Rotork plc Annual Report 2019

FY2019 Annual Report · Rotork plc

Loading PDF…

Keeping
the world
flowing
for future
generations

Annual Report 2019

Rotork is a market-leading
global provider of mission-
critical flow control and
instrumentation solutions
for oil and gas, water
and wastewater, power,
chemical process and
industrial applications.

We help customers
around the world to
improve efficiency, reduce
emissions, minimise their
environmental impact
and assure safety.

Cover story
Rotork’s energy-efficient actuators can be powered by
solar panels and batteries enabling the reliable
management of water, including in remote locations

Highlights

Financial

£669m

KPI Revenue

2019

2018

2017

2016

£669.3m

£695.7m

£642.2m

00%

£151m

Adjusted* operating profit

2019

2018

2017

£151.0m

£146.0m

£130.2m

2016

00%

22.6%

KPI Adjusted* operating profit margin

2019

2018

2017

2016

22.6%

21.0%

20.3%

00%

£124m

KPI Profit before tax

2019

2018

2017

£124.1m

£120.7m

£80.6m

2016
* Adjusted figures exclude the amortisation
of acquired intangible assets and net
restructuring costs

00%

See our full KPIs on page 48

Non-financial

50%+

Employees owning shares

23%

Women in senior roles

7.3

Engagement survey score

6.2

Pace of change survey score

-9%

KPI Carbon emissions (YoY)

-22%

KPI Lost time injury rate (YoY)

• Rotork is proud to have well above average employee share ownership.

We offer employees the opportunity to own Rotork shares in all geographic
locations where it is practicable to do so

• Our Hampton-Alexander ‘Women on Executive Committee and Direct

Reports’ figure increased in 2019 to 23.1%, from 17.4% in 2018

• The ‘engagement’ survey question asks employees how they rate Rotork as
a place to work. Respondents can answer 0-10, where 0 is bad, 10 is good

• We consider the ‘pace of change’ question in our employee survey as
important given the initiatives underway at Rotork. Respondents can
answer 0-10, where 0 represents too slow, 10 too fast

• We are pleased to report a third successive year’s reduction in our

carbon emissions, down to 15.3 TnCO2e in 2019

• The lost time injury rate (LTIR) is a measure of the effectiveness of our health
and safety procedures. We are pleased to report our LTIR fell 22% in 2019

See our full KPIs on page 48

To view our latest results
or for more information
about what we do visit
www.rotork.com

Contents

Overview

Rotork at a glance

Strategic Report

Chairman’s statement

6
14 Rotork investment proposition
16 Chief Executive’s review
20 Our market dynamics
22 Business model
24 Our Growth Acceleration

Programme
28 Our strategy
30 Our new market-aligned structure
32 How Rotork manages risk
34 Principal risks and uncertainties
40 Divisional reviews
44
48 Key performance indicators
51 Viability statement
52
54 Our people and culture
56 Engaging with our communities

Introducing our stakeholders

Finance review

Embedding
our Purpose
and Values

Rotork’s company Purpose is the
reason we exist, and helps guide both
our culture and our three Values:
Stronger Together, Always Innovating
and Trusted Partner.

Read more on page

Rotork Annual Report 2019

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Governance remains an important focus and we’ve continued to invest
in how we do things as well as what we do, looking for improvement
and development where we can.

Following their appointment to the Board in December 2018 as
Non-Executive Directors, Tim Cobbold and Ann Christin Andersen
participated in a comprehensive induction programme in the early part
of 2019. Gary Bullard, Chairman of the Remuneration Committee
retired at the 2019 AGM, as this was the AGM following his ninth year
as a Director and Tim Cobbold was appointed as Chair of the
Remuneration Committee from the close of the AGM.

This year we held our inaugural Global Suppliers Conference, which
was attended by suppliers from around the world. This enabled us to
demonstrate our passion for driving improvement around commercial
and operational excellence underpinned by enhanced IT systems,
improved core business processes and increased focus on talent and
culture. The feedback received was positive, with suppliers
appreciating the open and collaborative approach and our process of
engaging throughout the sourcing and procurement process, noting
that together we can leverage each other’s knowledge and experience
for a better all-round customer experience. Principal suppliers are
subject to regular engagement.

Role of the Board and its effectiveness
As Chairman, my primary role is to provide leadership to the Board and
create the right environment to enable each Director and the Board as a
whole to perform effectively for the benefit of the business and its
stakeholders. I consider that the Board is highly effective and am
confident that we have in place a strong team of Non-Executive Directors
with a breadth of skills, experience and perspectives. This view is
supported by the findings of our annual Board effectiveness review,
which, this year was externally facilitated by Independent Audit. Full
details of our Board effectiveness review are provided on page 68.

Stakeholder engagement
Engagement with and feedback from our employees across the Group
is important to us, particularly at this time of transformation across our
business as we focus on the Growth Acceleration Programme and the
refocusing of the business to support our end markets. We engage
with our employees through a wide array of strategic communication
channels, including pulse surveys and employee forums, to ensure
open and honest dialogue between employees and senior
management.

Following the appointment of Tim Cobbold, as the designated
Non-Executive Director to support increased engagement with
employees, Tim attended a variety of meetings including our Bath
employee forum and the launch of our new Values: Stronger Together;
Always Innovating and Trusted Partner. Other Board colleagues have
spent time meeting our employees throughout the business including
Ann Christin Andersen, who visited our business in both India and China.

I reported in 2018 that, in respect of Rotork's employees, we had
undertaken a full review of Rotork’s culture, talent development,
succession planning, performance approach and diversity. Following
this review, we have embedded a number of changes within the
business. Diversity remains a particular area of focus for the Board,
who review the actions at each Board meeting, as part of a People
Update. Further details of actions arising from this review and how we
have considered the interests of our employees during the year are set
out on page 81. Our Key Remuneration Principles set the tone and
culture for pay within the Group.

Tim Cobbold, as the new Chair of the Remuneration Committee,
engaged with our shareholders on executive directors’ remuneration.
As well as taking the opportunity to understand their views on this
important topic, shareholders have been able to share views on wider
governance issues and on the corporate strategic initiatives.
These views have been shared with the Board.

Details of ways in which we engage with, and have considered our
stakeholders are available on pages 72-74.

Compliance with the UK Governance Code and other
requirements
This year, we are reporting under the UK Corporate Governance Code
2018 ("the Code"). The Code consists of an updated set of principles
that emphasise the value of good corporate governance to long-term
sustainable success. It puts increased emphasis on corporate culture,
and the relationships between companies, their shareholders and
other stakeholders.

Throughout the year, we have applied the principles of the Code to
our decision making and have ensured that there is good co-operation
within the Group to enable us to discharge our governance
responsibilities effectively. We have communicated our Purpose, Values
and strategy across the Group with the CEO engaging with employees
in town halls across the globe on our modified Purpose, to “keeping
the world flowing for future generations” which reflects our
commitment to being a sustainable long term business. We launched
our new Values simultaneously in 50 countries on 12 September 2019
and a recent pulse survey has indicated that the Values have been
received well by employees, who support and recognise them.

Following the guidance published around the revised Code, the Board
has taken the opportunity to review and refresh its existing processes
to reflect provisions introduced by the Code, develop new practices
and formalise existing practices where appropriate.

—
Martin Lamb
Chairman
2 March 2020

Rotork Annual Report 2019

Corporate governance report

UK Corporate Governance code
The Code applies to premium listed companies with accounting periods
beginning on or after 1 January 2019, and accordingly Rotork complied
with all relevant provisions of the new Code throughout 2019. Below,
we set out how we have applied the principles set out in the Code, the
actions we have taken and the resulting outcomes. We have included
cross-references to other relevant sections of this report where
applicable.

Board leadership and Company Purpose
The Board is responsible for the approval of strategy, risk, finance
matters, employee matters and internal control and risk management.

This year the Board has reviewed and modified Rotork’s corporate
Purpose, taking into account the part which Rotork plays in ensuring
that the earth’s resources keep flowing for future generations.

To support our corporate Purpose, we published our revised Values at a
series of global events designed to include and engage our workforce.
Employee feedback provided through surveys and engagement events
was considered when defining our Values.

This year’s strategy meeting examined Rotork’s strategy for 2019
through to 2024 and consisted of validation of Rotork’s current market
positions within each region; analysis of our current commercial,
operational and share price performance; a review of our current
strategic assets and their level of sustainability; and differentiation and
analysis of the current and future market and competitive dynamics.

Throughout the year, the Board has received regular in-depth progress
reports and presentations from the Chief Executive Officer, Group
Finance Director and from the wider executive management team,
particularly relating to progress on the Growth Acceleration Programme
and our people.

This year both the Chairman and the Chair of the Remuneration
Committee, as part of the remuneration policy review, engaged with
major shareholders to understand their views on governance and
performance against our strategy.

The Board have also sought to understand the views of other key
stakeholders. Pages 72 and 74 describe how their interests have been
considered in Board discussions and decision making. Tim Cobbold is
the designated non-executive director dedicated to improving employee
engagement and details of the work he has undertaken as part of this
role can be found at page 71.

Division of responsibilities
All the non-executive directors have the appropriate skills, experience in
their respective disciplines and characteristics to bring independence and
objective judgement to Board discussions. As well as chairing the Board
meetings, Martin Lamb chairs the Nomination Committee. Sally James is
appointed as Senior Independent Director. Lucinda Bell is Chair of the
Audit Committee and Tim Cobbold chairs the Remuneration Committee.

All non-executive 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.

To provide constructive challenge, strategic guidance and oversight,
Board members engage directly with management, and this year Sally
James attended a Rotork Management Board meeting and both Tim
Cobbold and Ann Christin Andersen made separate site visits, including
to sites in the UK, India and China, during which they engaged directly

with the local workforce. In 2019, members of the Board travelled to
Rotork’s factory in Lucca, Italy, where they met both formally and
informally with management from across Europe as well as members of
the Rotork Management Board from further afield.

Each year the Chairman together with the non-executive directors meet
outside of the formal meeting structure, and without the executive
directors present, to scrutinise and hold to account the performance of
management and individual executive directors.

All directors have access to the advice of the Company Secretary and to
third party legal advice if required.

Composition, succession and evaluation
The Board consists of eight Board members, six of which are non-executive
directors. 38% of our Board are female. The Chairman and the
non-executive directors were considered independent on appointment
when assessed against the circumstances set out in Provision 10 of the Code.

The Board members come from a variety of professional backgrounds
including engineering, management, legal and finance, and collectively
possess significant managerial experience, as well as experience of being
executive directors of other public limited companies. More detailed
analysis of Board composition can be found on pages 64-66.

Sally James is the Senior Independent Director and provides a sounding
board for the Chairman in addition to acting as an intermediary for other
directors and shareholders. In December 2019, she met with other
non-executive directors, without the Chairman present, to appraise the
Chairman’s performance.

The Board has Nomination, Audit and Remuneration Committees. Each
Committee has formal, written terms of reference which are available to
download from the Rotork website at https://www.rotork.com/en/
documents/publication/4145, https://www.rotork.com/en/documents/
publication/5553 and https://www.rotork.com/en/documents/
publication/5923. All Committees have at least three independent
non-executive directors within their composition. The Company Secretary
advises and acts as secretary to the Committees. The number of Board
meetings can be found on page 67. The number of meetings of the
Nomination, Audit and Remuneration Committees can be found on
pages 80, 75 and 82 respectively.

In line with Provision 18 of the Code, each director is subject to annual
re-election at the AGM.

In addition to considering Board succession the Board deliberates on
succession within the business. As well as regularly receiving
presentations from the Rotork Management Board in formal meetings,
it meets with them at least twice a year for dinner. This year a number of
individuals from further down in the organisation met with the Board at
an informal meeting and during the Board visit to Lucca. The Board was
able to spend time with the local management team as well as the wider
workforce.

To meet our aim of continuous improvement, our annual Board
evaluation was undertaken by an external assessor, Independent Audit,
who are consultants specialising in the assessment of board
performance. Feedback was provided to the Board at its meeting in
December 2019. More detailed analysis of the process undertaken and
the resulting recommendations is set out on pages 68 and 69.

Audit Risk and Internal Control
Whilst maintaining overall responsibility, the Board delegates the
establishment of formal and transparent policies and procedures relating
to independence and effectiveness of internal and external audit
functions to the Audit Committee. The Audit Committee scrutinises the

Rotork Annual Report 2019

integrity of financial and narrative statements and considers whether the
assessment of Rotork’s position and prospects are fair, balanced and
understandable. It then makes a recommendation to the Board.

An established risk review process at a divisional level results in a
‘bottom up’ assessment of the risks facing the Group. These are
consolidated before the ‘top down’ review is performed by
management and then by the Board to ensure the risk population is
complete and adequately assessed.

A risk dashboard is presented to the Board on a quarterly basis. This
includes a set of Key Risk Indicators which provide a means of monitoring
the Group’s risk exposures and focuses the Board on risks where the
Group exceeds, or will potentially exceed, risk appetite. Quarterly
reporting is supplemented as necessary by more detailed monthly
reporting to the Board by the executive management team on new or
evolving risks, the effectiveness of existing mitigations and plans to
further strengthen mitigations.

Throughout 2019, the arrangement with PwC to provide internal audit
services has continued, with the function being led by an experienced
Head of Risk and Internal Audit from PwC.

The Audit Committee is chaired by Lucinda Bell who has recent and
relevant financial experience. The Board is satisfied that the main roles
and responsibilities of the Audit Committee, as set out in Provisions 25
and 26 of the Code are included in its Terms of Reference, following
relevant updates in October 2019. Further details of how the roles and
responsibilities of the Audit Committee have been discharged are on
pages 75-76.

The Board is obliged to carry out a robust assessment of the Company’s
emerging and principal risks. A summary of the assessment undertaken
by the Board and a description of the principal risks and procedures in
place to identify and manage the emerging risks can be found on pages
77-78.

Remuneration
During 2019 Tim Cobbold took over from Gary Bullard as Chair of the
Remuneration Committee. Tim has previously served as a member of
another remuneration committee for more than 12 months prior to
his appointment as Chair and brings valuable experience to our own
Remuneration Committee. At least four meetings of the Remuneration
Committee took place in 2019, and its Terms of Reference can be found
at https://www.rotork.com/en/documents/publication/5923. Further
Peter Dilnot stood down from his position on the Remuneration
Committee.

Rotork’s remuneration policies and practices are designed to support its
strategy and promote the long-term sustainable success of the Company.
A description of the work undertaken by the Remuneration Committee
in 2019 can be found at pages 82.

How the Board operates effectively
Risk management and internal controls
The Board is responsible for Rotork’s system of risk management and
internal control. The Board’s annual review of the system’s effectiveness
is completed with the assistance of the Audit Committee.

During 2019 the Board and Audit Committee regularly considered
matters relating to the Group’s risk management and internal control
systems. Further details of reports undertaken and reviewed are set out
in the Audit Committee report on pages 76, 77 and 78.

The systems which were in place for the year under review, and up to the
date of approval of the report, are in accordance with the Code and the
FRC Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.

This is expressed through a number of risk dimensions against
which risk appetite is defined and risks are monitored and reported.
A Risk Dashboard is presented to the Board on a quarterly basis.
It constitutes a set of Key Risk Indicators, which provide a means of
monitoring the Group’s risk exposures and focuses the Board on risks
where the Group exceeds, or will potentially exceed, risk appetite. As
part of the monthly reporting process the Board receives reports on any
specific new or emerging risks and any actions planned in mitigation.

An established divisional and functional risk review process results in a
bottom-up assessment of Group risks. These are consolidated before the
top-down evaluation is performed by management and then reviewed
by the Board. During 2019 the bottom up assessment process was
broadened to include a review with all central functions, greater focus on
risk mitigation reporting, and development of plans to bring risks within
appetite for any risks where appetite is currently exceeded.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Further details of the Group’s internal control and risk management
systems and the process for identifying, evaluating and managing the
principal risks faced by the Group during 2019, emerging risks, and the
Board’s risk appetite, are covered on pages 32-33.

Main features of the Group’s internal control systems
All Board members receive Audit Committee papers and meeting
minutes, which contain the Audit Committee’s annual review of the
assessment of the effectiveness of the Group’s risk management and
internal control systems. All non-executive directors are members of
the Audit Committee and the Chairman and executive directors attend
Audit Committee meetings.

Key elements of the control environment, which enables Rotork to
respond appropriately to all types of business risks, include:
• The Rotork Values and behaviours launched this year as part of

defining One Rotork.

• A Code of Conduct launched this year, supported by Group-wide
policies and procedures, including authority levels and division of
responsibilities.

• Training of staff on policies and procedures relevant to their roles.
• Ongoing monitoring of business performance, Key Risk Indicators.
• A formal schedule of reserved matters for the Board, including

responsibility for reviewing Group strategy.

• A formal whistleblowing policy with an external whistleblowing

hotline.

• Defined controls and assurance processes over financial reporting

and health and safety procedures.

The process of enhancing controls and the three lines of defence,
instigated by the Audit Committee, continued in 2019. A series of
measures and actions including improvements to accountability,
consistency, and the development of a stronger second line of defence
have been agreed by management. The implementation work has been
underway throughout 2019 and will continue in future years. It is a mix
of actions mitigating identified risks as well as longer term improvements
aligned to the investment in the new Enterprise Resource Planning (ERP)
system that is being developed.

A full review of the financial business control framework has been carried
out in order to maximise the opportunity to standardise and automate
controls within the ERP system, thus ensuring greater consistency
across our various locations. In addition to building the output from this
review into the design of the ERP system, a programme to identify
short-term enhancements has been initiated. The Finance function is
being strengthened by new appointments in line management and first
line of defence, and a finance direct report structure is being phased in.
PwC continued to provide risk and internal audit services throughout
2019 supported by an in-house team. Staffing of the central risk and
internal audit team will be kept under review during 2020.

Main features of the Group’s risk management process
The Board is responsible for determining the nature and extent of
risks the Group is willing to take in achieving its strategic objectives.

Progress on these improvements has been reviewed at each Audit
Committee. In addition, progress on overdue internal audit actions
has been reported to the Board monthly.

Rotork Annual Report 2019

Rotork’s
Board of directors

Martin Lamb (60 years old)
Chairman

Kevin Hostetler (51 years old)
Chief Executive

Jonathan Davis (53 years old)
Finance Director

–

Experience
Martin has extensive experience in the global
engineering sector having served as Chief Executive
of IMI plc for 13 years and has held many senior
management roles over 33 years. He was a
non-executive director of Severn Trent plc and
Spectris plc and served on the boards of a variety of
engineering businesses in a non-executive capacity,
both in the public and private equity arena.

