21
19
22
20
22
23
22
21
222,086
118,555
72,008
13,698
2,234
149,679
72,270
64,050
15,703
1,976
428,581
303,678
87,210
118,801
4,458
25
13,225
48,968
81,090
128,472
1,962
1,913
12,586
46,816
272,687
272,839
701,268
576,517
4,349
10,018
(3,989)
397,424
4,346
9,422
3,970
359,057
407,802
376,795
69,756
26,320
28,973
431
11,990
137,470
50,352
36,724
11,118
14,276
3,601
34,612
5,313
1,303
38,864
20,358
–
1,913
62,438
20,274
40,162
16,018
15,200
1,119
35,191
9,320
155,996
137,284
293,466
199,722
701,268
576,517
These financial statements were approved by the Board of Directors on 29 February 2016 and were signed on its
behalf by:
PI France and JM Davis, Directors.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
100 ROTORK ANNUAL REPORT 2015
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Balance at 31 December 2013
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
Issued
equity
capital
£000
4,344
–
Share
premium
£000
8,840
–
Translation
reserve
£000
2,668
–
Capital
redemption
reserve
£000
1,644
–
Hedging
reserve
£000
2,337
–
Retained
earnings
£000
Total
£000
312,246
103,202
332,079
103,202
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
582
–
–
–
(869)
–
–
–
(869)
(869)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,368)
–
–
(869)
(2,368)
–
558
(19,832)
4,491
(19,832)
5,049
(1,810)
(15,341)
(18,020)
(1,810)
87,861
85,182
–
–
–
–
–
–
2,799
2,799
(274)
–
(6,300)
(274)
584
(6,300)
5,427
(42,702)
5,427
(42,702)
Balance at 31 December 2014
4,346
9,422
1,799
1,644
527
359,057
376,795
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
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
596
–
–
–
–
(6,511)
–
–
–
(6,511)
(6,511)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
74,857
74,857
–
–
(1,790)
–
–
(6,511)
(1,790)
9,704
(1,313)
–
342
9,704
(1,655)
(1,448)
8,049
90
(1,448)
82,906
74,947
–
–
–
–
–
–
(1,447)
(1,447)
(799)
–
(2,785)
(799)
599
(2,785)
4,257
(43,765)
4,257
(43,765)
Balance at 31 December 2015
4,349
10,018
(4,712)
1,644
(921)
397,424
407,802
Detailed explanations for equity capital, the translation reserve, capital redemption reserve and hedging reserve can be
seen in note 17.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
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)/loss on sale of property, plant and equipment
Finance income
Finance expense
Income tax expense
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Difference between pension charge and cash contribution
Decrease in provisions
(Decrease)/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 in bank loans
Repayment of finance lease liabilities
Dividends paid on ordinary shares
Cash flows from financing activities
Increase/(decrease) 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
16
ROTORK ANNUAL REPORT 2015
101
Notes
2015
£000
2015
£000
2014
£000
2014
£000
74,857
20,886
1,814
9,759
2,810
(280)
(1,740)
4,257
27,012
139,375
731
15,664
(6,931)
(5,051)
(56)
(4,226)
139,506
(35,716)
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)
103,790
104,869
(11,762)
(3,063)
1,508
(133,857)
(4,536)
1,103
3
(17,518)
(2,676)
224
(81,263)
(1,463)
1,048
(150,607)
(101,648)
599
(2,785)
(1,759)
98,326
(100)
(43,765)
584
(6,300)
(1,120)
19,496
(36)
(42,702)
50,516
3,699
46,816
(1,547)
48,968
(30,078)
(26,857)
68,873
4,800
46,816
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
102 ROTORK ANNUAL REPORT 2015
NOTES TO THE GROUP FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
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 2015 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, Accounting policies and applicable notes can be found following note 30.
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 narrow scope amendments which were issued as part of the IFRS Annual improvement cycles have been
applied from 1 January 2015:
• 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 standards and amendments has not had any material impact on the disclosures or on the amounts
recognised in the Group’s consolidated financial statements.
Recent accounting developments
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 out to understand the impact of this standard prior to
it becoming effective in January 2018.
IFRS9 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.
IFRS16 Leases was issued on 13 January 2016 and has a mandatory effective date of 1 January 2019. The new standard will
eliminate the classification of leases as either operating or finance leases and result in operating leases being treated as
finance leases. This will result in previously recognised operating leases being treated as property, plant and equipment
and a finance lease creditor. The introduction of the standard will increase the value of property, plant and equipment and
the finance lease liability on the balance sheet but it is unlikely to have a material impact on the profit in any year. An
assessment will be carried out to understand the full impact of the standard prior to it becoming effective in January 2019.
The narrow scope amendments in the Annual Improvements to IFRSs: 2012-2014 cycle which are mandatory for periods
commencing after 1 January 2016 will not have a material impact on the disclosures, net assets or results of the Group.
Going concern
After carrying out a detailed review of the viability of the business, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the financial statements. In forming this view, the directors have
considered trading and cash flow forecasts, financial commitments, the significant order book with customers spread
across different geographic areas and industries and the net cash position.
ROTORK ANNUAL REPORT 2015
103
Consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year
to 31 December 2015. 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.
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.
The fair value of the assets and liabilities assumed are provisional for a 12 month period.
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 profit or loss.
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.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 104 ROTORK ANNUAL REPORT 2015
1. Accounting policies continued
Intangible assets
i) Research and 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.
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
4 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.
Interest-bearing loans and borrowings
Obligations for loans and borrowings are recognised when the Group becomes party to the related contracts and are
measured initially at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans
and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any
issue costs and any discount or premium on settlement. Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
105
Inventory and work in progress
Inventory and work in progress is 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.
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 Plan (OPLSS) and the Share Incentive Plan (SIP) are discretionary profit linked shares
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.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 106 ROTORK ANNUAL REPORT 2015
1. Accounting policies continued
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.
Dividends
Interim dividends are recorded in the financial statements when they are paid. Final dividends are recorded in the financial
statements in the period in 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 assumptions in the value in use calculations 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 is 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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015 ROTORK ANNUAL REPORT 2015
107
2. Operating segments
The Group has chosen to organise the management and financial structure by the grouping of related products. The four
identifiable operating segments where the financial and operating performance is reviewed monthly by the chief operating
decision maker are as follows:
• Controls – the design, manufacture and sale of electric actuators.
• Fluid Systems – the design, manufacture and sale of pneumatic and hydraulic actuators.
• Gears – the design, manufacture and sale of gearboxes, adaption and ancillaries for the valve industry.
• Instruments – the manufacture of high precision pneumatic controls and power transmission products for a wide
range of industries.
Unallocated expenses comprise corporate expenses.
Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with
third parties.
Geographic analysis
Rotork has a worldwide presence in all four operating segments through its subsidiary selling offices and through an
agency network. A full list of locations can be found at www.rotork.com.
Analysis by operating segment
Controls
2015
Fluid
Systems
2015
Gears
2015
Instruments
2015
Elimination
2015
Unallocated
2015
Group
2015
Revenue from external customers
Inter segment revenue
286,708
–
149,228
–
46,072
12,562
Total revenue
Adjusted operating profit
Amortisation of acquired intangible
286,708
149,228
58,634
85,479
15,215
11,991
64,451
2,875
67,326
18,306
assets
Operating profit
Net finance expense
Income tax expense
Profit for the year
(3,326)
(2,300)
(990)
(14,270)
82,153
12,915
11,001
4,036
–
(15,437)
(15,437)
–
–
–
546,459
–
546,459
–
–
–
(5,719)
125,272
–
(20,886)
(5,719)
104,386
Controls
2014
Fluid
Systems
2014
Gears
2014
Instruments
2014
Elimination
2014
Unallocated
2014
Revenue from external customers
Inter segment revenue
324,539
–
180,260
–
45,771
12,035
Total revenue
Adjusted operating profit
Amortisation of acquired intangible
324,539
180,260
57,806
104,709
31,180
13,011
44,169
1,788
45,957
14,433
assets
Operating profit
Net finance expense
Income tax expense
Profit for the year
(3,477)
(1,585)
(428)
(9,450)
101,232
29,595
12,583
4,983
–
(13,823)
(13,823)
–
–
–
–
–
–
(6,166)
157,167
–
(14,940)
(6,166)
142,227
(1,062)
(37,963)
103,202
(2,517)
(27,012)
74,857
Group
2014
594,739
–
594,739
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 108 ROTORK ANNUAL REPORT 2015
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
2015
4,585
3,326
1,514
1,911
–
1,321
3,048
5,093
Controls
2014
4,396
3,477
1,342
2,779
–
–
–
6,082
Fluid
Systems
2015
2,560
2,300
148
549
–
–
–
4,970
Fluid
Systems
2014
2,012
1,585
20
1,162
–
1,753
1,346
6,820
Gears
2015
1,194
990
67
351
–
3,933
4,951
811
Gears
2014
813
428
44
574
–
Instruments
2015
Unallocated
2015
1,369
14,270
85
51
–
–
Group
2015
9,759
20,886
1,814
103
–
(104)
(2,517)
2,810
(2,517)
69,206
58,685
818
–
–
46
74,460
66,684
11,738
Instruments
2014
Unallocated
2014
715
9,450
55
60
–
–
Group
2014
7,996
14,940
1,461
181
–
464
(1,062)
5,160
(1,062)
–
–
3,875
43,301
31,042
613
–
–
2
45,054
32,388
17,392
Balance sheets are reviewed by subsidiary and operating segment balance sheets are not prepared, as such no further
analysis of operating segments assets and liabilities is presented.