Appointed to the Board
June 2014

External appointments
• Chairman of Evoqua Water Technologies

Corporation

• Member of the European Advisory Board of

AEA Investors (UK) Ltd

Experience
Kevin served as the Chief Executive Officer of FDH
Velocitel, an engineering and construction business
serving the telecommunications and infrastructure
industries in North America. Prior to this, Kevin was
an executive advisor to several private equity firms.
His roles included Chief Executive Officer of a
speciality valve manufacturer and executive chairman
of an engineered high-pressure vessel company
serving the cryogenics and LNG industries. From
2005 to 2012, Kevin held various senior executive
roles at the publicly traded IDEX Corporation, where
he led the fluid and metering technologies segment
and their Asia and emerging markets businesses.
Before that, Kevin held several business leadership
positions and senior strategic and business
development roles at Ingersoll Rand.

Appointed to the Board
February 2018

External appointments
• None

Experience
Jonathan joined Rotork in 2002 after holding several
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. Jonathan was appointed
as Chief Finance Officer in 2010.

Appointed to the Board
April 2010

External appointments
• None

Rotork Annual Report 2019

Sally James (71 years old)
Senior independent
non-executive director

A R

Lucinda Bell (55 years old)
Non-executive director

A R

Tim Cobbold (57 years old)
Non-executive director

A R

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Experience
Sally has substantial experience in the financial services
sector having served as a non-executive director of UBS
Limited, and has held a number of senior legal roles in
investments banks in London and Chicago including
Managing Director and EMEA General Counsel at UBS
Investment Bank. She is a non-executive director of
Moneysupermarket; Hermes Fund Managers and Bank
of America Merrill Lynch International.

Appointed to the Board
May 2012 (appointed as senior independent
non-executive director in February 2017)

External appointments
• Non-executive director of Moneysupermarket.

com Group plc

• Non-executive director of Bank of America

Merrill Lynch International Designated Activity
Company

• Non-executive director of Hermes Fund

Managers Limited

Peter Dilnot (50 years old)
Non-executive director

Experience
Since April 2019, Peter has held the position of Chief
Operating Officer of Melrose plc. Prior to that, Peter
spent seven years as Chief Executive Officer of Renewi
plc (previously Shanks Group plc), an international
recycling company. Peter has an engineering
background and was a senior executive at Danaher
Corporation, a leading global industrial business listed
on the NYSE. His earlier career included six years at the
Boston Consulting Group (BCG) based in both London
and Chicago.

Appointed to the Board
September 2017

External appointments
• Chief Operating Officer of Melrose plc

Experience
Lucinda was Chief Financial Officer of The British Land
Company PLC (‘British Land’) from May 2011 to
January 2018 and prior to that, held a range of roles in
finance and tax at British Land.

Appointed to the Board
July 2014

Experience
Tim has extensive experience in leading large, complex
international listed businesses having previously served
as the Chief Executive Officer of Chloride Group plc,
De La Rue plc and most recently, UBM plc. Prior to
this, Tim held senior management positions at Smiths
Group/TI Group for 18 years. He was a non-executive
director at Drax Group plc until September 2019.

External appointments
• Non-executive director of Derwent London plc
• Non-executive director of Crest Nicholson

Holdings plc

• Treasurer and National Trustee at Citizens Advice

Appointed to the Board
December 2018

External appointments
• Non-executive director TI Fluid Systems plc

A R

Committee membership

–

Nomination Committee

Audit Committee

Remuneration Committee

None

Denotes Chair

* Director’s ages as at 30 March 2020

Ann Christin Andersen
(53 years old)
Non-executive director

Experience
Ann Christin has had more than 30 years of executive
experience in the oil and gas industry. She has been
Chief Digital Officer for TechnipFMC, Managing
Director, and held SVP/Vice President roles for Projects
and Products. She served as chair and non-executive
director on several boards in the last decade. Ann
Christin now works as a strategic advisor on behalf of
new start-up 4ADA AS.

Ann Christin is an engineer (Heriot Watt) and has an
Executive MBA (IMD).

Appointed to the Board
December 2018

External appointments
• None

Rotork Annual Report 2019

Corporate governance report continued

Board composition and meeting attendance in 2019
Rotork is led by an effective Board which currently consists of eight members: the Chairman, the Chief Executive, the Group Finance Director,
and five independent non-executive directors. The Board held six scheduled meetings and five calls during the year. Individual attendance is set
out below.

The Chairman meets privately with the senior independent director and with the non-executive directors from time to time.

Composition as at 31 December

board composition

Tenure as at 31 December
(non-executives including Chairman)

2018

0-3 years

4-6 years

7-10 years

2019

0-3 years

4-6 years

7-9 years

2018

2019

board composition

Executives
board diversity
Non-Executives

22%

78%

Executives
Non-Executives

25%

75%

At the end of the year the Board of Directors
comprised the Chairman, two executive directors
and five non-executive directors.

board diversity

Diversity as at 31 December

senior experience

Sector Experience as at 31 December

2018

2019

2018

2019

Male
Female

67%

33%

Male
Female

62.5%

37.5%

This exceeds the Hampton-Alexander review
target of 33% female representation on boards
by 2020.

Industry
Finance
Governance

44%

33%

Industry
Finance
Governance

50%

37.5%

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Rotork Annual Report 2019

Board meeting attendance and director responsibilities in 2019

Member

Martin Lamb
Non-Executive Chairman

Kevin Hostetler
Chief Executive Officer

Jonathan Davis
Group Finance Director

Non-executive directors

Sally James
Senior Independent Director

Lucinda Bell

Tim Cobbold*

Peter Dilnot

Ann Christin Andersen**

Gary Bullard***

Attended by invitation

Kathy Callaghan

Kiet Huynh

Grant Wood

Paul Burke

Vijay Rao

Neil Manning

Mark Nevin

Andrew Carter

Number of meetings
attended (max: 11)

Independent

Responsibility

11/11

10/11

11/11

10/11

2/2

Leading the Board and setting its agenda; setting high standards of
integrity and ensuring effective governance is maintained; supporting
and guiding the CEO; overseeing Company performance; representing
the Group and liaising with shareholders when required.

Managing the Group and providing leadership; developing and
proposing the Group strategy, leading the Group structure and
operations, business development, growth opportunities; influencing
and developing succession planning; managing Investor Relations.

Reports to the Board on the Group financial performance; supports
the CEO in developing the Group strategy and in managing investor
relations; implements Board decisions; responsible for compliance with
financial policy and controls.

Assisting the Chairman with shareholder communications; being
available to other non-executive directors if necessary and leading the
annual performance evaluation of the Chairman alongside other
non-executive directors.

Non-executive directors provide independent oversight, judgement
and challenge to the executive directors on delivery of the Company
strategy within the agreed control framework and governance
structure.

The Rotork Management Board comprises of the Company’s senior
leadership team below Board level and facilitates the execution of the
strategy through running the day-to-day operations and functional
support. Members of the Rotork Management Board attend Board
meetings by invitation to update the Board on operational matters of
importance.

Risk and internal audit manager.

Investor relations director.

* Tim Cobbold was unable to attend the meeting in October 2019 due to a personal commitment made before he joined the Group, but received an update from the

Company Secretary after the meeting.

** Ann Christin Andersen was unable to attend the meeting in January 2019 due to a prior business commitment but received an update from the then interim Company

Secretary after the meeting.

*** Gary Bullard resigned in April 2019 having attended all meetings up until that date.

Rotork Annual Report 2019

Corporate governance report continued

Time Commitment
All directors are expected to attend all meetings of the Board and any
committees they serve on. They are also expected to attend the AGM
and Board away days, which this year was in Lucca, Italy. Directors are
also expected to devote sufficient time to prepare for each Board
and/or Committee meeting. This year, in addition to their other
commitments, two of the directors, Tim Cobbold and Ann Christin
Andersen have also undertaken a number of site visits both in the
UK and abroad. Further details of their visits are included on page 57.
By accepting their appointment each non-executive director has
confirmed that they are able to allocate sufficient time to the
Company to discharge their responsibilities effectively. In accordance
with the Code, directors are also required to seek prior approval of
the Board before accepting additional external appointments.

Monitoring Non-Executive Director Independence
The Chairman is committed to ensuring that the Board comprises a
majority of independent non-executive directors who objectively
challenge management on the execution of its strategy.

The Company maintains clear records of the terms of service of
the Chairman and non-executive directors to ensure they meet
the requirements of the Code. Neither the Chairman nor any
non-executive director have exceeded their nine-year recommended
term of service set out in the Code. Sally James is in her eighth full
year of service and will complete nine years’ service on 11 May 2021.

Annual Board Evaluation
In accordance with the Code, the Board undertakes a formal and
rigorous annual evaluation of its own performance and that of its
Committees and directors. The purpose of the evaluation was to
ensure key areas such as the Board’s composition, expertise,
interaction, management, key decision-making processes and
meeting focus and prioritisation continue to be assessed and
developed. This year the process was facilitated externally by
Independent Audit, who are board performance consultants with no
other connection with either the Company or individual directors.
Their appointment followed a tender process.

The process was undertaken in Autumn 2019 by way of a series of
interviews with all Directors, various members of Rotork’s
management team, the co-sourced internal auditors and external
advisors. In addition, Independent Audit undertook a review of the
Board and Committee papers and observed the Board and Committee
meetings in October 2019.

The interviews covered a broad range of topics relating to the Board
and its Committees including:
• Strategic oversight and implementation;
• Board composition and succession planning;
• Board culture and relationships with management;
• Shareholder and stakeholder engagement;
• Committee effectiveness; and
• Board meetings, agenda planning, quality of information and

Following a rigorous review, the Board considers all non-executive
directors to be independent in character and judgement from Rotork.

presentations.

Independent Audit collated and analysed the results, discussing them
with the Chairman and making a series of recommendations at the
December 2019 Board meeting, based on best practice and in line
with the Code and other applicable guidance. Subsequently, the
Chairman has given individual directors’ feedback on their
performance.

A review of the Chairman’s performance was done separately by
the non-executive directors, led by the Senior Independent Director.
This was then shared with the Chairman. Independent Audit also gave
input into this review.

The review concluded that the Board is a high-impact board, fulfilling
its responsibilities during a period of major transformation to
processes, structures and technology. Meeting dynamics which were
observed were positive, and the reviewers noted that the
conversations the Board is having are notable for their openness and
depth. The non-executive directors are highly committed, with
functional expertise and a high proportion of relevant and current
industry experience, resulting in a comprehensive understanding of
growth opportunities and also threats facing the business. The level
of involvement and engagement of the non-executive directors is
considered strong and the non-executive directors balance both
supporting and challenging management well. The Board is well
informed about the transformational change underway through the
Growth Acceleration Programme and holds management to account
on its delivery.

For information on what the Board did during the year please see the
Board’s Activities on page 65, 66 and 67.

The role of the Board and its committees
The Board is responsible for determining the Company’s strategy,
Purpose, culture and Values. It oversees the execution of its strategy
by management whilst having oversight of the governance and
control framework underpinning the Company.

The Board has a duty to promote the long-term success of Rotork,
and recognises its responsibilities extend not only to the creation of
value for its shareholders but also to wider stakeholders, including
employees, customers, suppliers and the communities in which it
operates. Pages 72 to 74 set out how the Board and the business
have engaged with and taken into account the interests of Rotork’s
stakeholders.

As well as being responsible for the Company strategy which is
summarised on pages 28 to 29 of the Strategic Report, the Board has
responsibility for reviewing, monitoring and developing Rotork’s
culture and ensures that this aligns with the strategy. In 2019 the
Board approved a number of workplace policies and processes which
strengthen the Company’s purpose, culture and values and support
the delivery of the strategy.

The Board reviews and oversees the effective management of risk,
whilst delegating oversight of the controls framework to the Audit
Committee.

The Board is confident that the necessary resources are in place for
the business to meet its strategic objectives.

Rotork Annual Report 2019

The Board intends to focus more in the coming year on the longer-
term strategy and emerging risks, ensuring that acquisition
opportunities, the ‘digital’ future and the energy transition are given
sufficient time within the boardroom in 2020. There is a view that
additional work could be done to improve the quality and succinctness
of the papers, set a clearer forward agenda and organise the schedule
of meetings.

The Board has agreed to adopt actions relating to the development
of the Group strategic plan and implementation of key strategic
initiatives; increasing the access of Rotork’s management to the Board
and increased employee engagement with non-executive directors,
details of which are set out on page 27; and addressing talent and
succession.

Board committees are all working effectively and are well chaired and
managed, with members having a clear understanding of the issues
and subject knowledge. The Audit Committee is planning to continue
to focus on the strengthening of the internal control framework.

Subsequently, the Board agreed an action plan for implementation in
the year ahead, focusing on increasing its long-term strategic focus
whilst continuing to drive the transformation forward and focusing on
its Purpose, culture and Values.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Board activities

The Chairman, Chief Executive and Company Secretary agree a structured agenda ahead of each Board meeting, which will include reports on
current trading and financial performance by the Chief Executive and Group Finance Director; legal and governance updates and a review of
investor relations; and a people update and the Growth Acceleration Programme. The Board meets six times a year, with calls held in other
months for a brief update on key matters relating to trading and financial performance.

An insight into the breadth of matters discussed by the Board during the year and key stakeholder groups that were central to those discussions
is set out below:

Turn over to continue
reading about our
Board activities

Strategy & company
performance

Financial

Governance
& legal

Rotork Annual Report 2019
Rotork Annual Report 2019

Corporate governance report continued

Strategy and
company
performance

Financial

Shareholders

Employees

Suppliers

Customers

Community

Environment

Trading and
business

Strategy

Culture and
Values

Growth
Acceleration
Programme
(GAP)

Financial
performance

Considered trading performance, business updates and discussed
operational issues arising from across the Group’s businesses.

Set the Group’s strategy and new vision of ‘keeping the world
flowing for future generations’ and monitored the progress in
achieving them.

Set the Group’s culture and Values.

As part of our assessment and monitoring of our culture the
Board has reviewed the results of the pulse employee feedback
surveys and considered suggested improvements and set out an
implementation plan.

Received updates from the employee representatives which
facilitated a discussion around the Company’s Purpose, Values and
strategy from the perspective of employees and how these align
with the Company’s culture.

Regularly monitored progress made against set targets in the
Growth Acceleration Programme.

Received regular financial performance updates across the Group
and discussed any issues.

Budget

Reviewed and considered actual and forecast trading
performance against the agreed budget and implications on
long-term performance.

Considered and approved the budget for 2020.

Trading
updates

Considered year-end results, half-year and trading updates and
with the recommendation of the Audit Committee, approved
such reports and updates.

Cash flow and
dividend

Reviewed and considered finance performance, cash flow,
liquidity and other factors and agreed interim and final dividends.

Financial
policies

Considered and approved the Group Treasury policies.

1 2 3

4 5 6

1 2 3

4 5 6

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

70
70

Rotork Annual Report 2019
Rotork Annual Report 2019

Financial
continued

Tax
strategy

Considered and approved the Group’s tax strategy for publication
in accordance with the 2018 UK Corporate Governance Code.

Risk

Brexit

Conducted a full year risk review and discussed the principal and
emerging risks and the Group’s risk appetite.

Considered potential impact on our international operations and
discussed impact assessments, scenario planning and
preparations.

Governance
and legal

Health and
safety

Received regular updates and agreed initiatives to increase health
and safety awareness.

Board action
planning

Board
evaluation

Monitored progress of Board action against the action plan in the
form of a Rolling agenda and set the action plan for 2020.

Carried out an external evaluation of the Board’s effectiveness,
composition and methods of acting on feedback to ensure
suggested improvements were implemented. Further detail is set
out on page 68.

Board succession
and diversity

Reviewed the Board’s composition and diversity. Considering the
succession plan and facilitated the on-boarding of two new
Non-Executive directors.

Annual General
Meeting

Reviewed feedback and issues raised by private and institutional
shareholders throughout the year to be addressed in the meeting.

Board
Committees’
terms of
reference

Dealing with
directors’
conflicts of
interest

In light of the UK Corporate Governance Code 2018, the
Committee considered and reviewed the requirements and its
impact on the work of its Committees and updated its terms of
reference.

In December 2019, in line with the directors’ interest provision in
the Companies Act 2006 and the Company’s Articles of
Association, the Board followed its procedure for the
consideration and authorisation of Directors’ conflicts or possible
conflicts with the Company’s interests. It was concluded that
these were managed effectively in the year.

Group
policies

In October 2019, the Board approved for publication a suite of
policies underpinning the new Code of Conduct. Following
approval these were rolled out to all employees across the Group

71
71

Shareholders

Employees

Suppliers

Customers

Community

Environment

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5 6

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

1 2 3

4 5

Rotork Annual Report 2019
Rotork Annual Report 2019

Corporate governance report continued

How we listen and
respond to our stakeholders

Our stakeholder relationships are fundamental to our business. We have in excess of 3,560 shareholders, over 3,600 employees, customers in
173 countries and we have a global supply base of over 4,000 suppliers. These pages provide an insight into how we interact with our
stakeholders and how we consider our stakeholders when making key decisions. We have a duty to promote the success of Rotork for the
benefit of our members as a whole and in doing so we must consider the interests of all of our stakeholders.

Shareholders

Board
decisions

All Board decisions are made with the long-term success of Rotork in mind, which
ultimately benefits our members. We have focused in particular on the Growth
Acceleration Programme, ensuring that Rotork is well placed for the future.

Annual Report
and Accounts

We endeavour to exceed our statutory obligations by providing a complete view of our
business in the Annual Report and Accounts. Our Annual Report and Accounts is
available in electronic form to shareholders and is available on our corporate website.
Our corporate website also contains a variety of resources for investors including
current webcasts, presentations and press releases, as well as annual interim reports.

Annual General
Meeting (AGM)

At our 2019 AGM all proposed resolutions were passed. Votes in favour ranged from
88.02% to 100%. We have been using automatic poll voting for the last few years in
order to better reflect the views of shareholders. Rotork also makes available electronic
proxy appointments for shareholders who wish to appoint a proxy online to vote at the
AGM.