Geographical analysis:
Revenue by location of subsidiary
UK
Italy
Rest of Europe
USA
Other Americas
Rest of World
Non-current assets:
– Goodwill
– Intangible assets
– Property, plant and equipment
Non-current assets:
– Goodwill
– Intangible assets
– Property, plant and equipment
2015
2014
64,415
57,254
92,908
137,898
30,698
163,286
57,424
66,447
110,790
144,366
36,327
179,385
546,459
594,739
UK
2015
81,328
60,917
25,675
UK
2014
14,107
11,972
21,770
Rest of
Europe
2015
53,645
20,833
22,362
Rest of
Europe
2014
53,409
21,767
18,257
USA
2015
Other
Americas
2015
Rest of
World
2015
Group
2015
48,817
16,827
7,834
740
–
618
37,556
19,978
15,519
222,086
118,555
72,008
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
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015 ROTORK ANNUAL REPORT 2015
109
3. Acquisitions
i) Bifold
On 27 August 2015, the Group acquired 100% of the share capital of Bifold Group Limited (Bifold) for £125,643,000.
Bifold is a leading manufacturer of pneumatic and hydraulic instrument valves and components focused on the oil and
gas industry and wider industrial markets, headquartered in Manchester, UK. The acquired business is reported within
the Instruments division. In the four months to 31 December 2015 Bifold contributed £10,893,000 to Group revenue and
£2,004,000 to consolidated operating profit before amortisation. The amortisation charge in the four month period from
the acquired intangible assets was £4,141,000.
If the acquisition had occurred on 1 January 2015 the business would have contributed £33,296,000 to Group revenue,
£4,388,000 to Group operating profit and £3,534,000 to profit attributable to equity shareholders.
ii) Other acquisitions
The Group acquired 100% of the share capital of M&M International Srl (M&M) for £7,649,000 on 3 August 2015. M&M is
a leading manufacturer of solenoid valves, piston actuated valves and automatic drain valves for use in commercial and
industrial flow control industries based in Bergamo, Italy. The acquired business is reported within the Instruments division.
The Group acquired 100% of the share capital of Roto Hammer Industries Inc. (Roto Hammer) for £8,215,000 on
24 September 2015. Roto Hammer is a manufacturer of custom-designed chain wheel manual valve operators based
in Tulsa, USA. The acquired business is reported within the Gears division.
The Group acquired 100% of the share capital of Servo Moteurs Service sarl (SMS) for £1,303,000 on 29 September 2015.
SMS, an actuator service business based in Marseilles, France. The acquired business is reported within the
Controls division.
The Group acquired 100% of the share capital of Eltav Wireless Monitoring Limited (Eltav) for £1,980,000 on
30 October 2015. Eltav is engaged in the research and development of wireless systems for monitoring production
activity in the process industry based in Tel-Aviv, Israel. The acquired business is reported within the Instruments division.
The Group purchased the assets of the actuator and service business of a former Rotork agent, OMAS Teknik based in
Turkey for £2,843,000 on 26 February 2015. This purchase is reported within the Controls division.
In the period from acquisition to 31 December 2015, the other acquisitions contributed £4,305,000 to Group revenue and
£836,000 to consolidated operating profit before amortisation. The amortisation charge in respect of these acquisitions
during the year was £1,031,000. If these other acquisitions had occurred on 1 January 2015 they would have contributed
£11,497,000 to Group revenue, £1,372,000 to Group operating profit and £730,000 profit attributable to equity shareholders.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
110 ROTORK ANNUAL REPORT 2015
3. Acquisitions continued
iii) Acquisitions fair value table
The six acquisitions had the following effect on the Group’s assets and liabilities.
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Current assets
Inventory
Trade and other receivables
Corporation tax
Cash
Current liabilities
Trade and other payables
Employee benefits
Warranty provision
Corporation tax
Loans and other borrowings
Non-current liabilities
Deferred tax liability
Total net assets
Goodwill
Purchase consideration
Paid in cash
Contingent consideration
Purchase consideration
Bifold
Other acquisitions
Total
Book
value Adjustments
Provisional
fair value
Book
value Adjustments
Provisional
fair value
Provisional
fair value
5,251
–
–
7,115
7,849
–
1,030
(4,643)
–
(182)
(263)
(397)
–
53,599
–
5,251
53,599
–
(304)
(80)
–
–
(271)
–
–
(200)
–
6,811
7,769
–
1,030
(4,914)
–
(182)
(463)
(397)
1,308
11
–
1,835
2,454
188
1,117
(1,667)
(544)
–
(55)
(18)
1,448
13,074
518
2,756
13,085
518
8,007
66,684
518
(260)
8
–
–
(285)
–
(50)
–
–
1,575
2,462
188
1,117
(1,952)
(544)
(50)
(55)
(18)
8,386
10,231
188
2,147
(6,866)
(544)
(232)
(518)
(415)
(102)
(9,980)
(10,082)
–
(4,331)
(4,331)
(14,413)
4,629
10,122
15,658
42,764
58,422
67,221
125,643
115,143
10,500
125,643
14,751
7,239
73,173
74,460
21,990
147,633
21,604
386
136,747
10,886
21,990
147,633
Total
136,747
(2,147)
(743)
133,857
Cash movements in respect of acquisitions
Purchase consideration paid in cash
Cash held in acquired subsidiary
Price adjustment in respect of YTC acquisition in 2014
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.
Due to their contractual dates, the fair value of receivables (shown above) approximate to the gross contractual amounts
receivable. The amount of gross contractual receivables not expected to be recovered is immaterial.
The contingent consideration in respect of Bifold is payable in 2017 or 2018 and is dependent on an earnings before
interest, tax, depreciation and amortisation (EBITDA) target being achieved.
The goodwill arising from these 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. Goodwill arising on acquisition is not
deductible for income tax purposes except for the £1,320,000 in respect of the asset purchase.
The intangible assets identified comprise customer relationships, brands, intellectual property, product design patents and
acquired order books.
iv) Acquisition costs
Acquisition costs of £1,321,000 have been expensed in administration expenses in the income statement (2014: £598,000).
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015 ROTORK ANNUAL REPORT 2015
111
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)
(Decrease)/increase 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
2015
325
102
427
2015
45
21
66
2014
111
166
277
2014
199
12
211
2015
114,806
14,596
7,056
2,810
(132)
2014
117,198
14,891
6,085
5,160
245
139,136
143,579
2015
Number
2014
Number
1,787
865
365
390
1,801
838
354
231
3,407
3,224
847
2,560
3,407
697
2,527
3,224
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 112 ROTORK ANNUAL REPORT 2015
7. 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
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 and development expenditure
Exchange differences realised
Audit fees and expenses paid to Deloitte:
– 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 and its associates in respect of:
– Taxation compliance services
– Taxation advisory 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.
2015
1,119
621
1,740
2015
(1,811)
(1,181)
(1,265)
2014
1,057
364
1,421
2014
(1,159)
(788)
(536)
(4,257)
(2,483)
2015
2014
(1,123)
(667)
(6,511)
667
(3,035)
(869)
(8,301)
(3,237)
(1,790)
(6,511)
(8,301)
(2,368)
(869)
(3,237)
Notes
2015
2014
i
i
i
i
ii
i
i
iii
iv
9,714
45
20,886
1,814
3,547
2,264
4,033
6,588
644
953
90
1,043
7
1,050
19
10
40
–
24
93
7,902
94
14,940
1,461
1,825
1,893
3,512
7,187
172
696
75
771
18
789
8
–
45
157
–
210
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015 9. 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
Impact of rate change
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
ROTORK ANNUAL REPORT 2015
113
2015
2015
2014
2014
3,154
(668)
28,995
(232)
(3,540)
(732)
35
6,122
(766)
2,486
5,356
36,283
229
28,763
31,249
36,512
41,868
(3,650)
–
(255)
(4,237)
27,012
26.5%
101,869
(3,905)
37,963
26.9%
141,165
Profit before tax multiplied by the blended standard rate of corporation
tax in the UK of 20.25% (2014: 21.5%)
20,629
30,350
Effects of:
Different tax rates on overseas earnings
Permanent differences
Losses not recognised
Research and development credits
Impact of rate change
Adjustments to tax charge in respect of prior years
Total tax charge for year
7,910
1,331
463
(1,724)
(732)
(865)
27,012
8,841
1,444
–
(1,880)
–
(792)
37,963
A tax expense of £799,000 (2014: £274,000) in respect of share-based payments has been recognised directly in equity in
the year.
The reduction in the effective tax rate from 26.9% to 26.5% is primarily due the impact of the reduction of the UK rate of
corporation tax substantively enacted on 26 October 2015. The Group continues to expect its effective rate of corporation
tax to be higher than the standard UK rate due to higher rates of tax in the USA, China, Canada, France, Germany, Italy,
Japan and India.
There is an unrecognised deferred tax liability for temporary differences associated with investments in subsidiaries.
Rotork plc controls the dividend policies of its subsidiaries and the timing of the reversal of the temporary differences.
The value of temporary differences associated with unremitted earnings of subsidiaries for which deferred tax has not
been recognised is £307,714,000 (2014: £292,704,000).
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 114 ROTORK ANNUAL REPORT 2015
10. Goodwill
Cost
At 1 January
Acquisition through business combinations (note 3)
Other movements
Exchange adjustments
At 31 December
Provision for impairment
At 1 January and 31 December
Carrying amounts
2015
2014
149,679
74,460
(743)
(1,310)
105,150
45,054
–
(525)
222,086
149,679
–
–
222,086
149,679
Other movements represents a final purchase price adjustment in respect of YTC which was acquired in 2014.
Cash generating units
Goodwill acquired through business combinations have 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 and/or where manufacturing of certain products is transferred to other businesses within a division
the lowest level of CGU is considered to be at a divisional sub-group level. During the year Fairchild, Soldo, YTC and
Midland were combined to form an Instruments sub-group.
Cash generating unit
Controls
Schischek
Other cash generating units
Fluid Systems
Rotork Fluid Systems
Rotork Sweden
Other cash generating units
Gears
Other cash generating units
Instruments
Bifold
Instruments sub-group
Other cash generating units
Total
Discount rates
2015
2014
14.7%
12.7%-16.7%
(2014: 13.3%)
(2014: 14.8%-15.1%)
14.4%
13.7%
13.5%-14.8%
(2014: 15.1%)
(2014: 13.3%)
(2014: 14.1%-15.1%)
12.1%-14.7%
(2014:13.1%-15.1%)
12.5%
12.5%
14.6%
–
(2014: 13.8%)
–
16,835
10,723
27,558
6,728
5,818
13,717
17,874
9,428
27,302
7,143
5,965
13,786
26,263
26,894
12,963
12,963
67,221
86,016
2,065
155,302
8,991
8,991
–
86,492
–
86,492
222,086
149,679
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 from management forecasts which are based on the budget and the three year plan.
The three year plan is a bottom up process which takes place as part of the annual budget process. Once the budget for
the next financial year is finalised, years 2 and 3 of the three year plan are 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.
The key assumptions in the annual impairment review which are common to all CGUs are set out below:
i) Long term growth rates
In the period after the three year plan growth rates are forecast at 5% per annum for the first two years and 2% thereafter
for each CGU. The 5% rate reflects a realistic market forecast for the flow control market up until 2020. The continued need
for our customers to improve their infrastructure by automating valves gives confidence that the growth rate of our market
will exceed the long term growth rate of 2% used in the impairment calculations.
ii) Discount rates
The discount rates presented above are pre-tax nominal weighted average cost of capital (WACC) for each of the CGUs.
The WACC is the weighted average of the pre-tax cost of debt financing and the pre-tax cost of equity finance.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
115
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 and applying sensitivities to these assumptions below, Bifold and the Instruments
sub-group would be the first CGUs to trigger a potential impairment. Apart from these there is no reasonable change
that would cause the carrying amount of any other CGU goodwill to exceed the recoverable amount.
The Instruments sub-group downside sensitivities have been assessed. A decrease in the growth rate by 7% in each of
the next five years or an increase in the discount rate by 3% to 15.5% would result in the headroom being reduced from
£44,500,000 in the base case to zero. It is anticipated that as the acquired businesses continue to leverage the sales
network opportunities from being part of the Rotork Group the long term growth rate of the CGU should comfortably
exceed the growth rates assumed in the impairment review.
Bifold downside sensitivities have also been assessed. A growth rate of 2% per annum from year three of the three year
plan would result in a reduction of the headroom from £39,200,000 in the base case to zero. It is anticipated that as Bifold
continues to develop its sales of recently launched products, brings more products to market over the next couple of years
and at the same time develops the sales network opportunities from being part of the Group, the growth rates will exceed
the long term growth rate of 2% used in the impairment review.
11. Intangible assets
Cost
1 January 2014
Acquisition through business combinations
Internally developed
Exchange adjustments
31 December 2014
Acquisition through business combinations
Internally developed
Exchange adjustments
31 December 2015
Amortisation
1 January 2014
Charge for the year
Exchange adjustments
31 December 2014
Charge for the year
Exchange adjustments
31 December 2015
Net book value
31 December 2014
31 December 2015
Acquired intangible assets
Research and
development
costs
Brands
Customer
relationships
Other
Total
11,096
226
2,746
16
14,084
–
3,050
13
29,680
4,808
–
(135)
34,353
11,004
–
(25)
38,436
22,579
–
82
61,097
45,414
–
(364)
7,730
4,775
–
(77)
12,428
10,266
–
(134)
86,942
32,388
2,746
(114)
121,962
66,684
3,050
(510)
17,147
45,332
106,147
22,560
191,186
6,064
1,461
1
7,526
1,814
1
9,341
6,558
7,806
7,725
4,188
(38)
11,875
4,974
196
15,020
8,255
(121)
23,154
12,014
74
4,652
2,497
(12)
7,137
3,898
(32)
33,461
16,401
(170)
49,692
22,700
239
17,045
35,242
11,003
72,631
22,478
37,943
5,291
72,270
28,287
70,905
11,557
118,555
Other acquired intangible assets represent order books and intellectual property.