Investor
communication

We enjoy an active dialogue with our investors, advisers and the investment
community. Our Chief Executive, Group Finance Director and our Investor Relations
Director regularly communicate with our major shareholders, and over the course of
the year have engaged with investors representing over half of our issued share capital.
In 2019, they attended over 200 meetings, with over 125 separate institutions and
have also participated in roadshows, hosted webcasts and attended shareholder
events. The views expressed by investors are shared with the full Board at each Board
meeting, via an investor relations update and the Board takes these views into account
in its wider decision making. In addition this year Tim Cobbold has personally engaged
with shareholders covering over 35% of the register as part of our Remuneration
Policy review. Tim shared the responses with the full Remuneration Committee whose
subsequently incorporated shareholder feedback into their deliberations. Further
details on the draft Remuneration Policy can be found on pages 84-85.

Employees

Board
decisions

At each Board meeting both the Chief Executive’s report and the People Update, given
by the HR Director, touch on the views of our employees and wider workforce. These
views are expressed via our employee forums, pulse surveys, town halls and ‘Ask Kevin’
direct communications as well as being fed up the management line. The Board
considers the impact of its decisions on employees.

In the summer of 2019, we launched our new Purpose supported by three new global
Values and underlying behaviours, by way of 50 global launch events held on the same
day. Further details of the launch can be found in the Strategic Report on pages 50-51.
The Values show what is important to Rotork to help us achieve our Growth
Acceleration Programme and our Vision by working together as one global team.

72
72

Rotork Annual Report 2019
Rotork Annual Report 2019

Employees
continued

Employee
updates

Employees are kept informed of Rotork’s strategy and performance via regular emails,
a number of short films presented by the Chief Executive and the management team
and regular intranet updates. Employees are encouraged to provide feedback to Rotork
via employee forums, question and answer sessions, ‘Ask Kevin’ and pulse surveys.
Employee feedback particularly informed the Board’s thinking on our Purpose, Values
and behaviours as well as what we included in our Code of Conduct. As was
referenced in our 2018 Annual Report and Accounts, the non-executive director,
Tim Cobbold, has been appointed as designated non-executive director for employee
engagement. He attended the Rotork Values launch at the Bath site and has attended
employee forums. Rotork’s non-executive director, Ann Christin Andersen, has visited
the Rotork sites in India and China and met with employees in those locations.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Pulse
surveys

Diversity

One of the ways that we obtain feedback from our employees is through pulse surveys
conducted online. In 2019 we have conducted three surveys: a Values survey where
over two-thousand employees helped select our new global Values; a communications
survey where nine-hundred employees fed back on all aspects of communication and;
life at Rotork, and a Values follow-up survey following the release of our corporate
Values. 1134 employees participated in the Values follow-up survey, which represents
over half of our IT enabled colleagues.

We have published our 2018 Gender Pay Gap Report and note that globally across our
workforce, females make up 21% of the workforce. We have pledged our support to
the 30% Club and are a partner to the Women in Engineering Society. We participated
in the 2019 Hampton-Alexander Review pilot buddy programme, matching FTSE 100
and FTSE 250 organisations to share knowledge and support and continue to track
diversity through our talent reviews and Board meetings. We have three women on
the Board out of eight and we continue to be highly supportive of STEM initiatives and
have set an aim that 30% of our apprentice intake will be female

Employee
development
and training

A range of development opportunities are available to our employees. These include
the delivery of strategic global training and development programmes, mentoring and
external coaching. Our Global Training and Development Team are working to put in
place further management and leadership development programmes in 2020.

Charitable and
community
projects

The local charity committees at each of the Rotork sites support charitable causes that
are important to the employees locally. Highlights from 2019 include sponsoring the
Bath Royal United Hospital’s Cancer Centre, a STEM week, a local netball club, and
science fair in a local primary school.

Customers

Board
decisions

Feedback

How we interact with our customers and customer satisfaction has been a key topic in
Board discussions. As part of our Growth Acceleration Programme we have focused
on further aligning our business with our customers’ needs.

In response to customer feedback, we have commenced the process of transforming from
a product-based structure to a more customer focused structure which is aligned to
market segments, with an emphasis on making it simple for customers to do business with
Rotork. We have carried out customer surveys in Asia asking over 100 customers for
feedback on our organisational changes. Their view on overall customer experience and
how easy it is to now do business with Rotork. We received feedback from over 90% of
the customers we asked. Overall responses were positive stating that it is now easier to
place orders with Rotork, communications about the organisational changes were timely
and that Rotork are now viewed as offering a total business solution. We will be rolling out
further customer surveys across the globe in 2020.

Delivery lead
times

Our customers have indicated that they are looking for shorter lead times. Many of our
activities being undertaken on lean manufacturing and inventory as part of our
Growth Acceleration Programme are working to reduce lead times.

73
73

Rotork Annual Report 2019
Rotork Annual Report 2019

Corporate governance report continued

Customers
continued

Service
support

In December 2018 we appointed our new Director of Site Services. During 2019, we
mapped our aftermarket strategy and have worked to provide a simpler and broader
range of support to customers from reactive through to preventative maintenance. The
key development area to support this is our expanding capability to provide intelligent
predictive maintenance to help customers maximise performance, and our use of these
innovative digital approaches will continue to grow in 2020.

Events

Rotork holds regular customer events to provide training and information on our
product range and service offerings, and we have product trainers located around the
globe.

Community

Board
considerations

Charitable
contributions

Early years
development

Board decisions are made with consideration of our operational impact on the
communities in which we work. There is a continued focus on environmental issues
including energy management, measures to reduce our water usage and
understanding as well as managing our waste. These were particularly considered by
the Board as part of its deliberations relating to its operational footprint and factory
expansion projects.

Our target is to contribute 0.1% of profits to nominated international charities and a
further 0.1% of profits to local charitable causes.

We are committed to supporting early years employment, offering apprenticeship
schemes throughout the business and we are also members of the Manufacturers
Standardisation Society, which offers undergraduate and graduate scholarships in
relevant disciplines.

Suppliers

Community
involvement

With the help of our employees, we have been involved in a range of community
activities. We have donated money to many local causes, details of which are included
on pages 52 and 53 of the Strategic Report.

Board
decisions

Modern
slavery

Supplier Code
of Conduct

Supplier
conference

Global sourcing
agreements

This year we have invested in our supplier relationships as these relationships are vital
to our success.

We have continued the review of our global supply chain and operations to ensure
that we are working to prevent modern slavery in these areas. Details of the efforts
we have made to combat modern slavery are detailed in our 2019 Modern
Slavery Statement which can be found on the Rotork corporate website at
https://www.rotork.com/en/investors/modern-slavery-statement.

We have a Supplier Code of Conduct which sets out our core Values and we require
that all of our suppliers of goods and services comply with it.

Rotork held its inaugural Global Supplier Conference in 2019 with many of our
strategic suppliers attending the event from all over the world. Rotork held individual
meetings with suppliers and also gave presentations on a variety of topics including
supplier audits, product innovation, cyber security and corporate social responsibility.
The feedback was that this type of event was beneficial and consequently we are
considering making it a regular event.

In the final quarter of 2018, our Global Strategic Sourcing team turned their focus to
significant component categories and continued this focus into 2019. We currently
have circa 4,000 suppliers and a key focus is to reduce this number, enabling us to
strengthen our partnerships with remaining suppliers, adding increased value to our
customers. New agreements with suppliers continue to be put in place and this will
continue into 2020.

74
74

Rotork Annual Report 2019

Audit committee report

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

The Audit Committee is responsible for:

Financial reporting
• Reviewed the Annual Report & Accounts (including whether they

are fair, balanced and understandable), the Corporate Governance
Report and draft results announcement.

• Reviewed the material judgements and estimates, going concern

assumption and viability statement in the Annual Report &
Accounts.

• Reviewed the half year accounts including material judgements,

estimates and draft half year results announcement.

• Reviewed the external auditor’s report on the year end accounts

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

Internal controls and risk management
• Reviewed processes and procedures for risk management and the

Committee membership & meeting attendance

effectiveness of the internal controls framework.

Number of meetings
attended (max: 4)

Lucinda Bell

Sally James

Peter Dilnot

Ann Christin
Andersen

Tim
Cobbold*

Gary
Bullard**

Tim Cobbold was unable to attend the meeting in October 2019
due to a personal commitment.

** Gary Bullard resigned in April 2019 and accordingly only attended

the February 2019 meeting.

• Reviewed the development of the business and financial control

framework and integration of this work with the design of the new
ERP system.

• Reviewed the development of an electronic major contract

approval tool.

• Reviewed significant internal control reports, findings and

management responses.

• Discussed compliance with Group policies.
• Reviewed anti-bribery and corruption procedures.

External audit
• Considered and reported to the Board on the external auditor’s

independence, objectivity and effectiveness.

• Reviewed the external auditor’s representation letter, views on the

control environment and fraud risk management.

• Meetings with the external auditor without management present.
• Reviewed non-audit services undertaken by the external auditor

and the policy on non-audit work.

• Considered audit fees, engagement terms and the risk of one of

the external auditor firms leaving the market.

• Considered re-appointment of the external auditor.

Internal audit
• Reviewed the internal audit programme, its remit, resourcing and

effectiveness.

• Reviewed the maturity and effectiveness of internal audit.
• Discussed reports on the implementation of process improvements
recommended for action following internal audit reviews and
progress on implementing recommended actions, including
overdue actions.

• Meetings with the Head of Risk and Internal Audit without

management present.

Other work
• Reviewed the Finance Strategy, Vision, maturity assessment, and

associated development plan.

• Considered accounting and corporate governance developments

including the 2018 Corporate Governance Code changes.

• Reviewed Audit Committee effectiveness and terms of reference.
• Reviewed the whistleblowing, gifts and hospitality and risk

management policies.

• Approved the Audit Committee’s schedule of work for 2020.

Rotork Annual Report 2019

Audit committee report continued

I am pleased to present the report of the Audit Committee for the
year ended 31 December 2019. This year the key areas of focus for
the Audit Committee, in addition to its usual schedule of work, have
been:
• Reviewing progress and the impact of the programme to enhance
the internal control framework, through improved accountability,
segregation of duties, consistency and a stronger second line of
defence. The work is a mix of actions mitigating identified risks as
well as longer term improvements aligned to the investment in the
new Enterprise Resource Planning (ERP) system.

• Overseeing the transition of the new external audit partner and

Risk and Internal Audit Manager.

• Reviewing progress on implementation of a new major contract

approval tool.

• Reviewing ongoing progress to strengthen the Finance function.

Committee composition and governance
All Audit Committee members are independent non-executive
directors. On 26 April 2019 Gary Bullard, who had served as a
member of the Committee since his appointment to the Board in
2010, did not seek re-election and stepped down from the
Committee from that date. There have been no other changes to the
membership of the Committee during the year.

I hold professional accounting qualifications and am deemed to have
recent and relevant financial experience. Tim Cobbold also holds
professional accounting qualifications. Biographies of each member of
the Audit Committee can be found on pages 64 to 65.

The Audit Committee operates under formal terms of reference
which are reviewed annually and were last updated in October 2019.
A copy of the terms of reference is available on the Rotork website at
www.rotork.com/en/investors/index/committees.

Integrity of financial reporting.

The principal responsibilities of the Audit Committee are to review
and report to the Board on the:
•
• Application of significant accounting policies and judgements.
•
• Adequacy and effectiveness of the Company’s internal controls

Internal audit programme, its remit, resourcing and effectiveness.

and risk management systems.

• Appointment, independence and remuneration of the external

auditor.

• Effectiveness of the external audit process.

The Audit Committee maintains an annual schedule of work which is
kept under review and forms the basis of its principal meetings
throughout the year. The annual schedule is supplemented by
consideration of specific issues as and when they arise.

The Audit Committee met four times during the year. Details of
attendance are set out on page 75. The Chairman, Chief Executive,
Finance Director, Group Financial Controller, Head of Risk and Internal
Audit, Risk and Internal Audit Manager and representatives of the
external auditor (including the principal audit partner) also attend
meetings by invitation.

As Chair of the Committee, I additionally hold regular meetings with
the Finance Director, the external audit partner, the Head of Risk and
Internal Audit and other members of the management team. These
meetings provide me with a better understanding of key issues and
identify those matters which require meaningful discussion at Audit
Committee meetings.

During the year, the Audit Committee received reports from
management, the Head of Risk and Internal Audit and the external
auditors. Through face to face discussions and detailed written
reports the Committee is able to challenge, scrutinise and ask
questions where further clarification or discussion is required. Further
details of the work undertaken by the Audit Committee during 2019
is set out on page 75.

Financial reporting
A key role of the Audit Committee in relation to financial reporting is
to review the quality and appropriateness of the half year and year
end financial statements with a particular focus on:
• Accounting policies and practices.
• The clarity of disclosures and compliance with International
Financial Reporting Standards, UK company law and the UK
Corporate Governance Code.

• Material areas in which significant judgements have been applied
or where there has been discussion with the external auditor.
• Upon request of the Board, advising the Board on whether the

Annual Report & Accounts are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company’s performance.

In order to assess the financial statement, the Committee receives
reports from members of the financial team and external auditors,
who are invited to attend meetings. Through face to face discussions
and detailed written reports the Committee is able to understand the
key judgments and estimates and how they are being recorded and
disclosed in the financial statements.

The principal matters of judgement and estimation considered by the
Audit Committee in relation to the 2019 accounts and how they were
addressed were:
• Goodwill impairment testing. The year end balance sheet includes

goodwill of £222m (31% of the Group’s assets). The Audit
Committee discussed the appropriateness of the assumptions used
in assessing the value in use of each cash generating unit and were
satisfied with the approach taken by management which resulted
in no impairment being made in 2019. The Audit Committee also
considered whether any reasonable change would result in an
impairment in any cash generating unit. The Audit Committee
reviewed the sensitivities and impairment disclosures in note 10
and were satisfied these are balanced and fair.

• Retirement benefit schemes. At 31 December 2019, the Group

operates two defined benefit retirement plans, both of which are
now closed to future accrual. The valuations are prepared by an
independent qualified actuary. The Audit Committee considered
the report from the Group Financial Controller and were satisfied
the assumptions used were appropriate. The detailed disclosure
for these schemes under IAS19 is shown in note 24 and the Audit
Committee is satisfied they are complete and accurate.

Rotork Annual Report 2019

• Revenue recognition. The report from the Group Financial

Controller noted that the controls in place to evidence the timing of
revenue recognition in respect of certain bill-and-hold
arrangements at two locations were not followed in accordance
with the Group’s policy. In management’s judgement, the
requirements of IFRS 15 have been satisfied to recognise the
revenue and this has been confirmed by the customers. The Audit
Committee discussed the judgements involved and noted that the
value of revenue under judgement was not material. Following the
discussion, the Audit Committee were satisfied with the approach
taken by management.

External auditor
The year under review marks the sixth year during which Deloitte LLP
has been the Group’s external auditor following a formal tender
process in 2014. The 2019 year end audit will be the first year that
David Griffin has acted as Deloitte LLP’s lead audit partner for Rotork.
In order to assist David in familiarising himself with Rotork, he has
visited a number of Rotork locations both in the UK and overseas as
part of the audit process.

The Audit 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 external audit.
• The proposed external audit plan, including identification of risks

specific to Rotork.

• External audit scope and materiality thresholds.
• Matters arising during the external audit and the communication of

these to the Audit Committee.

• Private meetings with the external auditor without management

being present.

• The independence, objectivity and scepticism of the external

auditor.

• The FRC audit quality review report on selected audits undertaken

by Deloitte.

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

Consideration was given to the possibility of re-tendering the external
audit during the year but as the Committee are satisfied with the work
of Deloitte, the decision was made not to re-tender. The Audit
Committee has recommended that Deloitte LLP be re-appointed
auditors for the 2020 financial year and Deloitte’s continuing
appointment will be subject to shareholder approval at the 2020 AGM.

Statement of compliance
The Company confirms that it has complied with 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. This is the sixth year end since Deloitte took over as external
auditors and we will re-tender our external audit service provider after
ten years have been completed at the latest.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

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. The Audit Committee reviews the policy annually to ensure
it remains appropriate. The policy is compliant with EU legislation on
permitted non-audit fee services.

The policy specifies certain activities, which the external auditor may
not undertake, such as work related to the internal audit function and
certain tax activities. It also contains restrictions on the scope of
permissible non-audit work; and a cap on fees for permissible
non-audit work (which may not exceed 70% of the average audit fees
paid in the last three consecutive years).

The Finance Director has delegated authority to approve work that is
permitted under the policy. This is for fees of up to £10,000 per
project or £40,000 in aggregate for general work, and £10,000 for
acquisition related work. Non-audit work above these levels requires
the prior approval of the Chair of the Audit Committee or the Audit
Committee as a whole.

An analysis of fees paid to Deloitte, including the split between audit
and non-audit is included in note 8 of the Report & Accounts.

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

As set out in the Strategic Report, the continuous improvement and
execution of a comprehensive and robust system of risk management
is a high priority for Rotork. Many of the principal risks are aligned
with areas of accelerated growth and in a number of areas the risks
increased with the launch of the Growth Acceleration Programme. In
that context, in late 2018 the Audit Committee has sought
information and insight over the quality of the control environment
and three lines of defence, together with recommendations for
improvements from both internal and external audit. In response,
management agreed a series of measures including improvements to
accountability, consistency, and the development of a stronger second
line of defence.

The implementation work has been underway throughout 2019 and
will continue in future years. It is a mix of actions mitigating identified
risks as well as longer term improvements aligned to the investment
in the new Enterprise Resource Planning (ERP) system that is being
developed.

Rotork Annual Report 2019

Audit committee report continued

The Audit committee received reports at each meeting on progress
on the work, including reports from the external auditor.

Strengthening the Finance and compliance functions is central to
improving the control environment. New appointments have been
made in line management and the first line of defence and a finance
direct report structure is being phased in. During the year a Head of
Legal Compliance and Employment has been appointed to
supplement the in-house legal team and support the development of
a new Code of Conduct which acts as an over-arching document for
many of the internal Group policies.

PwC continued to provide internal audit services throughout 2019.
The function is led by an experienced Head of Risk and Internal Audit
from PwC supported by an in-house Risk and Internal Audit Manager.
The Group continues to use Rotork staff supported by the dedicated
in-house team and staff from PwC to undertake internal audits.
Quality assurance procedures ensure consistency both in terms of
audit approach and proposed recommendations. Staffing of the
central risk and internal audit team will be kept under review during
2020.