The amortisation charge is recognised within administrative expenses in the income statement.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
116 ROTORK ANNUAL REPORT 2015
12. Property, plant and equipment
Cost
1 January 2014
Additions
Disposals
Acquisition through business combinations
Exchange adjustments
31 December 2014
Additions
Disposals
Acquisition through business combinations
Exchange adjustments
31 December 2015
Depreciation
1 January 2014
Charge for the year
Disposals
Exchange adjustments
31 December 2014
Charge for the year
Disposals
Exchange adjustments
31 December 2015
Net book value
31 December 2014
31 December 2015
Land and
buildings
Plant and
equipment
Total
33,053
4,063
–
8,144
(383)
44,877
2,292
(1,332)
5,597
(602)
58,674
13,329
(1,883)
1,310
(644)
70,786
9,446
(1,174)
2,410
(874)
91,727
17,392
(1,883)
9,454
(1,027)
115,663
11,738
(2,506)
8,007
(1,476)
50,832
80,594
131,426
8,408
1,042
–
(173)
9,277
1,324
(320)
(117)
37,448
6,954
(1,577)
(489)
42,336
8,435
(933)
(584)
45,856
7,996
(1,577)
(662)
51,613
9,759
(1,253)
(701)
10,164
49,254
59,418
35,600
28,450
64,050
40,668
31,340
72,008
The net book value of the Group’s plant and equipment includes £325,000 (2014: £25,000) 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
2015
2014
6,310
34,358
6,004
29,596
40,668
35,600
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015 ROTORK ANNUAL REPORT 2015
117
13. 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
2015
111
307
6,876
4,885
4,607
16,786
(3,088)
Liabilities
2015
(1,645)
(27,086)
(461)
–
(2,869)
(32,061)
3,088
Net
2015
(1,534)
(26,779)
6,415
4,885
1,738
(15,275)
–
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)
–
13,698
(28,973)
(15,275)
15,703
(20,358)
(4,655)
Movements in the net deferred tax balance during the year are as follows:
Balance at 1 January
Credited to the income statement
Charged directly to equity in respect of share-based payments
Acquired as part of business combinations
(Charged)/credited directly to equity in respect of pension schemes
Credited directly to hedging reserves in respect of cash flow hedges
Exchange differences
Balance at 31 December
2015
2014
(4,655)
4,237
(139)
(13,895)
(1,655)
342
490
(5,142)
3,905
(425)
(8,046)
4,491
558
4
(15,275)
(4,655)
A deferred tax asset of £13,698,000 (2014: £15,703,000) has been recognised at 31 December 2015. 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 £1,302,000 (2014: £1,519,000) 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.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
118 ROTORK ANNUAL REPORT 2015
14. Inventories
Raw materials and consumables
Work in progress
Finished goods
2015
2014
60,604
8,890
17,716
87,210
58,590
10,088
12,412
81,090
Included in cost of sales was £192,826,000 (2014: £206,104,000) in respect of inventories consumed in the year.
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
2015
2014
2,234
2,234
1,976
1,976
124,285
(5,484)
130,819
(2,347)
118,801
128,472
4,458
4,458
2,025
6,002
5,198
13,225
1,962
1,962
2,161
6,046
4,379
12,586
2015
2014
35,013
63
13,892
48,968
–
48,968
23,777
45
22,994
46,816
–
46,816
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
119
17. Capital and reserves
Share capital and share premium
At 1 January
Issued under employee share schemes
At 31 December
Number of shares (000)
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
0.5p Ordinary
shares
Issued
and fully
paid up
2015
£1 Non-
redeemable
preference
shares
2015
0.5p Ordinary
shares
Issued
and fully
paid up
2014
£1 Non-
redeemable
preference
shares
2014
4,346
3
4,349
869,738
40
–
40
4,344
2
4,346
869,2791
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 £599,000 (2014: £584,000) in respect of the 458,990 (20141: 573,210) ordinary shares
issued during the year: £3,000 (2014: £2,000) was credited to share capital and £596,000 (2014: £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 £3,920,000 (2014:
£5,393,000) and represents 1,406,000 (20141: 2,020,980) 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:
3.09p final dividend1 (20141: 3.0p)
1.95p interim dividend (20141: 1.92p)
2015
Payment date
19 May
26 September
2015
2014
26,835
16,930
43,765
26,046
16,656
42,702
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
3.10p
3.09p1
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
2015
2014
26,962
26,861
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
120 ROTORK ANNUAL REPORT 2015
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 867.8m shares (2014: 867.4m shares1) 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 Sharesave plans
Weighted average number of ordinary shares during the year
Basic earnings per share
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
2015
20141
74,857
103,202
867,258
428
131
867,080
246
68
867,817
867,394
8.6p
11.9p
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
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
2015
20141
74,857
20,886
(5,538)
103,202
14,940
(4,018)
90,205
114,124
867,817
867,394
10.4p
13.2p
Diluted earnings per share
Diluted earnings per share is based on the profit for the year attributable to the ordinary shareholders and 869.3m shares
(2014: 870.9m shares1). 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
Effect of LTIP share awards
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
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
2015
20141
74,857
103,202
867,817
1,214
300
867,394
1,123
2,378
869,331
870,895
8.6p
11.9p
2015
20141
74,857
20,886
(5,538)
103,202
14,940
(4,018)
90,205
114,124
869,331
870,895
10.4p
13.1p
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
121
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:
Non-redeemable preference shares
Bank loans and overdrafts
Finance lease liabilities
Currency
Sterling
Sterling, Euro
Sterling, Euro
Interest rates
9.5%
0%-4.5%
0%-1.9%
Year of
maturity
–
2016-32
2016-18
2015
2014
40
69,645
71
69,756
50,098
254
50,352
40
1,253
10
1,303
20,259
15
20,274
2015
40
119,743
325
2014
40
21,512
25
120,108
21,577
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
2015
50,098
68,987
658
254
71
Interest
2015
386
73
99
7
2
Minimum
payments
2015
50,484
69,060
757
261
Principal
2014
20,259
494
759
15
73
10
120,068
567
120,635
21,537
Interest
2014
45
87
113
1
1
247
Minimum
payments
2014
20,304
581
872
16
11
21,784
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
122 ROTORK ANNUAL REPORT 2015
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
Defined benefit pension scheme disclosures are detailed in note 24.
21. Provisions
Balance at 1 January 2015
Exchange differences
Increase as a result of business combinations
Provisions utilised during the year
Charged to the income statement
Balance at 31 December 2015
Maturity at 31 December 2015
Non-current
Current
Maturity at 31 December 2014
Non-current
Current
2015
2014
180,406
(157,131)
187,918
(151,786)
23,275
239
8,601
80
2,495
2,748
37,438
26,320
11,118
37,438
36,132
435
13,105
404
1,971
2,835
54,882
38,864
16,018
54,882
Contingent
consideration
Warranty
provision
5,493
(68)
10,886
(4,536)
–
5,740
(46)
232
(1,828)
1,430
Total
11,233
(114)
11,118
(6,364)
1,430
11,775
5,528
17,303
10,147
1,628
11,775
–
5,493
5,493
1,843
3,685
5,528
1,913
3,827
5,740
11,990
5,313
17,303
1,913
9,320
11,233
The warranty provision is based on estimates made from historical warranty data associated with similar products and
services. The provision relates mainly to products sold during the last 12 months and the typical warranty period is
18 months.
Contingent consideration in respect of the Bifold acquisition is £10,500,000, £10,000,000 will become payable if an
EBITDA target is achieved at the end of the 2016 or 2017 financial year. Other contingent consideration relates to amounts
outstanding in respect of the GTA Group and SMS acquisitions. It is currently anticipated the non-current balance will be
paid in 2017.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
123
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
Less non-current portion:
Forward foreign exchange contracts – cash flow hedges
Current portion
2015
Assets
2015
Liabilities
25
–
25
–
25
975
3,057
4,032
431
3,601
2015
2014
36,724
40,162
14,276
14,276
8,592
6,674
19,346
34,612
2014
Assets
1,243
670
1,913
–
1,913
15,200
15,200
8,123
7,617
19,451
35,191
2014
Liabilities
576
543
1,119
–
1,119
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 2015 are recognised in
the income statement in the period or periods during which the hedged forecast transaction affects the income statement.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
124 ROTORK ANNUAL REPORT 2015
24. Pension schemes
i) Defined benefit pension schemes
The Group operates two defined benefit pension arrangements the Rotork Pension and Life Assurance Scheme (UK
Scheme) and the Rotork Controls Inc. Pension Plan (US Pension plan). On retirement, leaving service or death the Schemes
provide benefits based on final salary and length of service.
The UK Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the 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 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 Scheme’s assets. The Trustee delegates some of these functions to its 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.
•
•
• Mortality risk. In the event that members live longer than assumed a deficit will emerge in the Scheme.
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 (gain)/loss
Currency loss
Liabilities at 31 December
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
Assets at 31 December
2015
2014
187,918
3,353
128
499
6,836
(5,956)
(13,449)
1,077
152,882
2,579
132
494
7,035
(4,291)
27,827
1,260
180,406
187,918
2015
2014
151,786
5,655
8,297
499
(5,956)
(3,745)
595
132,684
6,247
8,038
494
(4,291)
7,995
619
157,131
151,786
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
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 gain/(loss) from changes to financial assumptions
Actuarial gain/(loss) from changes to demographic assumptions
Experience adjustments on currency
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
ROTORK ANNUAL REPORT 2015
125
2015
3,353
128
1,181
4,662
2015
1,193
2,288
1,181
4,662
2014
2,579
132
788
3,499
2014
962
1,749
788
3,499
2015
2014
(3,745)
1,669
7,970
3,810
(482)
7,995
1,063
(27,293)
(1,597)
(641)
9,222
(20,473)
2015
2014
36,132
3,353
128
1,181
(9,222)
(8,297)
20,198
2,579
132
788
20,473
(8,038)
23,275
36,132
Liability for defined benefit obligations
The principal actuarial assumptions at 31 December 2015 (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)
2015
3.8
3.7
3.1
4.6
3.2
2014
3.6
3.6
3.0
4.6
3.1
2015
4.8
3.0
0.0
0.0
3.0
2014
4.3
3.0
0.0
0.0
3.0
2015
3.9
3.6
2.7
4.1
3.2
2014
3.7
3.5
2.7
4.1
3.1
The Retail Price Index is used as the rate of inflation as it is a requirement of the pension scheme rules.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
126 ROTORK ANNUAL REPORT 2015
24. Pension schemes continued
The split of the Schemes’ assets were as follows:
Equities
Bonds
Property
Cash
US deposit administration contract
Total
Actual return on the Schemes’ assets
2015
Fair value
75,550
60,111
9,687
137
11,646
157,131
1,910
2014
Fair value
71,928
59,748
8,717
1,403
9,990
151,786
14,242
The mortality assumptions used are the S1NXA year of birth tables with future improvements in mortality based on
the CMI_2015 projections (2014: CMI_2012 projections) with a long-term rate of improvement of 1.25% per annum
(2014: 1.25%).
By way of example the respective mortality tables indicate the following life expectancy:
Current age
65
45
Sensitivity analysis on the Schemes’ 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%
2015
Life expectancy at age 65
2014
Life expectancy at age 65
Male
22.0
23.7
Female
24.4
26.4
Male
22.5
24.2
Female
25.0
26.9
Approximate
effect on
liabilities
(17,300)
19,300
8,800
(8,400)
3,900
(3,700)
5,400
(4,900)
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 one 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 the Group’s future cashflows
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 2016 will be
£3,029,000 for regular payments (2015: £2,900,000) and £5,500,000 of additional payments in relation to past service
(2015: £5,500,000).
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 £3,703,000 (2014: £3,506,000).
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
127
25. Share-based payments
The Group awards shares under the Long Term Incentive Plan, the Save As You Earn scheme (Sharesave plan), the
Overseas Profit Linked Share Plan (OPLSS) and the Share Incentive Plan (SIP). The equity settled share-based payment
expense included in the income statement for each of the plans 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)
2015
1,093
(445)
2,162
2,810
2014
361
1,501
3,298
5,160
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.
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
3 year scheme
5 year scheme
2015
20141
2015
20141
13 October 30 September
277p
224p
499,750
3 years
24.0%
1.33%
1.8%
20%
68p
180p
148p
1,777,023
3 years
24.6%
0.82%
2.8%
6%
38p
13 October 30 September
277p
224p
722,090
5 years
24.6%
1.83%
1.8%
20%
78p
180p
148p
1,415,398
5 years
25.5%
1.24%
2.8%
10%
42p
Movements in the number of share options outstanding and their weighted average prices are as follows:
At 1 January
Granted
Exercised
Forfeited
At 31 December
2015
20141
Average
option price
per share
192p
148p
122p
213p
159p
Options
2,864,430
3,192,421
(458,990)
(1,230,494)
Average
option price
per share
153p
224p
102p
192p
Options
2,279,630
1,221,840
(573,210)
(63,830)
4,367,367
192p
2,864,430
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
Of the 4,367,367 outstanding options (20141: 2,864,430), 169,000 are exercisable (20141: 141,340).
The Group received proceeds of £599,000 in respect of the 458,990 options exercised during the year: £3,000 was
credited to share capital and £596,000 to share premium. The weighted average share price at date of exercise was 201p
(20141: 236p).
The weighted average remaining life of 2,137,864 (20141: 1,056,270) awards outstanding under the 3 year plan is 2.6 years.
The weighted average remaining life of 2,229,503 (20141: 1,808,160) awards outstanding under the 5 year plan is 3.9 years.
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.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
128 ROTORK ANNUAL REPORT 2015
25. Share-based payments continued
2010 LTIP
Following shareholder approval of the 2010 LTIP 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 Total Shareholder Return (TSR)
performance condition and half under an earnings per share (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 2012 awards which ended on 31 December 2014. The TSR element of the award did 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. PwC LLP as independent actuaries certified to the
Remuneration Committee that there was a 37.0% vesting of this award. These awards vested in 2015.
The performance period for the 2013 awards ended on 31 December 2015. The TSR element of the award did not vest as
the Company was in the 13th percentile relative to the comparator group. The EPS element also did not vest as the growth
in EPS did not exceed RPI + 10% over the vesting period.
Grant date
Share price at grant date1
Shares granted under scheme1
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 conditions1
Fair value of awards under EPS performance conditions1
2012 Award
2013 Award
2014 Award
2015 Award
2015
20141
6 March 2015 7 March 2014
275p
1,064,020
3 years
25.1%
1.0%
1.7%
5% p.a.
126p
262p
249p
1,198,890
3 years
22.6%
0.9%
2.0%
5% p.a.
111p
236p
Outstanding
at start
of year1
1,226,950
988,320
1,064,020
–
Granted
during year
Vested
during year
Lapsed
Outstanding
at end
of year
–
–
–
1,198,900
(453,210)
(13,600)
–
–
(773,740)
–
(55,340)
919,380
(43,520) 1,020,500
1,198,900
–
3,279,290 1,198,900
(466,810)
(872,600) 3,138,780
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
At the date of vesting the 2012 awards were valued at 250p1. The weighted average remaining life of awards outstanding is
one year.
c) Overseas Profit Linked Share Plan and the Share Incentive Plan
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
129
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 95% 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
Carrying amount
2015
2014
118,801
15,459
48,968
25
183,253
128,472
14,562
46,816
1,913
191,763
Other receivables consist principally of tax receivables and prepayments. These items do not give rise to significant
credit risk.
The maximum exposure to credit risk for trade receivables at the reporting date by currency was:
Sterling
US dollar
Euro
Other
Carrying amount
2015
2014
17,591
32,800
44,579
23,831
15,207
37,750
45,014
30,501
118,801
128,472
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
130 ROTORK ANNUAL REPORT 2015
26. Financial instruments continued
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
Gross
2015
Provision
2015
Gross
2014
Provision
2014
81,557
18,186
10,428
3,197
10,917
(11)
(96)
(38)
(208)
(5,131)
86,682
21,910
10,363
3,184
8,680
(93)
(105)
(40)
(275)
(1,834)
124,285
(5,484)
130,819
(2,347)
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 (2014: £7m) on which interest would be payable at base rate plus 1.5%.
During 2015, the Group refinanced its loan facilities. It extended its £20,000,000 committed 364 day facility to August
2016 at LIBOR plus 0.35%, and it entered into a £90,000,000 term facility which matures in August 2018 at LIBOR plus
0.8%, and a £60,000,000 Revolving Credit Facility which matures in August 2020 at LIBOR plus 0.85%. At year end
£119,000,000 of the committed facilities were drawn, resulting in £51,000,000 being available.
The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of
netting agreements:
31 December 2015
Bank loans and overdrafts
Finance lease liabilities
Trade and other payables
Contingent consideration
Foreign exchange contracts
Non-redeemable preference shares
31 December 2014
Bank loans and overdrafts
Finance lease liabilities
Trade and other payables
Contingent consideration
Foreign 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
119,743
325
71,336
11,775
4,032
40
120,301
334
71,336
11,775
4,032
40
50,483
262
71,336
1,628
3,601
–
30,037
70
–
10,147
431
–
39,023
2
–
–
–
–
207,251
207,818
127,310
40,685
39,025
758
–
–
–
–
40
798
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
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
£175,777,000 (2014: £144,706,000) and the gross inflow is £172,144,000 (2014: £145,566,000).
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
131
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.