Internal audit has delivered financial audit reports for 27 of our global
locations during 2019. Guidance is provided to auditors about the
nature and extent of testing to be undertaken and to ensure auditors
focus their efforts in key areas of risk, tailored by site. Investment has
also been made to improve the quality and consistency of reporting
of issues.

A further seven risk-based internal audit reviews have been performed
during 2019, covering the following areas:
• Growth Acceleration Programme project management office.
• Cyber security.
• GDPR.
• Brexit readiness.

The Audit Committee continues to receive reports at the main
meetings on internal audit activity, any significant matters arising and
the management response. During the year, the internal audit team
made recommendations for improvement to controls, which
management are charged with implementing. The status and
effectiveness of actions are monitored by internal audit and regularly
reported to the Audit Committee. During 2019, the new more
rigorous process for internal audit ‘follow up’ of agreed management
actions has been in operation and has resulted in more actions being
completed within the agreed timeframes. Overdue internal audit
action points were reported to the Board monthly.

The internal audit team continue to administer the process for sites to
confirm the operation of key financial controls on at least a quarterly
basis. This process provides insight into key areas of risk and is verified
during the internal audit visits.

Other means of assessing the internal control systems include the risk
assessment process and annual letters of assurance from the divisional
leadership team. These controls sit alongside our system of
governance, including key committees that monitor our processes and
controls, such as the Audit Committee and CSR Committee.

During the year, the Audit Committee also considered reports on
anti-bribery and corruption procedures.

The Risk Management Policy has been updated during 2019.
It documents the Group’s risk management processes and the
connections between those various processes and the day-to-day
operations of the Group. A number of enhancements have been
made in the year to improve the connections between the Risk
Appetite and the designated risk owners amongst the executive team.
This has helped in formulating more detailed plans to ‘get to green’
where risks currently sit outside of appetite. Work on these plans will
continue in 2020.

The 2020 internal audit programme has been scoped to include a
number of risk-based audits related to controls relied upon to mitigate
the Group’s Principal Risks as well as financial audits across a wide
range of locations. Sites to be audited are selected based on a
thorough assessment using a number of relevant risk factors. The
Audit Committee reviewed and approved the 2020 programme at its
December 2019 meeting.

Whistleblowing
From 2019, review of the Speak Up policy and procedures are a Board
responsibility in accordance with the 2018 Corporate Governance
Code. The Committee continued to review the financial consequences
of any events during the year.

Other matters
During the year a finance maturity assessment was completed by
members of the finance leadership team. The output from this
assessment was presented to the Committee together with a
development plan, focused on improving areas of greatest
opportunity first. With the restructuring of the finance team,
as part of the wider organisation design change, the new finance
leadership team will now drive these changes, reporting progress
to the Committee during 2020.

Rotork Annual Report 2019

In accordance with its terms of reference, the Audit Committee carried
out a review of its effectiveness including how it discharged its
responsibilities. Independent Audit interviewed the Committee
members, Board members, members of Rotork’s management team,
the co-sourced internal auditors and external advisors as part of this
process and presented their observations and recommendations in
December.

Throughout the year, the Audit 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 2020
Key areas of focus for the coming year are:
• To review ongoing progress on strengthening the control

environment.

• To review development of the global finance team.
• To review development of the ERP system and the integration of

controls within its design to enhance the control environment and
drive consistency between locations.

• To review the implications for Rotork of developments in the

external audit process and regulation.

—
Lucinda Bell
Chair of the Audit Committee
2 March 2020

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Rotork Annual Report 2019

Nomination committee report

The role of the Committee
The Committee evaluates and examines the skills and characteristics
needed to ensure the Board has the right balance, knowledge and
attributes to operate effectively to deliver the long-term success of the
Company, in a culture that is aligned with the company Purpose and
business strategy, and promotes integrity. It also reviews the succession
needs of the organisation and puts in place the appropriate processes for
nominating, training and evaluating directors, bearing in mind the need
for diversity.

Activities of the Nomination Committee during the year
During the year, the Committee undertook the following main activities:

Board Appointments
Following the appointment of Ann Christin Andersen and Tim Cobbold
in 2018, there were no new Board appointments 2019. Biographies of
each member of the Nomination Committee are set out opposite.

Gary Bullard, who would have been in office for nine years in June 2019,
did not stand for re-election at the 2019 AGM and Tim Cobbold was
appointed as Chair of the Remuneration Committee, having satisfied the
Nomination Committee that he had the requisite experience to perform
the role.

As advised on page 64 Sally James is in her eighth full year of service and
will complete nine years’ service on 11 May 2021. The Nomination
Committee intends to appoint an external search consultant (with which
the Company has no other connection) to assist with the process of
recruiting a successor. In formulating the candidate profile for the
appointment the Board will look at candidates with a growth mindset,
international experience, previous governance experience as well as
Board experience, preferably from a diverse background.

Succession planning
Succession planning for the Board and senior management is
continuous and during the year the Nomination Committee
considered the need to maintain an appropriate balance of skills and
experience within the Company and on the Board and to ensure
progressive refreshing of the Board and senior management.

Diversity planning
The Board seek to attain a diverse mix of skills, experience,
knowledge and background. In considering diversity, gender plays an
important role but the Board also takes into account social and ethnic
background, and other cognitive and personal strengths. As reported
on page 73 the Board updated its Board Diversity and Inclusion plan
and are a partner to the Women in Engineering Society. Details of the
percentage of women on the Board, in senior leadership positions
and within the Group can be found on page 66.

Board evaluation
The Board performed an external review of its effectiveness in 2019. The
review included an assessment of the effectiveness of the Committee
including how it discharged its responsibilities. Further details on the
results of this review and any resulting actions can be found at page 68.

—
Martin Lamb
Chair of the Nomination Committee
2 March 2020

Committee membership & meeting attendance
The Committee is chaired by Martin Lamb and comprised
mostly of independent non-executive directors. Details of the
Committee members and their attendance at the meetings
held during the year are set out below.

Number of meetings
attended (max: 2)

Martin Lamb

Lucinda Bell

Sally James

Peter Dilnot

Ann Christin
Andersen

Tim
Cobbold*

Kevin
Hostetler

Gary
Bullard**

* Tim Cobbold was unable to attend the meeting in October 2019 due

to a personal commitment.

** Gary Bullard resigned in April 2019 and accordingly only attended

the February 2019 meeting.

The Nomination Committee is responsible for:

Leading the process for Board appointments and
making recommendations for appointments to the
Board.

Ensuring succession planning is in place for
appointments to the Board and senior management.

Reviewing the structure, size and composition and
balance of the Board, including its balance of skills,
diversity, knowledge and experience, and making
recommendations as appropriate.

Making recommendations to the Board on the
composition of the Board’s Committees.

Making recommendations to the Board concerning the
annual reappointment by shareholders of any directors
and separately assessing each year whether non-
executive directors continue to be independent.

The terms of reference of the Nomination Committee
were reviewed in October 2019. A copy of the revised
terms of reference are available on Rotork’s website at
https://www.rotork.com/en/documents/publication/5553.

Rotork Annual Report 2019

Board diversity policy

During 2019 we revised and updated our Board Diversity and
Inclusion Policy. The new policy can be found on our website
https://www.rotork.com/en/documents/publication/24261.

The commitments we make in our revised policy are not new, but
record the Board’s ongoing commitment to important means of
reaping the benefits of alternative perspectives and insights, knowing
that these, in turn, lead to constructive challenge and sound decision
making.

Our progress on all aspects of diversity in its broadest sense can be
seen from the following;
• We have achieved the benchmark set by the Hampton-Alexander
Review well in advance of the stated deadline. The Hampton-
Alexander Review encourages Boards to achieve a female
membership of 33% by 2021 and our Board has already reached
37.5% female.

• We have reviewed and updated our Board Diversity and Inclusion

Policy, noting areas where work is still needed.

• We continue to engage with Executive Search firms who have
signed up to the Voluntary Code of Conduct. This is especially
important as the Board addresses succession planning.

• We remain a member of the 30% Club and are a partner to the

Women in Engineering Society.

• Our Gender Pay Gap report shows that throughout the

organisation, women make up 21% of our workforce and we
intend to reinforce that number by working toward a diverse
apprenticeship intake.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Rotork Annual Report 2019

Directors’ Remuneration Report

Committee members

Number of meetings
attended (max: 4)

Tim Cobbold

Ann Christin
Andersen

Lucinda Bell

* (to 1 October 2019).

Sally James

Peter Dilnot*

Priorities and activities of the Remuneration Committee
during 2019

Reviewing our remuneration to ensure it delivers a
package that is proportionate to the opportunity for
shareholders and aligned with their interests
• Considered the revised Remuneration Policy for 2020.
• Set pay principles.
• Reviewed all elements of the directors’ Remuneration Policy to
ensure that it is globally relevant, remains fit for purpose and
aligns with and supports Rotork’s Values and culture, and fits with
our pay principles.

• Considered corporate governance developments, guidance from
institutional investors and external remuneration trends to ensure
our remuneration structures reflect evolving good practice. The
Board received formal training on these developments from Baker
McKenzie.

Setting pay at a competitive level against the external
market and ensuring it is affordable and fair in the
context of pay for all Rotork employees
• Reviewed the pay arrangements for employees across the Group
and considered how these related to those for our senior leaders.
• Set basic salary for executive directors and members of the RMB

for 2020.

• Reviewed the fee payable to the Chairman.

Determining pay outcomes that are performance-
driven…
• Determined bonus performance against targets and approved

2018 bonus payments.

• Determined LTIP performance against targets and approved 2016

vesting.

• Reviewed both incentive plan outcomes and evaluated whether

discretion should be applied.

…and ensuring future pay is motivating, transparent and
aligned to shareholders’ interests
• Reviewed the terms of both bonus and LTIP plans to ensure they
remain fit-for-purpose and in line with developing best practice.

• Selected the measures and set the performance ranges for

executive directors and other members of senior management’s
bonus scheme for 2019.

• Approved executive directors’ personal objectives for 2019.
• Set LTIP performance targets and award levels for executive

directors and other members of senior management for the 2019
LTIP.

Maintaining transparency and clarity in everything we do
• Consulted with shareholders on the changes to our Directors’

Remuneration Policy.

• Approved the Directors’ Remuneration Report 2018.

Rotork Annual Report 2019

Statement from the Chair of the
Remuneration Committee

Dear Shareholder,

In April of last year, I became Chairman of Rotork’s Remuneration
Committee. Shortly afterwards the Committee began a review of
Rotork’s Remuneration Policy, in line with the requirement to present a
Remuneration Policy to shareholders for approval at the 2020 AGM. In
the light of the significant changes in both Rotork’s business and in the
expectations of shareholders with regard to remuneration since the
last policy was approved, this was the most significant activity for the
Committee in the year.

Remuneration Policy review context
At the time of the last policy review my predecessor had, at a time of
less robust business performance, developed new pay structures,
introduced several elements of good remuneration practice including
bonus deferral and holding periods on vested LTIPs and more generally
aligned the remuneration policy with the strategic needs of the
business at that time. During 2017 we were pleased to have been able
to recruit an excellent and well-qualified CEO in Kevin Hostetler,
however in securing Kevin’s appointment shareholders should be
aware that the Board felt keenly the constraints of our current policy
when conducting the search in the global marketplace.

In order to set the review in context and mindful that the remit of the
Committee covers remuneration more generally across the business,
the Committee established and approved four Key Remuneration
Principles to underpin all remuneration decisions in Rotork. This is the
first time Rotork has had a set of Key Remuneration Principles and it is
through these principles that the Committee exerts an appropriate
degree of influence over remuneration throughout Rotork, at all levels.
These are that remuneration should be:
1. performance driven, competitive and fair;
2. motivating, affordable and proportionate;
3. aligned to shareholders’ interests; and
4. globally relevant and transparent.

Rationale for the proposed Remuneration Policy
The broad structure of our current policy has proved to be effective
and appropriate for the business so the proposed new policy is an
evolution of the existing one adjusted for the significant developments
in the business and changed remuneration practice.

In shaping the new policy, the Committee was concerned to ensure
that it was highly aligned with the business’ new strategy which was
established following Kevin Hostetler’s appointment. Under Kevin’s
leadership the Group’s management team has been significantly
strengthened and an ambitious and comprehensive five year strategic
plan, the ‘Growth Acceleration Programme’ has been developed and is
being successfully implemented. The business performance and share
price has improved correspondingly.

In the Board’s opinion this new plan has significantly improved the
long-term opportunities and prospects for the business as compared
to when the current policy was developed. The proposed policy
therefore reflects these greater opportunities for the business in terms
of an increased opportunity for the management team but anticipates
commensurately more demanding targets. Conscious of the third
Rotork Remuneration Principle and reflecting the feedback from
investors, the Committee believes that the majority of the increased
opportunity should be long term, share based and accompanied by a
much higher executive shareholding requirement.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

The Committee was also mindful that investors’ expectations of what
constitutes good remuneration practice has also evolved in the past
three years. The Committee, with the support of both Executive
Directors, has proposed significant changes to pension allowances and
shareholding guidelines and has introduced post cessation of
employment shareholding requirements all of which mean that the
proposed policy will reflect current, good remuneration practice.

Finally, the Committee was aware following the recruitment process
for Kevin Hostetler that the current level of opportunity was markedly
below the benchmarks for a business of Rotork’s size and complexity.
The Committee understands that a benchmark is not in itself a reason
to make a policy change but did recognise it as a factor in developing
the new policy and a matter to consider in the light of any subsequent
recruitment.

Consultation with shareholders
As part of developing the policy, we sought feedback from
shareholders representing more than 70% of the Company’s register,
as well as from the various investor advisory agencies. The consultation
process started in May 2019 and was concluded in January 2020.

Of course, the inherent challenge in this process is that our
shareholders do not speak with one voice and this is especially so at a
time that executive remuneration in general has never been under
greater scrutiny. It is simply the case that it would not be possible for
us to meet the conflicting demands and expectations of all
shareholders. Together with the Committee I have therefore sought, in
our final proposal, to navigate a path that delivers a policy that we are
sure is right for the business in the long term and is acceptable to a
significant majority of our shareholders.

The large majority of our investors were supportive of the business
case to increase the overall variable pay opportunity, mindful of our
commitment to also introduce correspondingly tougher targets.

However, there was a clear preference that the increase should be
weighted more to the long-term opportunity. Whilst our initial
proposal would have brought us to a more normal incentive structure
in terms of overall balance, we have accepted the views of
shareholders. Accordingly, we have revised our proposal to weight the
increase more towards the long term opportunity – increasing long
and short term opportunities by 50%pts and 25%pts respectively (our
initial proposal being the reverse).

Rotork Annual Report 2019

Directors’ Remuneration Report continued

There was also strong support for our proposal to align new directors’
pension allowances with the wider workforce.

However, a number of shareholders asked that we go further and
commit to reduce the pension of the incumbent directors in line with
the Investment Association’s guidelines (which were released after
our consultation process had begun). We were initially cautious on
this point, mindful that pensions allowances are a contractual term in
executive service contracts and so can be only be varied by mutual
consent or by a unilateral contract termination by the Company (with
the consequential legal and business risks). However, both executive
directors, recognising their responsibility to set an example and
conscious that pension allowances are only one element of their
overall compensation, have agreed to an immediate freezing of their
pension allowance and a phased reduction of their pensions which
will see them aligned with the workforce by the end of 2022.

The proposed increased share ownership requirements, including
their extension beyond cessation of employment, received strong
support from shareholders and so this feature was retained in our
final proposal.

I am grateful to shareholders for contributing to the consultation and
trust they recognise our willingness to both listen to and act on the
views they expressed.

Key elements of the proposed Remuneration Policy
Remembering that the proposed policy is an evolution of the existing
policy, the proposed key changes to the current policy that are as
follows:

Pension allowances
• Pension allowances for newly appointed executive directors will be
capped at the level available to the majority of the workforce.
• For incumbent executive directors pension allowances will be

frozen at the 2019 value and will then fall in a phased programme
of reductions which will result in alignment with the majority of
the workforce by the end of 2022. Both Executive Directors have
agreed to and supported these changes, which will be reflected in
their service contracts once the new Policy has been approved and
implemented.

Variable opportunity
• The maximum annual bonus opportunity will increase to 150%

(from 125%); in 2020 this higher level will be offered to the CEO,
and the Group Finance Director will have an opportunity of 125%.
Otherwise, the operation of the annual bonus, including share
deferral and payment at target remains unchanged.

• The maximum long term opportunity (LTIP) will increase to 200%
(from 150%); this higher level will be offered to the CEO, and the
Group Finance Director will have an opportunity of 175%.
Otherwise, the structure of the LTIP and the accompanying rules
will remain unchanged.

Interests in Rotork shares
• The Executive share ownership requirement (currently 250% of
salary) will be increased to be equal to the total variable pay
opportunity available to each executive (i.e. 350% and 300% for
the CEO and Group Finance Director respectively).

• Following cessation of employment, Executives will be required to
retain for a further two years any shares held that have vested to
them under the Group’s share plans in respect of awards made
following the approval and implementation of the proposed
policy, subject to a maximum holding requirement of 200% of
final salary. Our decision to apply this requirement only to shares
vesting from share plans is intended not to discourage personal
investment. Measures will be in place to ensure compliance with
this new requirement.

The proposed policy makes the commitment that, inter alia, directors’
salaries will normally only rise in line with the wider workforce and
that all remuneration outcomes are subject to the Remuneration
Committee’s active consideration of the need, or otherwise, to apply
discretion.

Following these changes, the proposed policy will result in an overall
level of compensation that is no higher than average for a company
of Rotork’s size and complexity.

The proposed Policy will be put to shareholders for approval at the
2020 AGM. Where approved, and subsequently implemented, it will
become effective on that date and will remain in place for three years,
unless a new policy is proposed before that date.

Remuneration in 2019
2019 started with a cautious outlook for the business, which became
steadily more positive as the year progressed, so our remuneration
decisions reflected this reality.