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 2015 was a £4,007,000 liability (2014: £794,000 asset) comprising an
asset of £25,000 (2014: £1,913,000) and a liability of £4,032,000 (2014: £1,119,000). Forward exchange contracts in place
at 31 December 2015 mature in 2016 and 2017.
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 2015 of £235,000 (2014: £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 2015 of £400,000 (2014: £550,000).
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
2015
1.53
1.38
2014
1.65
1.24
2015
1.47
1.36
2014
1.55
1.28
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
132 ROTORK ANNUAL REPORT 2015
26. Financial instruments continued
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
2015
2014
604
119,504
120,108
512
21,065
21,577
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 1.98% or 1.99% excluding the zero rate debt (2014:
1.7% or 1.9%). The weighted average period for which (non zero) interest rates on the fixed rate financial liabilities are fixed
is 1.6 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
2015
2014
50,352
30,084
38,975
697
120,108
20,274
237
267
799
21,577
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 debt
Total borrowings
Cash and cash equivalents (note 16)
Group net (debt)/funds
2015
2014
(120,108)
48,968
(21,577)
46,816
(71,140)
25,239
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ii) Return on capital employed
Adjusted operating profit
Operating profit
Amortisation of acquired intangible assets
Capital employed
Shareholders’ funds
Cash and cash equivalents (note 16)
Interest bearing loans and borrowings
Net debt/(cash)
Pension deficit net of deferred tax
Average capital employed
Return on capital employed
ROTORK ANNUAL REPORT 2015
133
2015
2014
104,386
20,886
125,272
142,227
14,940
157,167
407,802
376,795
(48,968)
120,108
(46,816)
21,577
71,140
(25,239)
17,532
27,950
496,474
379,506
437,990
28.6%
330,237
47.6%
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
2015
Fair value
2015
Carrying
amount
2014
Fair value
2014
118,801
15,459
118,801
15,459
128,472
14,562
128,472
14,562
48,968
48,968
46,816
46,816
25
(4,032)
25
(4,032)
1,913
(1,119)
1,913
(1,119)
(119,743)
(71,336)
(11,775)
(40)
(325)
(119,743)
(71,336)
(11,775)
(40)
(325)
(21,512)
(75,353)
(5,493)
(40)
(25)
(21,512)
(75,353)
(5,493)
(40)
(25)
(23,998)
(23,998)
88,221
88,221
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 14 months (2014: 12 months), the carrying
amount is equal to the fair value.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
134 ROTORK ANNUAL REPORT 2015
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
2015
4,232
9,281
386
13,899
2014
4,785
8,714
518
14,017
Of the £13,899,000 (2014: £14,017,000), £10,361,000 (2014: £10,206,000) relates to property and the balance to plant
and equipment.
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
2015
2,813
2014
1,037
2015
7,534
2014
3,735
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 139 to 141 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 arm’s
length basis.
Severn Trent plc is a related party of Rotork plc by virtue of M J Lamb’s non-executive directorship. Sales to subsidiaries
and associates of Severn Trent plc totalled £1,229,000 during the year (2014: £1,352,000) and £106,580 was outstanding
at 31 December 2015 (2014: £226,000).
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
2015
2,972
269
208
(309)
3,140
2014
4,594
298
251
1,134
6,277
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK PLC COMPANY BALANCE SHEET
AT 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
135
Non-current assets
Property, plant and equipment
Investment property
Investments
Deferred tax assets
Current assets
Amounts owed by Group undertakings
Other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Capital redemption reserve
Retained earnings
Non-current liabilities
Preference share capital
Current liabilities
Trade payables
Amounts owed to Group undertakings
Other payables
Total equity and liabilities
Notes
2015
£000
2014
£000
c
d
e
f
g
j
h
115
–
43,205
51
120
1,005
43,205
239
43,371
44,569
129,974
203
1,680
131,857
77,649
90
148
77,887
175,228
122,456
4,349
10,018
1,644
155,031
4,346
9,422
1,644
102,883
171,042
118,295
40
40
232
1,051
2,863
4,146
40
40
151
1,051
2,919
4,121
175,228
122,456
These Company financial statements were approved by the Board of Directors on 29 February 2016 and were signed on its
behalf by:
PI France and JM Davis, Directors.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
136 ROTORK ANNUAL REPORT 2015
ROTORK PLC COMPANY STATEMENT OF CHANGES IN EQUITY
AT 31 DECEMBER 2015
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Retained
earnings
£000
Total equity
£000
Balance at 31 December 2013
4,344
8,840
1,644
105,225
120,053
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
–
–
2
–
–
–
–
–
582
–
–
–
–
–
-
–
–
–
38,625
2,608
–
(6,300)
5,427
(42,702)
38,625
2,608
584
(6,300)
5,427
(42,702)
Balance at 31 December 2014
4,346
9,422
1,644
102,883
118,295
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
–
–
3
–
–
–
–
–
596
–
–
–
–
–
–
–
–
–
95,905
(1,464)
–
(2,785)
4,257
(43,765)
95,905
(1,464)
599
(2,785)
4,257
(43,765)
Balance at 31 December 2015
4,349
10,018
1,644
155,031
171,042
ROTORK ANNUAL REPORT 2015
137
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
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, except that investment property is
stated at fair value. The financial statements are prepared in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework (FRS 101). The amendments to FRS 101 (2013/14 Cycle) issued in July 2014 and the amendments
issued in July 2015 (2014/15 Cycle and minor amendments) have been applied.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs), but makes amendments where
necessary in order to comply with the Companies Act 2006 and has set out below where advantage of the FRS 101
disclosure exemptions has been taken.
In the transition to FRS 101, the Company has applied IFRS1 whilst ensuring that its assets and liabilities are measured in
compliance with FRS 101. An explanation of how the transition to FRS 101 has affected the reported financial position and
financial performance of the Company is provided in note k.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
• A Cash Flow Statement and related notes
• Comparative period reconciliations for share capital and tangible fixed assets
• Disclosures in respect of transactions with wholly owned subsidiaries
• Disclosures in respect of capital management
• The effects of new but not yet effective IFRSs
• An additional balance sheet for the beginning of the earliest comparative period following transition (see note k)
• Disclosures in respect of the compensation of key management personnel.
The Company produces consolidated financial statements which are prepared in accordance with International Financial
Reporting Standards. As the consolidated financial statements of the Company include the equivalent disclosures, the
Company has also taken the exemptions under FRS 101 available in respect of the following disclosures:
•
• The disclosures required by IFRS7 and IFRS13 regarding financial instrument disclosures have not been provided.
IFRS2 Share Based Payments in respect of group settled share based payments
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 accounts for intra group cross
guarantees under IAS37.
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and
loss account.
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 in subsidiaries
Investments are measured at cost less any provision for impairment and comprise investments in subsidiary companies.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Plant and machinery is depreciated by equal annual instalments by reference to their estimated useful lives and residual
values at annual rates of between 10% and 33%. Depreciation methods, useful lives and residual values are reviewed at
each balance sheet date.
Investment property
Investment property is stated at cost less accumulated depreciation.
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 138 ROTORK ANNUAL REPORT 2015
a) Accounting policies continued
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 sponsoring employer for the UK Group pension scheme
is Rotork Controls Ltd. No contractual agreement or policy is in place for charging to individual group entities the net
defined benefit cost for the plan as a whole. As a result, in accordance with IAS19, 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
In line with the requirements of IAS32, 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’s has adopted IFRS2 and its policy in respect of share-based payment transactions is consistent with the
Group policy 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.
Deferred taxation
Deferred tax is provided on 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:
the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable
profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they
will probably not reverse in the foreseeable future. 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 temporary difference can be utilised.
Dividends
Interim dividends are recorded in the financial statements when they are paid. Final dividends are recorded in the financial
statements in the period in 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 (credit)/payments
2015
2,221
134
233
(237)
2,351
2014
3,064
295
439
551
4,349
During the year, there were 15 (2014: 13) employees of Rotork plc plus the three (2014: four) 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 executive director is reported within the subsidiary where he is based.
Disclosures required by paragraph 1 of schedule 5 of SI2008/410 are set out in the Directors’ Remuneration Report on
pages 74 to 88.
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 IFRS2 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.
2012 Award
2013 Award
2014 Award
2015 Award
Outstanding
at start of
year1
435,030
289,820
316,920
–
Granted
during year
Vested
Lapsed
during year
during year
Outstanding
at end
of year
–
–
–
400,940
(160,710)
–
–
–
(274,320)
–
–
–
–
289,820
316,920
400,940
1,041,770
400,940
(160,710)
(274,320) 1,007,680
1 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
At the date of vesting the 2012 awards were valued at 250p. The weighted average remaining life of awards outstanding at
the year end is one year.
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
c) Property, plant and equipment in the Company balance sheet
Cost
At 1 January 2015
Additions
At 31 December 2015
Depreciation
At 1 January 2015
Charge for year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
d) Investment property in the Company balance sheet
Cost
At 1 January 2015
Disposals
At 31 December 2015
Depreciation
At 1 January 2015
Disposals
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
ROTORK ANNUAL REPORT 2015
139
Plant and
equipment
175
46
221
55
51
106
115
120
Total
175
46
221
55
51
106
115
120
Investment
property
Total
1,468
(1,468)
1,468
(1,468)
–
–
463
(463)
463
(463)
–
–
–
–
1,005
1,005
The Company disposed of its investment property in September 2015, resulting in a profit on disposal of £134,000.
e) Investments in the Company balance sheet
Shares in Group companies
At 1 January and 31 December
The Company has the following investments in wholly-owned subsidiaries:
2015
2014
43,205
43,205
Subsidiary
100% owned by Rotork plc
GH Chaplain & Co (Engineers) Limited
Rotork Analysis Limited
Rotork Cleaners Limited
Rotork Control and Safety Limited
Rotork Instruments Limited
Rotork Nominees Limited
Widcombe (Developments) Limited
Rotork Controls Limited
Rotork Overseas Limited
Incorporated in
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
140 ROTORK ANNUAL REPORT 2015
e) Investments in the Company balance sheet continued
Subsidiary
Incorporated in
100% owned by Rotork Controls Limited
Rotork Actuation (Shanghai) Co Limited
Rotork Trading (Shanghai) Co Limited
Rotork Controls (India) Private Limited
Rotork UK Limited
Valvekits Limited
100% owned by Rotork Overseas Limited
Rotork Australia Pty Limited
Rotork Fluid System Pty Limited
Rotork Controls Comercio De Atuadores LTDA
Rotork Controls (Canada) Limited
Rotork Chile SpA
Bifold Group Limited
Rotork Midland Limited
Rotork Motorisation SAS
Rotork Controls (Deutschland) GmbH
Rotork Germany Holdings GmbH
Rotork Limited
Eltav Wireless Monitoring Limited
Rotork Italy Holdings Srl
Rotork Japan Co Limited
Rotork Middle East FZE
Rotork (Malaysia) Sdn Bhd
Rotork Actuation Sdn Bhd
Rotork BV
Rotork Gears Holding BV
Robusta Miry Brook BV
Rotork Norge AS
Rotork Polska zoo
Rotork Rus Limited
Rotork Controls (Singapore) Pte Limited
Rotork Africa (Pty) Limited
Rotork Controls (Korea) Co Limited
Young Tech Co Limited
Rotork Controls (Iberia) SL
Rotork Sweden AB
Schischek AG
Rotork Inc
Rotork Controls de Venezuela SA
Rotork Turkey Akış Kontrol Sistemleri Ticaret Limited Şirketi
100% owned by Valvekits Limited
Circa Engineering Limited
China
China
India
England and Wales
England and Wales
Australia
Australia
Brazil
Canada
Chile
England and Wales
England and Wales
France
Germany
Germany
Hong Kong
Israel
Italy
Japan
Jebel Ali Free Zone
Malaysia
Malaysia
Netherlands
Netherlands
Netherlands
Norway
Poland
Russia
Singapore
South Africa
South Korea
South Korea
Spain
Sweden
Switzerland
USA
Venezuela
Turkey
England and Wales
100% owned by Rotork Trading (Shanghai) Co Limited
Centork Trading (Shanghai) Co. Ltd
China
100% owned by Rotork UK Limited
Prokits Limited
Flowco Limited
100% owned by Rotork Motorisation SAS
Servo Moteurs Service SARL
100% owned by Rotork Italy Holdings Srl
Rotork Controls Italia Srl
Soldo Srl
GT Attuatori Srl
Rotork Fluid Systems Srl
M&M International Srl
Masso Ind Srl
England and Wales
England and Wales
France
Italy
Italy
Italy
Italy
Italy
Italy
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015 ROTORK ANNUAL REPORT 2015
141
Subsidiary
100% owned by Rotork Controls Italia Srl
Rotork Gears Srl
100% owned by Rotork Gears Holding BV
Rotork Gears BV
100% owned by Rotork Inc
Rotork (Thailand) Limited
Rotork Controls Inc
Ralph A Hiller Company
Flow-Quip Inc
Remote Control Inc
Ranger Acquisition Corporation
100% owned by Ranger Acquisition Corp
K-Tork International Inc
Fairchild Industrial Products Company
Rotork Valvekits Inc
Roto Hammer Industries, Inc.
100% owned by K-Tork International Inc
Rotork Dallas Inc
100% owned by Fairchild Industrial Products Company
Fairchild Industrial Products (Sichuan) Company Limited
Fairchild India Private Limited
100% owned by Bifold Group Limited
Bifold Fluidpower (Holdings) Limited
100% owned by Bifold Fluidpower (Holdings) Limited
Bifold Fluidpower Limited
MTS Precision Limited
Marshalsea Hydraulics Limited
Bifold Company (Manufacturing) Limited
100% owned by Bifold Fluidpower Limited
Fluidpower (Stainless Steel) Limited
100% owned by Rotork Germany Holdings GmbH
Max Process GmbH
Schischek GmbH
Schischek Produktion Technischer Gerate GmbH
100% owned by Schischek AG
Schischek do Brasil Ltda
Schischek Limited
Schischek EURL
Schischek Srl
Schischek Inc
60% owned by Max Process GmbH
GT Attuatori Europe GmbH
40% owned by Rotork Germany Holdings GmbH
GT Attuatori Europe GmbH
100% owned by Robusta Miry Brook BV
Rotork Servo Controles de Mexico S.A de C.V
100% owned by Rotork Controls (Iberia) SL
Actuation Iberia S.L
Centork Valve Control S.L
100% owned by Soldo Srl
Soldo Controls USA Inc
Incorporated in
Italy
Netherlands
Thailand
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
China
India
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Germany
Germany
Germany
Brazil
England and Wales
France
Italy
USA
Germany
Germany
Mexico
Spain
Spain
USA
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report 142 ROTORK ANNUAL REPORT 2015
f) Deferred tax assets and liabilities in the Company balance sheet
Deferred tax assets and liabilities are attributable to the following:
Tangible fixed assets
Provisions
Share-based payments
Assets
2015
Liabilities
2015
1
50
–
51
–
–
–
–
Net
2015
1
50
–
51
Movements in the net deferred tax balance during the year are as follows:
Balance at 1 January
(Charged)/credited to the income statement
Charged directly to equity in respect of share-based payments
Assets
2014
Liabilities
2014
–
42
202
244
(5)
–
–
(5)
2015
239
(171)
(17)
51
Net
2014
(5)
42
202
239
2014
334
20
(115)
239
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 £307,713,000 (2014: £292,704,000).
g) Other receivables in the Company balance sheet
Prepayments and accrued income
Corporation tax
Other receivables
h) Other payables in the Company balance sheet
Other taxes and social security
Corporation tax
Other payables
Accruals and deferred income
2015
118
–
85
203
2015
42
447
973
1,401
2,863
2014
55
–
35
90
2014
43
143
1,817
916
2,919
The Company has a £25,000,000 gross overdraft facility (2014: £25,000,000) and is part of a UK banking arrangement,
see note i.
i) Contingencies in the Company
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 2015, the Company refinanced its loan facilities. It extended its £20,000,000 committed 364 day facility to
August 2016 at LIBOR plus 0.35%, and it took out a £90,000,000 term facility which matures in August 2018 at LIBOR plus
0.8%, and a £60,000,000 Revolving Credit Facility which matures in August 2020 at LIBOR plus 0.85%. These facilities are
available to the Company, Rotork Controls Limited and Rotork Overseas Limited. At year end £119,000,000 of the
committed facilities were drawn, resulting in £51,000,000 being available.
j) Capital and reserves in the Company balance sheet
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.