At the start of the year, despite the strong performance of the new
management team and bearing in mind the limited results from the
Growth Acceleration Programme at that time, the Board judged that
the external landscape remained challenging. The Committee
therefore decided to defer any change in salaries for the directors and
the senior management team at the normal salary review date. As the
year progressed, it became evident that the business was navigating
the external challenges well and that the benefits from the Growth
Acceleration Programme were being realised earlier and more
strongly than expected. By the middle of the year, based on
confidence in the business’ performance, the Committee judged that
a salary increase across the executive population was appropriate;
therefore both executive directors (and the senior management team)
received a salary increase in July 2019 of 1.4%, in line with the
increase that had been given to the wider workforce at the start of
the year. The Committee decided it was not appropriate to backdate
the increase.

The Annual Bonus targets for 2019 (payable in 2020) were based on
annual profit, cash generation, lost time incident rate and individual
strategic targets. Despite a difficult market environment we set
ambitious targets for the annual bonus, particularly in relation to
profit and this is reflected in the outcome for the year. In a market
environment that remained challenging, the Group’s operating
performance was good, benefitting from pre-emptive management
action and the Growth Acceleration Programme. The strategic
development of the business during the year has also been strong and

Rotork Annual Report 2019

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Annual bonus
Whilst the overall structure of the annual bonus will remain unchanged
from 2019 there are some important revisions that will apply, including
the introduction of tougher targets reflecting the increased
opportunity in the business, as follows:
• EBITA Performance (60% of opportunity) – the maximum target for
this will be increased such that the growth in EBITA (on a constant
currency basis) to achieve maximum outturn will be 3% points
higher than in 2019.

• Cash Conversion (15% of opportunity) – the target to achieve

maximum outturn will increase from 100% conversion to 110%.
• Health & Safety (5% of opportunity) – a performance range will be
introduced (replacing the ‘cliff edge’ single number target of prior
years) with the target set on a basis consistent with the previous
year and a maximum that requires a stronger than historical
performance improvement in LTIR.

• Strategic Personal Objectives (20% of opportunity) – for the first
time specific objectives will be included to cover environmental
performance. It is anticipated that these objectives will be further
developed during the year such that an increased proportion of the
annual bonus opportunity will become dependent on environmental
performance in the future.

2020 LTIP
Whilst the structure of the LTIP performance conditions will be
consistent with 2019, the challenging targets have been set having had
close regard for the increased opportunities in the business.
• TSR (33% of opportunity) – in line with market standards for this
measure the maximum outturn will be achieved if TSR is in the
upper quartile.

• EPS (33% of opportunity) – as in previous awards the threshold and

maximum is set at 9% and 35% growth respectively.

• Economic profit (33% of opportunity) – performance will be
measured against the latest long-term plan for the business.
Maximum award will require a growth in the economic profit over
the period of 9% CAGR, equivalent to growth of more than 10%
CAGR in profit after tax.

Awards under the existing Remuneration Policy will be made in the
normal course following the publication of the results, with a further
award made following satisfactory approval of the proposed
Remuneration Policy. Awards made under the proposed policy will be
made subject to directors formally agreeing to the post cessation of
employment shareholding arrangements that apply to those awards.

Details of the Remuneration arrangements for 2020 are included on
pages 83 to 85.

this is reflected in the Strategic Personal Objectives assessments for
both directors. As a result, the bonus for Kevin Hostetler and Jonathan
Davis for 2019 paid out at 102.5% and 81.5% of salary respectively, of
which 27.5% and 21.5% respectively will be deferred in shares under
the Deferred Share Plan.

The 2019 payout is below the 2018 pay out level despite stronger
business performance reflecting the challenging targets that are set at
Rotork.

The outturn for the 2017 LTIP award, which vests in 2020, is based on
basic earnings per share (EPS), total relative shareholder return (TSR)
and the rate of growth in economic profit (a capital returns measure)
over the three years to December 2019. EPS has grown at
11.8% CAGR since 2016 (the base year for measurement) reflecting
the recovery in performance following the change in leadership and
implementation of the new business strategy (Growth Acceleration
Programme), though the depressed level of the base year start point
helped. Economic profit growth (growth in profit ahead of the return
demanded by the weighted average cost of capital) was good at
4.6% CAGR. As a result, 84.5% of the award to Jonathan Davis (and
other members of the senior management team) vested. Kevin
Hostetler, having joined Rotork in 2018, was not a participant in this
award cycle.

The Committee actively considered the extent to which the outturn
for both the 2019 Annual Bonus and the 2017 LTIP reflected the
substantive performance of the business and alignment with the
‘shareholder experience’ in the relevant period. The Committee was
satisfied that both outcomes were fair, appropriate and proportionate
and were well aligned to the shareholder experience and feedback.
As such no discretionary adjustments to the formulaic results were
considered necessary.

Full details of the targets and performance against them for both the
Annual Bonus and 2019 LTIP are set out on page 85. This includes an
expanded section on the nature of and assessment of the Strategic
Personal Objectives in response to feedback from shareholders.

Remuneration for 2020
If the proposed Remuneration Policy is approved, and subsequently
implemented, then the changes envisaged therein will be implemented
in 2020.

Salary reviews
•

In Rotork salaries are now normally reviewed, effective 1 April.
Accordingly, the executive directors will receive a base salary increase
of 2.5%, in line with the level awarded to the wider workforce.
This is in line with the proposed Remuneration Policy that Executive
Directors’ salaries will normally only increase in line with the wider
workforce.

• The Chairman’s fees were also increased by 2.5%, effective on the

same date.

Pension allowances
Subject to the new remuneration policy being agreed and
implemented pension allowances of executive directors will be
frozen at their 2019 levels.

Rotork Annual Report 2019

Directors’ Remuneration Report continued
Remuneration at a glance

Development in the role of the Committee
In the light of some significant changes in the expectations of many
stakeholders, the Remuneration Committee’s role has expanded
during the year.

This review provided the Committee with confidence that
remuneration practices were being aligned to the Key Remuneration
Principles and that the pay culture and tone in the Group was
appropriate.

In addition to my role as Chair of the Remuneration Committee I
accepted the role as the designated non-executive director for
workforce engagement which provides a useful linkage to the now
wider remit of the Remuneration Committee itself.

Composition of the Committee
As explained in the report of the Nomination Committee Chairman, in
accordance with good practice, Peter Dilnot stepped down from the
Committee on 1 October 2019 as he is a serving executive director in
another business. All members of the Committee are non-executive
directors who do not serve as an executive director on another listed
business in the UK.

—
Tim Cobbold
Chair of the Remuneration Committee
2 March 2020

Most significantly the Committee now has oversight over all aspects
of remuneration in Rotork. To this end, in 2019 the Committee
approved the Rotork Key Remuneration Principles, set out above. It is
through these principles that the Committee exerts an appropriate
degree of influence over remuneration throughout Rotork, at all
levels. They also set the pay ‘culture and tone’ for remuneration in the
business.

The Committee conducted a review of the company’s Workforce
Remuneration and Related Policies as part of satisfying itself of the
adequacy of the development of the remuneration practices and
culture across the business. This included:
• A review of the pension arrangements, including assessing the

level of pension contribution made to the majority of the
workforce in a country, including the UK and global basis.

• An explanation of the approach taken to benchmarking across the

business on a by country and by role basis.

• Reviewing the management’s changed approach to performance
conversations and the linkage of individual performance to pay
review as part of ensuring an approach aligned to the Key
Remuneration Principles, particularly nos. 1 & 2.

• Reviewing the effectiveness of the new company wide bonus

scheme that was introduced in 2019 including the mechanisms by
which individual performance is recognised.

• Considering plans to widen the scope of the LTIP in a way that

reflects talent more than hierarchy and requires, as a condition of
participation, a minimum ‘performance plus contribution’ rather
than a quasi-entitlement/expectation.

It is envisaged that an initial award in line with the existing Remuneration Policy will be
issued to the executive directors in March 2020. In the event that the new
Remuneration Policy is approved at the Annual General Meeting and subsequently
implemented, a second grant, awarded outside of the 42 day allotment period as
defined in the scheme rules, will be made to the executive directors.

Rotork Annual Report 2019
Rotork Annual Report 2019

Policy report

Our Remuneration Policy in 2020 (assuming AGM approval and subsequent implementation of the new policy)

Purpose

Attract and retain
high-calibre executive
directors

Element

Salary

Benefits

Pension

Kevin Hostetler (Chief Executive)

Jonathan Davis (Group Finance Director)

£624,000

Standard benefits plus relocation arrangements
agreed in connection with his appointment

£359,000

Standard benefits

Pension allowances fixed from 1 January 2020 at their 2019 absolute values, i.e. £152,100 and
£70,119 for the Chief Executive and Group Finance Director respectively. These allowances will
fall progressively and, by the end of 2022, will align with the percentage contribution available
to the majority of the workforce.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Annual bonus

150% of salary maximum
(90% salary on-target)

125% of salary maximum
(75% salary on-target)

Drive and reward
short-term
performance

Incentivise long-term
value creation and
provide alignment
with shareholders1

Long term incentive
plan (LTIP)1

Provide alignment
with shareholders

Shareholding
requirements

Based on profit, cash generation, safety and personal targets (including strategic and
environmental). Any bonus above 60% of maximum is deferred in shares for three years.

200% salary performance share award

175% of salary performance share award

Based on adjusted earnings per share (EPS), relative total shareholder return (TSR) and economic
profit assessed over a three-year performance period (a two-year post-vesting holding period also
applies)

350% of salary

300% of salary

Executive directors are required to build a shareholding equal to their variable pay opportunity
within five years of appointment. A requirement to hold 200% of salary in shares will
continue to apply for two years after cessation of employment (but does not apply to shares
held which were purchased with the executive’s own funds).

Total remuneration opportunity at
on-target performance (£’000)

£2,063

Actual remuneration for 2019 (£’000)

£1,422

£1,060

£1,191

How our Remuneration Policy supports Rotork’s strategy
Our aim is to deliver strong and sustainable margins, consistent year-on-year growth in revenues and profit and a high return on capital which,
combined with our asset-light model, delivers strong cash generation. The financial measures in our incentive plans reflect these priorities and
our long-term financial objectives.

Strategic priorities

Innovation

Operational excellence

Growth

Sustainability

Bonus

Strategic targets

Cash generation measure
Personal performance targets

Profit measure

Environmental stewardship measure
Safety measures
Deferral into shares
Clawback and malus provisions

LTIP

Economic profit measure

Total Shareholder Return measure
Earnings per share measure

Five-year time horizon (three-year performance
period and two-year holding period)
Clawback and malus provisions

Performance outcomes for the 2019 financial year

2019 annual bonus

Profit (60%)
Cash generation (15%)
LTIR (5%)
Personal and strategic (20%)

2017 LTIP award

EPS growth (33%)
TSR (33%)
Economic profit (33%)

44.0% achieved
15.0% achieved
5.0% achieved
KH: 18.0% achieved
JD: 17.5% achieved

100.0% of maximum
96.0% of maximum
57.5% of maximum

Kevin Hostetler

Jonathan Davis

82.0% of maximum awarded

81.5% of maximum awarded

84.5% of maximum vesting

Our directors’ Remuneration Policy has been developed to enable Rotork to recruit and reward appropriately an executive team of the calibre
required to manage our global business to deliver the optimum outcomes for all our stakeholders. We aim to pay competitively against the talent
pools from which we recruit, which envisages a large portion of pay to be linked directly to the performance of the business and delivered in
Rotork’s shares to ensure strong long-term alignment.

87
87

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

We have defined some key principles for remuneration at Rotork. We seek to ensure that the way we pay every Rotork employee, including our
senior leaders, is:
• Performance driven, competitive and fair;
• Motivating, affordable and proportionate;
• Aligned to shareholders’ interests; and
• Globally relevant and transparent.

Our previous policy was approved by shareholders at our AGM in 2017 and will expire in April 2020. This report sets out our proposed Policy
for the coming three years, for which we are seeking approval at the AGM in April 2020. If approved by shareholders and subsequently
implemented, this revised policy will remain in place for three years, unless approval for a new policy is sought sooner.

The principal changes proposed for the current period are set out below, along with the rationale for these changes. Whilst developing this
new policy, we consulted with investors on an initial set of proposals and provide a summary below of the views expressed and how this
shaped our final proposals.

Current policy

Proposed change

Rationale and investor views

Pension

Up to 25% salary (actual
payments are 25% for Chief
Executive and 20% for Group
Finance Director).

Newly appointed executive
directors will receive a pension
contribution (or allowance in lieu)
capped at the level available to
the majority of the workforce.

From January 2020, the
contribution level for the current
executive directors will be held at
the 2019 cash level for two years,
after which it will be reduced to
20% for the Chief Executive and
15% for the Group Finance
Director; and then, for both, to
the level of the workforce by
31 December 2022.

Maximum opportunity of 150% of
salary.

Intended opportunity for 2020:
150% for Chief Executive and
125% for Group Finance Director.

Deferral requirement remains.

Maximum opportunity of 200%
of salary.

Intended opportunity for 2020:
200% for Chief Executive and
175% for Group Finance Director.

Annual
bonus

LTIP

Maximum opportunity up to
125% of salary (actual
opportunities are 125% for
Chief Executive and 100% for
Group Finance Director).

Any bonus over 60% of
maximum opportunity is
subject to deferral.

Maximum opportunity up to
150% of salary (actual
opportunities are 150% for
Chief Executive and 125% for
Group Finance Director).

Two-year holding period
applies to all vested shares.

Holding period remains.

We are conscious that arrangements for current
executive directors are a matter of contract which can be
varied only by mutual consent.

We consulted with shareholders on this matter and a
number expressed a strong view that they would wish to
see alignment with the workforce by the end of 2022.
Subject to the agreement of a new policy, the two
executive directors have agreed to vary their contracts to
allow a phased reduction to their pensions.

After a period of less robust business performance, the
introduction of a new management team and the
development of the Growth Acceleration Programme
has significantly increased the long-term opportunities
for the business and our shareholders. The revised
opportunity for the executive team reflects the Board’s
wish to incentivise the team to deliver these greater
opportunities over the longer term.

Although ultimately successful, our recent recruitment
experience identified clearly the constraints of the
current policy. The current overall level of variable pay is
well below market levels compared to other businesses
of similar size to Rotork.

Our initial proposals were for a 50% increase to annual
bonus opportunity and a 25% increase to LTIP
opportunity. This change would have given us a more
market typical variable pay structure (and level), and
whilst most shareholders understood the need to make
the change, many preferred that the increase be
weighted more to the longer term. We accepted this
readily as it increased the focus on the long term and
amended our proposal accordingly, such that two thirds
of the increased opportunity is within the LTIP.

88
88

Rotork Annual Report 2019
Rotork Annual Report 2019

Current policy

Proposed change

Rationale and investor views

Share
ownership
requirements

In-employment requirement of
250% of salary.

No post-cessation requirement.

In-employment holding
requirement increase to the level of
total variable pay opportunity (i.e.
350% for Chief Executive and
300% for Group Finance Director).

Shares to the value of 200% of
salary to be held for two years
post-cessation.

Our approach to remuneration encourages and supports
delivery of the long-term growth opportunity the
Growth Acceleration Programme has created. In
combination with the increased, long-term weighted,
variable opportunity, we proposed both an increase in
our shareholding requirements and a post cessation of
employment holding requirement, the aim being to
improve the executive directors’ long-term alignment
with shareholders. All shareholders welcomed this
proposal.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Role of the Remuneration Committee
The principal role of the Remuneration Committee is to set the framework and policy for remuneration of the executive directors, the RMB and
the Chairman. It also oversees the principles and structure of remuneration arrangements for all employees across the Group, and seeks to
ensure there is consistency across regions, business lines and organisational levels. Insofar as possible, similar structures are used across the
Group, since this is the most reliable way of ensuring transparency. At all levels, in line with our remuneration principles, we ensure that
remuneration is competitive and fair; at the executive level, this means offering remuneration that is sufficiently attractive to attract and
appropriately reward the leadership team required to successfully run a complex global business.

The full terms of reference of the Remuneration 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 executive directors, Chairman and, on the advice of the

Chief Executive, the RMB.

• Selecting the measures and setting the performance criteria for the annual bonus and LTIP; and, at the end of their performance periods,

evaluating performance against these criteria and considering whether any discretion should be applied in determining the level of payment.

• Agreeing the terms and conditions to be included in service agreements for executive directors, including termination payments.
• Selecting, appointing and setting terms of reference with any remuneration consultants who may advise the Remuneration Committee.
• Monitoring the principles and structures of remuneration across the Group and ensuring there is consistency and procedures to monitor

fairness of application. In this regard, the Remuneration Committee reviews internal relativities, pay ratios and gender pay gaps, and invites
the Group HR Director to its meetings to provide a full picture of pay across the Group.

• Taking into account guidance issued by shareholders, their representative bodies and proxy agencies (including the Investment Association
and Institutional Shareholder Services). The Remuneration 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 are consulted in
advance about changes to the Policy Report or any significant proposed changes to the way in which it is implemented.

Overview of the Policy Report
Directors’ policy table

Element of
remuneration

Purpose and how it
supports the strategy

Base salary

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

How the element operates

Maximum amounts payable

Framework used to
assess performance

Details of the current salaries of
the executive directors are set out
in the Annual Report on
Remuneration.

N/A

Normally, future salary increases
will be no higher than the average
increase (as a percentage of
salary) applied to the UK
workforce. However, the
Remuneration Committee retains
the discretion to award higher
increases if appropriate (for
example, to reflect progression in
the role or increased experience
of the individual).

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
Remuneration 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 February, with
any changes effective from 1 April).

89
89

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

Element of
remuneration

Purpose and how it
supports the strategy

How the element operates

Maximum amounts payable

Benefits

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

The range of benefits that may be
provided is set by the
Remuneration Committee after
taking into account local market
practice in the country where the
executive director is based.

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

Framework used to
assess performance

N/A

Standard benefits for executive
directors’ benefits comprise a car
and fuel (or car and fuel
allowance), personal accident
insurance, private medical
insurance and life assurance.
Additional benefits may be
provided, as appropriate,
including travel benefits for
executives working away from
their home country.

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.

Any reasonable business related
expenses may be reimbursed
(including any tax if determined to
be a taxable benefit).

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 contributions to a money
purchase scheme and/or payment
of a cash allowance where
appropriate.

For executive directors appointed
after the 2020 AGM: no higher
than the percentage of salary
available to the majority of the
workforce.