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
ROTORK ANNUAL REPORT 2015
143
k) Explanation of transition to FRS 101
As stated in note a, these are the Company’s first financial statements prepared in accordance with FRS 101.
The accounting policies set out in note a have been applied in preparing the financial statements for the year ended
31 December 2015, the comparative information presented in these financial statements for the year ended 31 December
2014 and in the preparation of an opening FRS 101 balance sheet at 1 January 2014 (the Company’s date of transition).
In preparing its FRS 101 balance sheet, the Company has adjusted amounts reported previously in financial statements
prepared in accordance with its old basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to
FRS 101 has affected the Company’s financial position and financial performance is set out in the following tables and the
notes that accompany the tables.
Reconciliation of movements from UK GAAP to FRS 101
i) Reconciliation of equity
1 January 2014
Effect of
transition to
FRS 101
31 December 2014
FRS 101
UK GAAP
Effect of
transition to
FRS 101
Notes
UK GAAP
a
a
b
b
Non-current assets
Property, plant and equipment
Investment property
Investments
Deferred tax assets
Current assets
Amounts owed by Group undertakings
Other debtors
Prepayments and accrued income
Corporation tax
Cash and cash equivalents
Total assets
Equity
Called up share capital
Share premium account
Capital redemption reserve
Retained earnings
Non-current liabilities
Preference share capital
Current liabilities
Trade creditors
Amounts owed to Group undertakings
Other taxes and social security
Corporation tax
Other creditors
Accruals and deferred income
FRS 101
120
1,005
43,205
239
(1,033)
1,033
–
62
150
1,033
43,205
334
1,125
–
43,205
271
(1,005)
1,005
–
(32)
62
44,722
44,601
(32)
44,569
–
–
–
–
–
–
78,377
39
249
474
4,277
83,416
77,649
35
55
–
148
77,887
–
–
–
–
–
–
77,649
35
55
–
148
77,887
1,183
–
43,205
272
44,660
78,377
39
249
474
4,277
83,416
128,076
62
128,138
122,488
(32)
122,456
4,344
8,840
1,644
105,163
119,991
40
40
80
3,653
39
–
3,766
507
8,045
–
–
–
62
62
4,344
8,840
1,644
105,225
4,346
9,422
1,644
102,915
120,053
118,327
–
–
–
(32)
(32)
4,346
9,422
1,644
102,883
118,295
–
–
–
–
–
–
–
–
–
40
40
80
3,653
39
–
3,766
507
8,045
40
40
151
1,051
43
143
1,817
916
4,121
–
–
–
–
–
–
–
–
–
40
40
151
1,051
43
143
1,817
916
4,121
Total equity and liabilities
128,076
62
128,138
122,488
(32)
122,456
GovernanceDirectorsCompany InformationFinancial StatementsStrategic Report
144 ROTORK ANNUAL REPORT 2015
k) Explanation of transition to FRS 101 continued
Notes to the reconciliation from UK GAAP to FRS 101
a) The Company holds an investment property leased to another Group company. Under UK GAAP, this was recognised as
a fixed asset. IAS40 permits property which is leased to other group companies to be recognised as investment property
and therefore it has been reclassified.
b) Deferred tax assets have been recalculated based on the approach required by IAS12. The adjustments made to the
deferred tax asset are as follows:
UK GAAP previously reported net deferred tax balance
Revised deferred tax on plant and equipment
Revised deferred tax on share-based payments
FRS 101 net deferred tax balance
1 January
2014
Movement
31 December
2014
272
(4)
66
334
(1)
4
(98)
(95)
271
–
(32)
239
The £32,000 restatement in respect of the December 2014 balance is as result of a £62,000 credit to retained earnings at
1 January 2014, a £97,000 credit to the income statement in 2014 and a £191,000 debit to retained earnings in 2014.
ii) Reconciliation of profit for the year ended 31 December 2014
Amount under UK GAAP
Deferred taxation adjustments
Amount under FRS 101
£000
38,528
97
38,625
Adjustment arising due to changes in the income tax expense resulting from the recognition of deferred tax assets and
liabilities (see note b to the reconciliation of equity above).
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2015
TEN YEAR TRADING HISTORY
ROTORK ANNUAL REPORT 2015
145
2015
£000
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
2009
£000
2008
£000
2007
£000
2006
£000
Revenue
546,459 594,739 578,440
511,747 447,833 380,560
353,521 320,207
235,688 206,709
Cost of sales
(296,944) (309,280) (304,066) (272,199) (236,359) (199,742) (187,600) (176,046) (127,748) (115,603)
Gross profit
249,515 285,459
274,374 239,548
211,474
180,818
165,921
144,161
107,940
91,106
Overheads
(145,129) (143,232) (135,109)
(115,081)
(99,474)
(83,094)
(74,384)
(69,272)
(52,553)
(46,017)
Operating profit 104,386
142,227
139,265
124,467
112,000
97,724
91,537
74,889
55,387
45,089
Adjusted1
operating
profit
Amortisation
of acquired
intangible
assets
Disposal of
property
Operating
profit
125,272
157,167
151,412
131,866
115,921
99,442
92,103
76,014
55,461
45,187
(20,886)
(14,940)
(12,147)
(7,399)
(3,921)
(1,718)
(1,153)
(1,125)
(74)
(98)
–
–
–
–
–
–
587
–
–
–
104,386
142,227
139,265
124,467
112,000
97,724
91,537
74,889
55,387
45,089
Net interest
(2,517)
(1,062)
(1,268)
(273)
550
131
(621)
862
1,866
972
Profit before
taxation
Tax expense
Profit for the
year
101,869
(27,012)
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)
74,857
103,202
99,509
89,315
80,401
69,521
64,032
53,420
39,296
31,333
Dividends
43,765
42,702
38,735
33,924
49,534
35,912
24,102
29,970
24,732
24,140
Basic EPS2
Adjusted* EPS2
Diluted EPS2
8.6p
10.4p
8.6p
11.9p
13.2p
11.9p
11.5p
12.5p
11.4p
10.3p
10.9p
10.3p
9.3p
9.6p
9.3p
8.1p
8.2p
8.0p
7.4p
7.5p
7.4p
6.2p
6.3p
6.2p
4.6p
4.6p
4.5p
3.6p
3.7p
3.6p
1 Adjusted is before the amortisation of acquired intangible assets and the disposal of property.
2 Restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
GovernanceDirectorsFinancial StatementsCompany InformationStrategic Report
146 ROTORK ANNUAL REPORT 2015
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
Range
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
2,132
940
36
20
3,128
Number of
holdings
538
348
657
457
658
131
339
%
68.2
30.0
1.2
0.6
100.0
%
17.2
11.1
21.0
14.6
21.0
4.2
10.9
Number of shares
25,518,364
840,818,469
1,543,996
1,869,761
%
2.9
96.7
0.2
0.2
869,750,590
100.0
Number of shares
264,654
515,926
2,195,730
3,362,319
14,754,990
9,313,552
839,343,419
%
0.1
0.1
0.2
0.4
1.7
1.0
96.5
3,128
100.0
869,750,590
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.
2015
2014
2013
2012
2011
Interim
dividend
(p)
Final
dividend
(p)
Additional
interim
dividends
(p)
Total
dividends
(p)
1.95
1.92
1.81
1.64
1.45
3.10
3.09
3.00
2.66
2.28
–
–
–
–
2.30
5.05
5.01
4.81
4.30
6.03
Comparative data restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares.
Financial calendar
1 March 2016
7 April 2016
8 April 2016
29 April 2016
29 April 2016
2 August 2016
22 November 2016
Preliminary announcement of annual results for 2015
Ex-dividend date for final proposed 2015 dividend
Record date for final proposed 2015 dividend
Announcement of trading update
Annual General Meeting held at Rotork House, Brassmill Lane, Bath, BA1 3JQ
Announcement of interim financial results for 2016
Announcement of trading update
ROTORK ANNUAL REPORT 2015
147
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
GovernanceDirectorsFinancial StatementsCompany InformationStrategic Report 148 ROTORK ANNUAL REPORT 2015
NOTES
Brassmill Lane
Bath
BA1 3JQ
UK
T: +44 1225 733200
F: +44 1225 333467
E: mail@rotork.com
www.rotork.com