N/A

For directors appointed prior to
the 2020 AGM an amendment to
service contracts will provide that:
in 2020 and 2021, contribution
capped at the level paid to them
in 2019; in 2022, no higher than
20% of salary for the Chief
Executive and 15% of salary for
the Group Finance Director; and
by the end of 2022, pension
contributions will be aligned with
that available to the majority of
the workforce in which the
executive is located.

90
90

Rotork Annual Report 2019
Rotork Annual Report 2019

Element of
remuneration

Purpose and how it
supports the strategy

Annual
bonus

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

How the element operates

Maximum amounts payable

Bonus up to 60% of the
maximum opportunity is paid in
cash. Any bonus awarded in
excess of 60% of the maximum is
deferred into shares for three
years.

Dividend equivalents may be paid
on the deferred shares on vesting.
The Remuneration Committee
retains discretion to adjust the
number of deferred shares in the
event of a variation in the capital
of the Company and/or to settle
the award in cash.

The maximum annual bonus
opportunity is 150% of salary.

Details of the current annual
opportunity are set out in the
Annual Report on Remuneration.

For each measure, normally a
sliding scale of stretching targets
is set by the Remuneration
Committee. 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.

LTIP

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

The maximum LTIP opportunity is
200% of salary.

Details of the current award levels
are set out in the Annual Report
on Remuneration.

The LTIP permits an award of
shares to be granted which vests
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 2019, and the
discretions contained therein.

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).

For awards granted from 2017
onwards, the directors must retain
any shares vesting (net of tax)
until the fifth anniversary of
grant.

91
91

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Framework used to
assess performance

The annual bonus is focused
on the delivery of
strategically important
performance measures.
These include demanding
financial and non-financial
measures. Financial
measures will account for
the majority.

Under the terms of the
bonus plan, the
Remuneration Committee
has the discretion, in
exceptional circumstances,
to amend previously set
targets or to adjust the
proposed pay-out to ensure
a fair and appropriate
outcome.

Awards under the LTIP are
subject to performance
conditions, measured over
three financial years,
currently being adjusted EPS,
economic profit and TSR.
Different measures may be
used for future award cycles.

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 measures,
targets and/or weightings
between measures may be
set for future award cycles.

Under the LTIP rules
approved by shareholders,
the Remuneration
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
Remuneration 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.

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

Element of
remuneration

Purpose and how it
supports the strategy

How the element operates

Maximum amounts payable

N/A

Framework used to
assess performance

N/A

The maximum aggregate fee level
is as specified in the Group’s
Articles of Association (currently
£700,000).

N/A

The fee levels 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.

Shareholding
guideline

To provide alignment
with shareholders by
requiring executives to
build and maintain a
meaningful
shareholding in
Rotork.

Chairman
and non-
executive
directors’
fees

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

The executive directors are also
subject to a requirement during
their period of employment to
build and maintain a shareholding
in Rotork equivalent to the
combined annual award
opportunity under their bonus
and LTIP. It is expected that this
requirement will be achieved
within five years of appointment.

Following the cessation of their
employment, executive directors
are required to retain for a further
two years any shares held that
have vested to them under the
Group’s share plans after the
adoption of this Policy (subject to
a maximum holding requirement
of 200% of final salary).

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

Non-executive director fees are
determined by the Chairman and
Chief Executive. The fees for the
Chairman are determined by the
Remuneration Committee taking
into account views of the Chief
Executive.

The fees for the non-executive
directors comprise a basic Board
fee, with additional fees paid to
the Senior Independent Director
Committee chairs and other
similar Board responsibilities.
Additional fees may be paid for
additional temporary
responsibilities.

Any reasonable business-related
expenses may be reimbursed
(including tax thereon if
determined to be a taxable
benefit).

92
92

Rotork Annual Report 2019
Rotork Annual Report 2019

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

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 bonus and the LTIP. The performance measures used are set out in the Annual Report on Remuneration. The
performance measures are 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 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.

The measures currently used each fulfil a distinct purpose as set out below:

Measure

Used in

Purpose

Adjusted operating

Annual bonus

Maintain focus on annual profits.

profit

Cash generation

Annual bonus

Maintain discipline on managing inventory and receivables.

Lost-time incident rate Annual bonus

Focus on safety and the impact of safety incidents.

Strategic objectives

Annual bonus

Provide a balance to financial delivery which reflect activities which contribute to the
longer term success of the Group. These include environmental targets.

Earnings per share

LTIP

Economic profit

Relative TSR

LTIP

Adjusted EPS is a key measure for analysts who cover Rotork and reflects long-term growth in
profits.

Captures the cost of the capital required to operate the business and instils discipline
around capital usage into financial decision-making.

Reflects the long-term growth in the value of shareholders’ investment in Rotork.

Clawback and malus
The payment of any bonus is at the ultimate discretion of the Remuneration Committee and the Remuneration Committee also retains an
absolute discretion to reclaim or withhold 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.

The Remuneration Committee has similar power in respect of the LTIP and may exercise discretion to reclaim some, or all, of a vested LTIP award
in exceptional circumstances (the specified situations being the same as for the annual bonus plan). The Remuneration Committee may also lapse
or reduce an award prior to vesting where the participant is found to be guilty of serious misconduct.

Differences between the Policy Report and the policy on employee remuneration
We use the same principles (as set out at the start of this report) to determine pay for our executives and everyone else who works at Rotork. We
recognise that it is appropriate for a significant proportion of executive directors’ remuneration to be contingent on the performance of the
Group, and that such remuneration is at risk subject to the satisfaction of stretching performance conditions. Executive directors and other senior
managers are invited to participate in the LTIP under which shares are awarded subject to performance conditions over a three-year period. We
are also widening participation in our share-based long-term incentive schemes within the organisation. Executive directors and other senior
managers are also invited to participate in the annual bonus scheme which will result in a bonus payment being made if targets are achieved,
part of which for executive directors may be deferred in shares.

Employees share in the success of the Group through a profit-based bonus plan which is linked to the performance of their business unit, Group
performance and their own individual performance. 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
We recruit our most senior leaders from a global talent pool and our Policy provides the flexibility for such recruitment. Base salary levels for new
executives are set after taking into account the experience and calibre of the individual and their existing remuneration package. It may be
appropriate in certain circumstances to offer a salary which is initially lower than the market level but having a planned series of increases to such
salary may be given over subsequent years subject to individual performance. We will be clear as to our intentions with a candidate if we intend
to adopt such approach for a particular rewards package. Benefits will generally be provided in accordance with the Policy. Where an executive is
required to relocate in order to take up his/her role, we may offer relocation expenses and assistance and/or ongoing expatriate benefits
(including tax equalisation), the nature of which would be determined by the individual circumstances.

The structure and level of the ongoing variable pay element will be in accordance with the Policy. Different performance measures may be set
initially for the annual bonus, taking into account the responsibilities of the individual, and the point in the financial year that the executive joined.

In the case of an external hire, it may be necessary to buy out certain elements of remuneration from an executive’s previous employer which
would be forfeited on leaving that employer. Where we do this, it will always be subject to the principal consideration that making such a
buy-out is in the best interests of the Group. Any such payment would be structured to take into account the form (cash or shares), 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.

93
93

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued
Annual report on remuneration

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 Policy.

Service contracts and policy on payments for loss of office
Under the executive directors’ service contracts, up to 12 months’ notice of termination of employment is required by either party. Should notice
be served, the executive directors 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 may assign a period of garden leave. The Company applies
a general principle of mitigation in relation to termination payments and the service contracts 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 also enable the Company to elect to make a payment in lieu of notice equivalent in value to 12 months’ base salary only.

In the event of cessation of employment, the executive directors may still be eligible for a bonus at the discretion of the Remuneration
Committee, on a pro-rata basis 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.

Any unvested shares held under the deferred annual bonus plan will ordinarily vest on the normal vesting date, save where the departure is as a
result of summary dismissal, in which case the awards will lapse on cessation of employment. The Remuneration Committee may also
determine that the shares shall vest on an earlier date (including the date of cessation) if the Remuneration Committee, in its discretion,
considers that the circumstances of the cessation merit early vesting of the awards.

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
unvested LTIP awards will lapse when an executive director leaves employment except in certain circumstances. If the executive director ceases
to be employed as a result of death, injury, retirement, transfer of employment or any other analogous reason, they may 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. Awards for a good leaver may then vest on the normal vesting date, unless the Remuneration
Committee determines that they should vest early (for example, following the death of the participant). In determining whether an executive
director should be treated as a good leaver and the extent to which their award may vest (up to the pro-rated amount), the Remuneration
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.

Any legacy benefits under the Company’s defined benefit pension schemes will be allowed to be paid under the terms of those schemes and as
set out in the Policy Report.

Outstanding share awards would ordinarily vest early on a change of control of the Company. In the case of unvested awards under the LTIP,
performance would be measured to the date of control with a pro-rata reduction to reflect the proportion of the vesting period served.

The Chairman and non-executive directors do not have service contracts; they serve under letters of appointment and are subject to annual
re-election by shareholders at the AGM. The term of appointment for non-executive directors and the Chairman is three years and their
appointments are subject to termination on three months’ notice (up to 12 months for the Chairman). In the event of the termination of their
position, they are entitled to reimbursement of any outstanding fees and expenses due.

Illustration of the application of the Policy Report
The charts below illustrate how the Remuneration Policy would function for minimum, on-target and maximum performance for 2020 for each
executive director. In addition, the fourth bar illustrates the value of total remuneration should both the annual bonus and LTIP pay out in full,
and if LTIP awards are subject to 50% share price appreciation over the relevant period.

Salary levels (and consequently the other elements of the remuneration package which are calculated as a percentage of salary) are based on
those intended to apply in 2020 subject to approval of this Policy. Taxable benefits are shown as the cost to the Company of supplying those
benefits for the year ending 31 December 2019. On-target performance, for illustrative purposes, assumes achievement of 60% of the
maximum available bonus and threshold LTIP vesting (13.3% of the maximum). Maximum performance assumes achievement of the maximum
bonus and full vesting of the LTIP shares. The LTIP grant level is shown as 200% for Kevin Hostetler and 175% for Jonathan Davis. No share
price growth has been assumed (other than for the fourth scenario, as described above), and for simplicity, the benefit derived from
participating in the Company’s SIP has been excluded.

94
94

Rotork Annual Report 2019
Rotork Annual Report 2019

Single figure of remuneration (£000s) (audited)
Executive directors

Salary

Benefits(i)

Annual bonus(ii)

LTIP(iii)

Pension and related
benefits(iv)

Name

Kevin Hostetler(v)
Jonathan Davis

2019

604
348

2018

530
346

2019

2018

48
14

41
15

2019

619
284

2018

603
313

2019

–
475

2018

–
523

2019

151
70

2018

133
69

Total remuneration

2019

2018

1,422
1,191

1,307
1,266

(i) The benefit value consists of a car and fuel (or a car and fuel allowance), private medical insurance and the cash value on allocation of SIP share awards as appropriate. Kevin

Hostetler also received reimbursement of certain costs relating to his relocation, to the value of £99,000 in 2018.
(ii) Paid up to 60% of the maximum bonus opportunity in cash with the remainder deferred into shares for three years.
(iii) The 2019 figure relates to the vesting of the 2017 LTIP award based on performance to 31 December 2019. These awards are not eligible to vest until March 2020 and as
such an indicative share price of 321p (being the average closing share price over the three-month period to 31 December 2019) has been used for the purpose of valuing
these awards. This value will be restated in next year’s report. Of the £475,000, 26% relates to an increase in the value of the underlying shares over the period.
The 2018 figure relates to the vesting of the 2016 LTIP award based on performance to 31 December 2018. This value has been restated from last year’s report to reflect the
value of the award on the date of vesting, based on the closing share price of 292p. Of the £523,295, 55% relates to an increase in the value of the underlying shares over
the period.

(iv) See page 96 for further details.
(v) Kevin Hostetler was appointed to the Board on 12 February 2018 and became Chief Executive on 12 March 2018.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Other directors (£000s)

Name

Lucinda Bell
Ann Christin Andersen(i)
Tim Cobbold(i)
Peter Dilnot
Sally James
Martin Lamb

(i) Joined the Board on 1 December 2018.

Base fees

Additional fees/remuneration

Total remuneration

2019

56
56
56
56
56
234

2018

47
4
4
47
47
224

2019

10
—
6
—
10
—

2018

10
—
—
—
14
129

2019

66
56
62
56
66
234

2018

57
4
4
47
61
353

Other additional fees are the supplementary fees paid to the Chairs 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 table above, they have not received any other
items in the nature of remuneration.

Annual bonus for 2019
Bonuses in 2019 were based 60% on annual profit, 15% on cash generation, 5% on lost time incident rate and 20% on personal strategic
objectives. Details of performance achieved and the targets set are shown below:

Annual profit target
Cash generation
Lost time incident rate

Total

* % of maximum bonus.

Performance
required to
trigger bonus
payment

Performance
required at
maximum

% payable* at
maximum
performance

Performance
outcome

% bonus
awarded*

£127m
85%
N/A

£162m
100%
<0.30

60%
£151m
15% 131.4%
0.25

80%

44%
15%
5%

64%

95
95

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

Personal strategic objectives, which accounted for 20% of the bonus opportunity, were set at the start of the year. The Remuneration
Committee set specific and measurable targets covering a range of the Company’s strategic priorities and assigned each an individual
weighting. Performance against each of the defined targets was assessed by the Remuneration Committee with input from the Chairman and
other non-executive directors. The objectives for both executive directors and performance against them are summarised in the table below:

Kevin Hostetler

% payable* at

maximum Performance summary

Business strategy – ongoing development
of long-term strategic plan, including
environmental assessment and strategic
initiatives

Investor relations – maintain strong
relations with existing shareholders and
improve shareholder interest and loyalty,
particularly in North America

Building on the five year Growth Acceleration Programme, longer term
strategic alternatives for the business were developed and synthesised.
A plan was developed and initiatives identified and actioned. A horizon
scanning exercise was undertaken and the groundwork laid for Rotork’s
decarbonisation strategy.

2.0%

Identified and secured new North American shareholders onto the register.
The investor relations team was rated a top 5 investor relations team in
2019. Feedback from investors was positive.

2.0%

Growth Acceleration Programme:
• Talent management
•

Innovation, R&D and sustaining
engineering

• Operational improvement plan
• Route-to-market

Total

Jonathan Davis

Development and implementation of
financial systems, including:
• Divisional reporting
• Control frameworks
• Enterprise resource management

Development of finance function:
• Expand finance team and develop

capabilities

A completely new talent management process launched, revolutionising
the assessment, performance appraisal and succession planning processes.
This is now implemented and operational. Aggressive operational
improvement plan delivered including capability development across the
business. Route to market organisational structure redesigned in line with
new sector focus and being launched. Radical overhaul of R&D and
innovation processes.

16.0%

20.0%

% payable* at

maximum Performance summary

Established the financial infrastructure and capability to support the new
sector focus for both management and reporting. Built changes into the
design for the new finance model in preparation for the corresponding new
IT infrastructure that will support finance in the future. Developed the
corresponding control framework that delivers enhanced controls. Delivered
the new contract approval process into BAU.

12.0%

• Develop plans for blueprint for

back-office finance consolidation

Upskilled and upgraded the global finance team. Measures to improve
finance efficiency were behind target and assessed accordingly.

6.0%

Generation of working capital

Total

2.0%

20.0%

* % of maximum bonus.

Delivered strong reduction in first phase working capital reductions,
especially inventory.

% bonus
awarded*

2.0%

14.0%

18.0%

% bonus
awarded*

12.0%

3.5%

2.0%

17.5%

Overall this resulted in a bonus award to Kevin Hostetler of £619,000 (102.5% of salary), and to Jonathan Davis of £284,000 (81.5% salary).
The Remuneration Committee considered whether any discretion should be applied in respect to the determination of the financial or strategic
elements of the bonus and concluded it should not. Bonus earned above a threshold of 60% of the maximum opportunity is deferred in shares,
held for three years and subject to no further performance conditions. Of the above amounts, for Kevin Hostetler will defer £166,000 and
Jonathan Davis will defer £75,000; the balance is paid in cash.

LTIP awards vesting based on performance to 31 December 2019 (audited)
The LTIP rewards performance against the principal measures of Rotork’s long-term financial success. Performance is measured over a three-
year period using a combination of basic EPS, TSR compared to a comparator group and economic profit growth. The economic profit measures
the post-tax profitability of the Group after a charge has been taken for the combined capital used (both debt and equity) within the business.
The charge is calculated using the weighted average cost of capital based on average capital employed in the period. In determining capital
employed, cumulative amortised goodwill and long-term pensions liabilities are adjusted for. In determining the economic profit, adjustments
are made for restructuring costs and benefits and also, when material, for M&A activity and exchange. The target is set by using the latest
long-term financial plan approved by the Board. It targets a rate of growth of the average economic profit over the three years of the plan over
the three years preceding the plan period. For the 2017 Award, due to the depressed performance in the three years to 2016, the base was
calculated at three times the 2016 economic profit, otherwise the target would have been insufficiently demanding. The maximum requires
growth ahead of the three year plan. In assessing the 2017 Award, no adjustments were made for M&A or exchange.

96
96

Rotork Annual Report 2019
Rotork Annual Report 2019

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

The measure captures the extent to which the business has earned a return above the cost of capital. It has been shown in many other capital-
intense businesses to drive improved decision making, particularly when evaluating large-scale investment decisions, and was introduced at
Rotork in 2017. The 2017 LTIP cycle was the first cycle to include this measure.

The LTIP awards granted on 7 March 2017 were based on performance to 31 December 2019 and were subject to the following performance targets:

Measure

Weighting Performance period

Threshold target

Stretch target

Performance outcome

Earnings per share1

33%

01/01/2017 – 31/12/19 9% (15% vesting)

35% (100% vesting)

EPS performance of 39.6% was above the
stretch target resulting in 100% vesting
for this part of the award.

33%

TSR relative to the
constituents of the FTSE
350 Industrial Goods
and Services Sector1

01/01/2017 – 31/12/19 Median ranking

Upper quartile ranking
or above

TSR growth of 74% was above the
threshold target resulting in 96% vesting
for this part of the award.

Economic profit
growth

33%

01/01/2017 – 31/12/19 0% growth on three

times the 2016
economic profit

56% growth on three
times the 2016
economic profit

Economic profit performance of 14.3%
growth was above the threshold target
resulting in 57.5% vesting for this part of
the award.

For performance between threshold and stretch, awards vest on a pro-rata basis.

Performance on all three measures was above the minimum performance thresholds and, having reviewed the underlying financial performance,
the Remuneration Committee concluded there were no factors that would cause them to consider apply any discretion in respect of the outcome
on any of these measures during this period. The Remuneration Committee, therefore, approved the vesting of 84.5% of the shares awarded
under the 2017 LTIP cycle, for which Jonathan Davis was the only executive director holding an award.

Jonathan Davis

March 2017

175,135

147,989

27,146

6 March 2020

Grant date

under award

Number of shares vesting

Number of shares lapsing

Vesting date

Number of Shares(i)

(i) Awarded as nil-cost options

Share awards granted in 2019 (audited)
LTIP awards (audited)
The following LTIP awards were made to the executive directors on 16 May 2019:

Share awards made
during 2019(i)

Basis on which
awards made

Face value of award (£)(ii)

Percentage vesting for
minimum performance(iii)

End of

performance period

Vesting date

Kevin Hostetler

Jonathan Davis

315,015

150% of salary

151,274

125% of salary

904,093

434,156

13.3% 31 December 2021

16 May 2022

13.3% 31 December 2021

16 May 2022

(i) Awards to Kevin Hostetler were made as Conditional Share Awards; awards to Jonathan Davis were made as nil-cost options.
(ii) The share price used to determine the number of shares under the award was 287p being the share price immediately prior to the date of the award.
(iii) Vesting if the minimum performance EPS, TSR and capital return (economic profit) conditions are achieved. The three equally-weighted performance measures are:
a Earnings per share – 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;
b Total shareholder return – measured relative to the constituents of the FTSE 350 Industrial Goods and Services Sector, 25% vesting for median performance, increasing

on a straight-line basis to full vesting for upper quartile performance and above; and
Economic profit – measures the profitability of the group after a charge for the overall level of capital (based on the total capital used and calculated using the weighted
average cost of capital) is subtracted. It is measured on a cumulative basis, over the three-year performance period. No payout will be received for a negative economic
profit. The threshold target requires average economic profit over the three-year period to exceed that generated in 2018 and the maximum target has been set such
that it will require double digit growth in post-tax profits alongside improved balance sheet efficiencies. Details of the exact targets are considered by the Remuneration
Committee to be commercially sensitive. However, full details of the targets and how economic profit has been calculated will be disclosed on vesting.

Deferred Share Bonus Plan (DSBP) awards (audited)
Any bonus earned above a threshold of 60% of the maximum is deferred into share awards under the Deferred Share Bonus Plan, vesting on the
third anniversary of grant. No further performance conditions apply; DSBP awards are subject to continued employment only and dividend
equivalents may be paid on the deferred shares on vesting.

The following DSBP awards were made on 5 March 2019 (based on performance in relation to the 2018 financial year):

Kevin Hostetler

Jonathan Davis

Share awards granted

Basis on which awards made

Face value of awards (£)(i)

Vesting date

71,783

36,790

38.6% of salary

30.4% of salary

£205,000

£105,000

5 March 2022

(i) The share price used to determine the number of shares under the award was 285.7p being the share price immediately prior to the date of the award.

97
97

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

SIP share awards (audited)
In common with all eligible employees, UK based executive directors receive an entitlement to ordinary shares under the SIP. Under the SIP, 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 made to executive directors in 2019 are set out below.

Jonathan Davis

8 April 2018

1,204

Date of grant

Free share awards made
during the year

Basis on which award made

Face value of award

Non-performance
based

3,600

The executive directors are also eligible to purchase monthly partnership shares under the SIP to a maximum of £150 per month.

Summary of outstanding share awards held by executive directors (audited)

Awards
held at
31 December
2018

Granted in
the year

Lapsed in the
year

Option
awards
exercised in
the year

Awards
held at
31 December
2019

Kevin Hostetler

LTIP

DSBP

Total

340,393

–

315,015

71,783

340,393

386,798

–

340,393

315,015

71,783

727,191

Jonathan Davis

LTIP

DSBP

SIP

226,122

175,135

163,461

–

151,274

14,697

–

36,790

2,014

1,440

1,274

–

1,204

47,034

179,088

–

2,014

–

175,135

163,461

151,274

14,697

36,790

–

1,440

1,274

1,204

Total

584,143

189,268

47,034

181,102

545,275

Performance
period

Exercise
price

Date of grant

Vesting date/end
of holding period

1 Jan 2018-

31 Dec 2020(iii)

1 Jan 2019-

31 Dec 2021(iii)

– 7 March 2018 7 March 2021

– 16 May 2019 16 May 2022

N/A

– 5 March 2019

5 March
2022

1 Jan 2016-

31 Dec 2018(i)

1 Jan 2017-

31 Dec 2019(ii)

1 Jan 2018-

31 Dec 2020(iii)

1 Jan 2019-

31 Dec 2021(iii)

N/A

– 6 March 2016 6 March 2019

– 6 March 2017

6 March
2020

– 7 March 2018 7 March 2021

– 16 May 2019 16 May 2022

– 7 March 2018 7 March 2021

– 5 March 2019

5 March
2022

–

6 April 2016

6 April 2019

6 April 2017

6 April 2020

6 April 2018

6 April 2021

8 April 2019

8 April 2022

(i) Subject equally to EPS performance (RPI + 9% to RPI + 35% growth) and TSR performance relative to the FTSE 250 (excluding financial services, insurance and investment

trusts) (median to upper quartile) over the three-year performance period. As described in last year’s report, the TSR target was achieved, while the EPS target was partially
met. Accordingly, 179,088 shares vested in March 2019.

(ii) Subject equally to EPS performance (9% to 35% growth), TSR performance relative to the FTSE 350 Industrial Goods and Services Sector (median to upper quartile) and
capital return (economic profit) performance over the three-year performance period. Any vesting awards will also be subject to a two-year post-vesting holding period
during which time they may not be sold. As described above, the TSR target was achieved, while the EPS and capital return (economic profit) targets were partially met.
Accordingly, 147,989 shares will become eligible to vest in March 2020.

(iii) Subject equally to EPS performance (9% to 35% growth), TSR performance relative to the FTSE 350 Industrial Goods and Services Sector (median to upper quartile) and
capital return (economic profit) performance over the three-year performance period. Any vesting awards will also be subject to a two-year post-vesting holding period
during which time they may not be sold.

98
98

Rotork Annual Report 2019
Rotork Annual Report 2019

Statement of directors’ shareholding and share interests (audited)
The table below shows total shareholdings of the current directors and former directors as at 31 December 2019.

Executive directors
Kevin Hostetler
Jonathan Davis
Non-executive directors
Lucinda Bell
Ann Christin Andersen
Tim Cobbold
Peter Dilnot
Sally James
Martin Lamb

Interests in shares(i)

Unvested LTIP
awards

Unvested DSBP
awards

Unvested options

SIP awards in
holding period

% of salary
shareholding
achieved(ii)

130,762
286,783

655,408(iii)
489,470(iv)

71,783
51,487

7,150
–
–
–
13,031
152,414

–
–
–
–
–
–

–
–

–
–
–
–
–
–

–
3,918

112%
329%

–
–
–
–
–
–

N/A
N/A
N/A
N/A
N/A
N/A

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Includes shares held by connected persons.

(i)
(ii) The share price used to determine the percentage of the shareholding of salary achieved is 335p, being the share price as at 31 December 2019. The guideline shareholding

for the executive directors is 250% of salary.

(iii) An LTIP award over 315,015 shares was granted to Kevin Hostetler on 16 May 2019.
(iv) An LTIP award over 151,274 shares was granted to Jonathan Davis on 16 May 2019.

There has been no change in the directors’ interests in the ordinary share capital of the Company between 31 December 2019 and 2 March
2020, except in the case of Jonathan Davis’s and Kevin Hostetler’s monthly purchases of partnership shares under the SIP.

Total pension entitlements (audited)

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

31 December 2018

31 December 2019

Total accrued
pension in the
defined benefit
scheme as at
31 December
2019 (£ per
annum)

Normal retirement
age

Defined benefit
scheme

Cash in lieu of
pension

Defined benefit
scheme

Cash in lieu of
pension

Total

65
65

–
–

132,500
69,200

–
–

151,000
69,600

Total

151,000
69,600

Director

Kevin Hostetler
Jonathan Davis

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

Reports) (Amendment) Regulations 2013.

2 The total accrued pension in the defined benefit scheme as at 31 December 2019 is that which would be paid annually on retirement from normal pension age. Jonathan
Davis was a member of the defined benefit scheme until he opted out with effect from 30 April 2017. During 2019, Mr Davis elected to remove his accrued benefits from
the defined benefit scheme and place them in a private pension scheme. This transaction, which is an option open to any scheme member in a similar situation, was
conducted based on independent actuarial advice and overseen by the Chair of the Trustees of the pension scheme. The amount of the transfer was an accrued pension of
£37,717 per annum and as a result Mr Davis has no remaining financial interest in the defined benefit scheme.

3 Kevin Hostetler receives an annual cash allowance in lieu of pension contributions which has been capped at a maximum annual value of £152,100.
4

Jonathan Davis receives an annual cash allowance in lieu of pension contributions which has been capped at a maximum annual value of £72,169.

Payments to former directors and for loss of office
As disclosed in prior years, two former directors, Peter France and Bob Arnold, retained certain LTIP awards on cessation which vested in part in
March 2019. No further payments were made to former directors or for loss of office during the year.

99
99

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

TSR performance graph
This graph shows the value, by 31 December 2019, of £100 invested in Rotork plc on 31 December 2009, compared with the value of £100
invested in the FTSE 350 Industrial Engineering Sector on the same date. This index has been chosen as a comparator as it represents
companies with similar business operations to the Company, and is an index of which Rotork is a constituent.

500

400

300

200

Rotork plc

FTSE Industrial
Engineering Sector

100

Jan 10

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Dec 18

Dec 19

Historic Chief Executive remuneration table

Year

2019
2018
2018
2017
2017
2016
2015
2014
2013
2012
2011
2010

Chief Executive

Kevin Hostetler
Kevin Hostetler(i)
Martin Lamb(ii)
Martin Lamb(ii)
Peter France(iii)
Peter France
Peter France
Peter France
Peter France
Peter France
Peter France
Peter France

Chief Executive
single figure
remuneration
(£000s)

Annual cash bonus
as a percentage of
maximum
opportunity

LTIP vesting rate
as a percentage of
maximum
opportunity

1,422
1,193
353
282
681
835
696
1,092
1,452
1,539
1,182
1,288

82.0%
90.9%
N/A
N/A
72%
45.5%
23.4%
66.0%
94.4%
91.3%
88.9%
91.9%

N/A
N/A
N/A
N/A
0%
0%
0%
37.0%
67.0%
75.5%
30.0%
94.4%

(i) Kevin Hostetler was appointed to the role of Chief Executive on 12 March 2018.
(i) Martin Lamb held the role of Executive Chairman from 28 July 2017 to 12 March 2018 and received an additional fixed remuneration of £55,000 per month on top of his

annual Chairman’s fee during this period.

(iii) Peter France resigned as Chief Executive and stood down from the Board on 27 July 2017.

Percentage change in remuneration of director undertaking the role of Chief Executive
The table below shows the percentage change in remuneration (based on salary, benefits and bonus) between 2018 and 2019.

Base salary
Benefits
Bonus

Chief Executive
2019 % Change
from 2018

Average per UK
employee 2019 %
Change from 2018

N/A%
N/A%
N/A%

2.9%
19.1%
2.3%

Kevin Hostetler was appointed as Chief Executive from 12 March 2018. Consequently, full-year comparable data is not available.

100
100

Rotork Annual Report 2019
Rotork Annual Report 2019

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.

CEO pay ratio disclosure
The table below sets out Rotork’s CEO pay ratio for the 2018 and 2019 financial years.

2019

2018

Percentage change

153,879
52,287

159,914
48,288

-3.8%
8.3%

Year

2019
2018

25th percentile

Method

pay ratio

Median pay ratio

Option B
Option B

48:1
49:1

43:1
45:1

75th percentile

pay ratio

27:1
33:1

Option B has been used for the calculation of the pay ratio. Under this method, the latest gender pay gap data has been used to identify on an
indicative basis three UK employees at 25th, median and 75th percentile. This methodology has been chosen as the data is readily available and
avoids the challenge in collecting and verifying accurately the variable pay elements for all UK employees across many subsidiaries.

To provide further context, the table below shows the CEO and the employee percentile pay used to determine the 2019 pay ratios.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Year

Total salary1
Total remuneration (single figure)1

Full time equivalent.

CEO £000

604
1,422

25th percentile
£000

Median
£000

75th percentile
£000

25
29

29
33

43
53

Statement of implementation of the Policy Report in 2020
Subject to the new Remuneration Policy being approved and subsequently implemented, the following statement will apply.

Salary

Benefits

Pension

LTIP

Executive directors’ salaries will increase effective 1 April 2020 by 2.5%, as follows:
• Kevin Hostetler – £624,000
• Jonathan Davis – £359,000. The average budgeted increase for the UK workforce in 2020 is 2.5%.

No change from 2019 – benefits will comprise car and fuel (or car and fuel allowance), personal accident and private medical
insurance and life assurance. In addition, Kevin Hostetler receives travel benefits to his home country of the United States.

Executive directors receive a cash allowance in lieu of pension contributions, the value of which for 2020 will remain fixed at
the level paid in 2019, as follows:
• Kevin Hostetler – £152,100
• Jonathan Davis – £70,119

The LTIP award levels for 2020 will be intended to be 200% of salary for Kevin Hostetler and 175% of salary for Jonathan Davis.
The awards will be subject to the following performance conditions:
• 33% will be based on relative TSR performance with 25% vesting at median increasing to full vesting for upper quartile

performance or above.

• 33% will be based on adjusted EPS. Adjusted EPS growth must be at least 9% for 15% vesting, increasing on a straight line
basis to full vesting for adjusted EPS growth of 35% and above. The targets will be based on adjusted EPS (i.e. excluding the
impact of any material restructuring costs). However, the Remuneration Committee will use its discretion to increase the targets
as appropriate, to take into account the Board’s expected return on any restructuring investment during the period.

• 33% will be based on economic profit. No payout will be received for a negative economic profit. The threshold target will

require the cumulative economic profit over the three-year period to exceed that generated in the three year period to 2019 and
the maximum target has been set such that it will require double digit growth in post-tax profits alongside improved balance
sheet efficiencies. Similar to EPS targets, these targets may be adjusted upwards to take into account the Board’s expected
return on any restructuring investment during the period. Details of the exact targets are considered by the Remuneration
Committee to be commercially sensitive at the current time. However, full details of the targets and how economic profit has
been calculated will be disclosed on vesting.

The executive directors will be required to retain any shares vesting under the awards (net of tax) until the fifth anniversary of grant.

101
101

Rotork Annual Report 2019
Rotork Annual Report 2019

Directors’ Remuneration Report continued

Annual bonus Maximum award levels are intended to be 150% of salary for Kevin Hostetler and 125% of salary for Jonathan Davis.
Any bonus earned above 60% the of maximum opportunity will be deferred in shares for three years.

Bonuses will be based on annual profit (60%), cash generation (15%), lost time incident rate (5%) and personal strategic
objectives (20%). The specific targets relating to the bonus have not been disclosed as they are considered by the
Remuneration Committee to be commercially sensitive but full details will be given on a retrospective basis in next year’s
report.

Shareholding
guidelines

The executive directors are required to build and maintain a shareholding equivalent to their total variable pay opportunity
(being 350% and 300% for the Chief Executive and Group Finance Director respectively). As of 2020, a requirement to hold
shares for a period of two years post-cessation will apply, as described in the Policy.

Non-
executive
director fees

In line with the salary increase for the wider workforce, an increase to the Chairman’s and base Board fee levels of 2.5% has
been approved as follows:
• Chairman: £240,000, effective 1 April 2020;
• Base Board fee: £57,000, effective 1 April 2020.

Supplementary fees are also payable to those directors with additional responsibilities:
• Additional fee for chairing the Audit Committee £10,000;
• Additional fee for chairing the Remuneration Committee £10,000;
• Additional fee for undertaking the role of workforce engagement director £7,000;
• Additional fee for the role of Senior Independent Director £10,000; and
• Additional fee for chairing the ESG Committee £7,000.

It is currently intended that any future increases will be made in line with any increases offered to the wider workforce.

Consideration by the directors of matters relating to directors’ remuneration
The members of the Remuneration Committee as at 31 December 2019 were Tim Cobbold (Chair), Lucinda Bell, Ann Christin Andersen, and
Sally James. The Company Secretary acts as secretary to the Remuneration Committee.

The Remuneration Committee is keen to ensure that its deliberations and decisions are undertaken in the fullest context of the business and
taking into account how employees across the Group are rewarded, as well as ensuring that its decisions are made in the most transparent
manner possible. To that end, the Remuneration Committee invites the Group HR Director to its meetings to provide this wider context and to
ensure that all its decision remained aligned with the Values and culture, which we seek to nurture with the business. The Chairman also invited
to attend meetings, and the Chief Executive and Group Finance Director are invited to attend parts of certain meetings but are not present
when their own remuneration is considered.

The executive remuneration practice of Aon plc acts as advisor to the Remuneration Committee having been appointed by the Remuneration
Committee in September 2013 following a competitive tender process. Aon is a member of the Remuneration Consultants’ Group and a
signatory to its Code of Conduct. Another subsidiary of Aon plc is the scheme actuary for the Group’s USA pension plan but Aon has
procedures in place to ensure that no conflict of interest arises. The Remuneration Committee keeps the independence of the advice provided
under review and remains satisfied that Aon is sufficiently independent to act as remuneration advisor to the Remuneration Committee.

In 2019, the Company paid £189,730 (2018: £91,540) to Aon for services to the Remuneration Committee. Figures exclude VAT and
disbursements.

Statement of voting at general meeting
The percentages of votes cast ‘for’, ‘against’ and ‘withheld’ in respect of the Remuneration Policy and last Annual Report on Remuneration are
as follows:

Resolution (‚ date)

To approve the Remuneration Policy (April 2017)

To approve the Annual Report on Remuneration (April 2019)

Votes cast
‘for’

99.1%

98.4%

Votes cast
‘against’

0.9%

1.6%

Votes
‘withheld’

102
102

Rotork Annual Report 2019

Report of the Directors

The directors submit their report which incorporates the management
report required under the Disclosure Guidance and Transparency Rules
for listed companies and the audited accounts for the year ended
31 December 2019 as set out on pages 115 to 160. In compiling
this report, the directors have consulted with the management
of the Group.

Directors
The directors in office at the date of this report (all of who served
during the year) and their biographies and other details, are set out
on pages 64-65.

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

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

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

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

Committed to the highest standards of ethical behaviour
High ethical standards are fundamental to the way in which we do
business. Respecting internationally proclaimed human rights,
promoting an open and honest culture, having a zero tolerance
approach to bribery and corruption worldwide, and selecting suppliers
with sound reputations in the marketplace are important principles for
the Group to adhere to.

Code of Conduct
Our Code of Conduct was introduced in 2019 and replaces our Ethics
and Value statement. The Code of Conduct sets out the standards of
behaviour that Rotork expects from anyone acting on Rotork’s behalf.
It can be viewed on our website at https://www.rotork.com/en/
about-us/terms-and-conditions/suppliers/code-of-conduct and is
available in our six core languages.

We are a signatory to the UN Global Compact demonstrating our
commitment to supporting and respecting human rights.

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

We revised the policies which sit beneath the Code of Conduct in
2019, covering Confidentiality, Conflicts of Interest, Speak-Up, Fair
Competition, Gifts and Hospitality, Anti Bribery and Corruption, Data
Protection and Trade Sanctions.

Whistleblowing
Rotork encourages the reporting of any suspected wrongdoing
through its Speak-Up line which can be found on the Rotork website
https://www.rotork.com/en/documents/publication/6675. The
Speak-Up policy gives the workforce various ways to alert
management and directors to any concerns including suspected
wrong doing, including an independent external Speak-Up line to
assist in facilitating the reporting of any concerns confidentially.

All Speak-Ups are investigated thoroughly, however communicated.
At each meeting of the Board, directors review any Speak-Up concerns
the Company has received and, in December 2019, it reviewed the
arrangement in place for the investigation of such matters, noting any
follow up action resulting from the Speak-Ups received. During 2019,
we investigated nine concerns, which related to fraud, conflict of
interest, impropriety, health & safety and general human resources
issues. The reports came from five different countries spread across
the world.

Anti-Bribery and Corruption
Rotork has a zero tolerance policy to bribery and corruption
worldwide, irrespective of country or business culture. Our Code of
Conduct makes it clear that our employees will never offer, pay or
solicit bribes in any form. As noted above, in 2019, we updated our
Anti-Bribery and Corruption Policy. Our Group Gifts and Hospitality
Policy, which was updated, clarifies where gifts and hospitality are
acceptable and the actions that our staff are required to take when
they intend to give or receive them.

In 2019, we’ve continued to implement a reduction in the number of
agents that we engage, a more thorough process for their
appointment and stringent ongoing monitoring requirements.

Modern Slavery Act
In December 2019 the Board updated and then published its Modern
Slavery Act Statement, which can be found on the Rotork website at
https://www.rotork.com/en/investors/modern-slavery-statement.

Benchmarking
Rotork plc is a constituent of the FTSE4Good equity index series which
is designed to facilitate investment in companies that meet globally
recognised corporate social responsibility standards. We continue to
meet the standards set by FTSE4Good. More detail regarding our
Corporate Social Responsibility is given on pages 50 and 53 of the
Strategic Report.

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 3.90p per ordinary share
(2018: 3.70p) for the year, payable on 22 May 2020 to shareholders on
the register on 14 April 2020. An interim dividend for 2019 of 2.30p
per ordinary share (2018: 2.20p) payable to Shareholders in the
register on 30 August 2019 was paid on 27 September 2019.

103

Rotork Annual Report 2019

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

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

Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by law
are set out in the key performance indicators on page 50.

Disabled persons and employee involvement
The disclosures concerning the Group’s policies on the employment of
disabled persons and employee involvement are set out on page 55.

Substantial shareholders
As at 31 December 2019, the following notifiable interests in issued
share capital had been received by the Company under the Disclosure
Guidance and Transparency Rules (DTR 5) of the FCA. 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

Number of voting
rights (direct and
indirect)

The Bank of New York (Nominees) Limited
State Street Nominees Limited
Nortrust Nominees Limited

151,061,163
125,565,304
36,119,105

% of
voting
rights

17.31
14.39
4.14

Corporate governance
The Company’s Corporate Governance Report can be found on page
55; employee engagement is set out on page 68 and Shareholder
engagement is set out on pages 68-69.

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.

Report of the Directors continued

Information required in the Report of the Directors set
out in the Strategic Report
Information relating to the likely future developments of the Company
and its subsidiaries, and information relating to the research and
development activities of the Company and its subsidiaries, is set out
in the Strategic Report on pages 38-41.

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 2019 are summarised in note 17 of the financial
statements. 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 26 April 2019, the shareholders
authorised the Company to make market purchases of ordinary shares
limited to just under approximately 10% of its issued ordinary share
capital at that time and of certain issued preference shares, and to
allot shares within certain limits approved by shareholders. These
authorities expire at the 2020 AGM and appropriate renewals will be
sought.

The Company did not acquire any of its own shares in 2019.

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 Company’s share dealing code, 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.

104

Rotork Annual Report 2019

‘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;

e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C

Directors’ Responsibility statement pursuant to the
Disclosure Guidance and Transparency Rules
Each of the directors, whose names and functions are listed on pages
60-61 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.

• 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

—
Helen Barrett-Hague
General Counsel and Company Secretary
2 March 2020

• 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.

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

105

Rotork Annual Report 2019

Financial
Statements

106

s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F

We continue to review the
format of our consolidated
financial statements with a focus
on clear, effective and concise
reporting

Rotork Annual Report 2019

107

Rotork Annual Report 2019
Rotork Annual Report 2019

Independent auditor’s report to the members of Rotork Plc

Report on the audit of the financial statements
1. Opinion

In our opinion:
• the financial statements of Rotork plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of

the group’s and of the parent company’s affairs as at 31 December 2019 and of the group’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 Financial Reporting Standard 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.

We have audited the financial statements, which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated statement of cash flows; and
• the related consolidated notes 1 to 30, and company notes (a) to (i).

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, including FRS 101 “Reduced Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).

2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.

We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the
group and parent company for the year are disclosed in note 8 to the financial statements. We confirm that the non-audit services prohibited
by the FRC’s Ethical Standard were not provided to the group or the parent company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters

The key audit matter that we identified in the current year was the timing of revenue recognition.

Materiality

Scoping

The materiality that we used for the group financial statements was £6.4m which was determined on the basis of
profit before tax adjusted for ‘other adjustments’ defined in note 2.

Based on our assessment we identified 16 components which, in our view, required a full scope audit of their financial
information. We identified a further two components on which we perform specified audit procedures. Based on the
work performed at these 18 components, our scope covered 81% of group revenue and 87% of group profit before
tax.

Significant changes
in our approach

We included a key audit matter in the prior year in respect of revenue recognition on significant new contracts with
non-standard or unusual terms reflecting the additional focus on this risk area for the first-time application of IFRS 15
Revenue from Contracts with Customers. Having considered the impact of application of the new revenue standard in
the prior year we no longer consider this to be a key audit matter, and our audit effort has been focussed in the
current year on the timing of revenue recognition around year end.

We no longer consider the inflation and discount rate assumptions used in the defined benefit pension liability
valuation as a key audit matter. This change in the year is driven by our experience of the previous audits in which no
deviations from reasonable ranges have been noted, and changes to the schemes in 2018 (refer to note 24 for further
details).

108
108
108

Rotork Annual Report 2019
Rotork Annual Report 2019

4. Conclusions relating to going concern, principal risks and viability statement

4.1 Going concern
We have reviewed 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 and company’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements.

We considered as part of our risk assessment the nature of the group, its business model and related risks including
where relevant the impact of Brexit, the requirements of the applicable financial reporting framework and the system
of internal control. We evaluated the directors’ assessment of the group’s ability to continue as a going concern,
including challenging the underlying data and key assumptions used to make the assessment, and evaluated the
directors’ plans for future actions in relation to their going concern assessment.

We are required to state whether we have anything material to add or draw attention to in relation to that statement
required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained
in the audit.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Going concern is the
basis of preparation of
the financial
statements that
assumes an entity will
remain in operation
for a period of at least
12 months from the
date of approval of
the financial
statements.

We confirm that we have
nothing material to
report, add or draw
attention to in respect of
these matters.

4.2. Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the knowledge
we obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’
assessment of the group’s and the company’s ability to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:
• the disclosures on pages 34-39 that describe the principal risks, procedures to identify emerging risks, and an

Viability means the
ability of the group to
continue over the time
horizon considered
appropriate by the
directors.

explanation of how these are being managed or mitigated;

• the directors’ confirmation on page 51 that they have carried out a robust assessment of the principal and

emerging risks facing the group, including those that would threaten its business model, future performance,
solvency or liquidity; or

• the directors’ explanation on page 51 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 confirm that we have
nothing material to
report, add or draw
attention to in respect of
these matters.

We are also required to report whether the directors’ statement relating to the prospects of the group required by
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those, which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the
efforts of the engagement team.

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.

5.1 Timing of revenue recognition

Key audit matter
description

The group earned revenues of £669m during the year (2018: £696m) relating to the manufacture and delivery of
products and services. Revenue growth is a key performance indicator for the business. In applying IFRS 15 there is
judgement required in determining the timing of the transfer of control of products to customers, which impacts the
amount of revenue recognised in the group’s financial statements. This judgement could be the subject of
management bias and so we considered that the timing of the cut-off of revenue recognition represents a key audit
matter which has a potential risk of fraud.

The determination of whether control of products has passed to a customer requires the consideration of a number of
factors, which include the delivery terms of the arrangement and whether specific criteria have been met to evidence
the passing of control. The circumstances where most judgement is required are when the products are yet to be
despatched to the customer (known as bill-and-hold sales).

Further details are included within the audit committee report on page 77 and note 1 to the financial statements.

109
109
109

Rotork Annual Report 2019
Rotork Annual Report 2019

Independent auditor’s report to the members of Rotork Plc
continued

How the scope of
our audit responded
to the key audit
matter

In response to the identified key audit matter we have performed the following procedures:
• Obtained an understanding of the relevant controls in place at each component to address the risk of

inappropriate revenue cut off and assessed whether they had been effectively designed and implemented;
• tested a sample of transactions exhibiting particular risk characteristics around the year end identified from

•

populations relevant to the terms and shipping destinations of each business;
inspected purchase orders, invoices, despatch notes, shipping terms and delivery notes as required to assess
whether the timing of revenue recognition is appropriate based on the status of products at year end. This
included a challenge of whether control has passed in line with the requirements of IFRS 15; and

• for bill-and-hold sales we have considered, amongst other things, the extent to which there is evidence the

customer has accepted ownership before year end and if there is a substantive reason for continuing to hold the
products.

Key observations

We have identified no material errors in revenue recognition as a result of our procedures.

6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality

£6.4 million (2018: £6.0 million)

Group financial statements

Parent company financial statements

£2.2 million (2018: £3.6 million)

Basis for
determining
materiality

5% of adjusted pre-tax profit.

In the year ended 31 December 2019 the adjustments we
make to statutory pre-tax profit are consistent with those
presented in Note 4, except for amortisation of acquired
intangible assets.

This basis is consistent with the year ended 31 December
2018.

Parent company materiality equates to 1% of net assets
(2018: 1% of net assets), which is capped at 50% of
group performance materiality.

Rationale for the
benchmark applied

Adjusted profit before tax reflects the manner in which
business performance is reported and assessed by
external users of the financial statements.

Net assets are considered to be an appropriate benchmark
for the parent company given that it is mainly a holding
company.

Consistent with last year we have adopted this measure,
as defined above, as it provides a consistent year on year
basis for determining materiality.

This basis is consistent with that applied at the year ended
31 December 2018.

PBT adjusted for
certain items
£129.2m

PBT adjusted for certain items
Group materiality

Group materiality £6.4m

Component materiality range £2.0m to £2.7m

Audit Committee reporting threshold £0.3m

110
110
110

Rotork Annual Report 2019
Rotork Annual Report 2019

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of group materiality
for the 2019 audit (2018: 70%). In determining performance materiality, we considered the following factors:
a. the general quality of the control environment,
b. the stability of business performance in previous years, and
c. the level of corrected or uncorrected misstatements identified in previous years.

6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.3m (2018: £0.3m), as well as
differences below that threshold that, in our view, that 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.

7. An overview of the scope of our audit
7.1 Identification and scoping of components
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. Our approach was consistent with that adopted in the prior year. Based on that assessment, we
focused our group audit scope primarily on the audit work at 16 components which were subject to a full scope audit and on a further two
components which were subject to specified audit procedures.

The 18 components (2018: 18 components) represent the principal business units within the Group’s four reportable segments across
11 countries and account for 81% of the Group’s revenues (2018: 73%) and 87% of profit before tax (2018: 85%). 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
components was executed at levels of materiality applicable to each individual entity, which were lower than Group materiality ranging from
£2.0 million to £2.7 million (2018: £2.4 million to £3.6 million).

7.2. Working with other auditors
Due to the significance to the group audit of the 16 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 most significant components. As part of the 2019 audit, senior members of
the group audit team visited key components in the United Kingdom, United States of America, China, and Italy; being 10 of the 18 components
in the scope of our audit.

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
scope audits were completed, we discuss audit findings with the relevant component audit team and, where considered necessary in forming our
group audit opinion, review certain audit working papers in relation to key issues and discuss key matters with component management.

At the group 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 components not subject to full scope audit.
None of these components represented more than 3% of revenue or profit before taxation individually.

Revenue

19%

Profit before tax

Net assets

13%

74%

79%

85%

Full audit scope
Full audit scope
Specified audit procedures
Specified audit procedures
Review at group level
Review at group level

111
111
111

Rotork Annual Report 2019
Rotork Annual Report 2019

Independent auditor’s report to the members of Rotork Plc
continued

8. Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other
than the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information
include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements

taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s
position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters

communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement required under
the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified for review
by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors
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, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.

Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws and
regulations are set out below.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

112
112
112

Rotork Annual Report 2019
Rotork Annual Report 2019

11. Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis
for our opinion.

11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration

policies, key drivers for directors’ remuneration, bonus levels and performance targets;

• results of our enquiries of management, internal audit, and the audit committee about their own identification and assessment of the risks

of irregularities;

• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:

identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

–
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

• the matters discussed among the audit engagement team including significant component audit teams and involving relevant internal
specialists, including tax, financial instruments, pensions, and IT specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud in the timing of revenue recognition. In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those laws and
regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and local tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the group’s compliance with
environmental, health and safety, and anti-bribery and corruption legislation; as well as considering the group’s monitoring of changes in
legislation, including sanctions.

11.2. Audit response to risks identified
As a result of performing the above, we identified the timing of revenue recognition as a key audit matter related to the potential risk of fraud.
The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in
response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws

and regulations described as having a direct effect on the financial statements;

• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to

fraud;

• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC;

•

and
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.

113
113
113

Rotork Annual Report 2019
Rotork Annual Report 2019

Independent auditor’s report to the members of Rotork Plc
continued

Report on other legal and regulatory requirements

12. Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is

consistent with the financial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the directors’ report.

13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
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.

13.2. Directors’ remuneration
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 in respect of these matters.

14. Other matters
14.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the Audit Committee on 2 June 2014 to audit the financial
statements for the year ending 31 December 2014 and subsequent financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is 6 years, covering the years ending 31 December 2014 to 31 December 2019.

14.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

15. Use of our report
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.

—
David Griffin FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
2 March 2020

114
114
114

Rotork Annual Report 2019
Rotork Annual Report 2019

Consolidated income statement
For the year ended 31 December 2019

Revenue
Cost of sales

Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses

Adjusted operating profit
Adjustments
– Amortisation of acquired intangible assets
– Other adjustments

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

Consolidated statement of comprehensive income
For the year ended 31 December 2019

Profit for the year
Other comprehensive income
Items that may be subsequently reclassified to the income statement:
Foreign exchange translation differences
Effective portion of changes in fair value of cash flow hedges net of tax

Items that are not subsequently reclassified to the income statement:
Actuarial (loss)/gain in pension scheme net of tax

Income and expenses recognised in other comprehensive income

Total comprehensive income for the year

Notes

2,3

3
4

2,3

7
7

8
9

18
18
18
18

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2019
£000

669,344
(357,718)

311,626
2,875
(6,408)
(180,434)
(649)

151,005

(18,841)
(5,154)

127,010

2,087
(5,040)

124,057
(29,957)

94,100

10.8p
13.0p
10.8p
13.0p

2018
£000

695,713
(384,253)

311,460
8,990
(7,260)
(189,474)
(798)

146,015

(20,284)
(2,813)

122,918

2,278
(4,448)

120,748
(29,004)

91,744

10.5p
12.6p
10.5p
12.6p

2019
£000

2018
£000

94,100

91,744

(12,643)
2,081

(10,562)

(6,705)

(17,267)

76,833

3,164
(6)

3,158

8,055

11,213

102,957

115
115
115

Rotork Annual Report 2019
Rotork Annual Report 2019

Consolidated balance sheet
At 31 December 2019

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
Other 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

2019
£000

2018
£000

10
11
12
13
15

14
15
15
23
15
16

19
20
13
23
21

19
22
20
22
23
22
21

222,052
40,848
89,062
14,582
–

230,157
61,517
79,338
17,337
352

366,544

388,701

73,905
129,390
4,830
2,196
27,558
117,612

355,491

94,739
145,509
1,429
308
23,161
104,489

369,635

722,035

758,336

4,363
14,521
24,859
495,657

539,400

6,791
33,576
10,745
124
1,964

53,200

4,752
41,195
24,734
13,270
52
40,581
4,851

129,435

182,635

722,035

4,358
13,024
35,421
460,825

513,628

30,871
31,274
15,722
–
2,149

80,016

30,010
47,332
26,489
11,792
2,682
40,150
6,237

164,692

244,708

758,336

These financial statements were approved by the Board of Directors and authorised for issue on 2 March 2020 and were signed on its behalf by:

—
KG Hostetler and JM Davis
Directors

116
116
116

Rotork Annual Report 2019
Rotork Annual Report 2019

Consolidated statement of changes in equity

Balance at 31 December 2017
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 on 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

Balance at 31 December 2018
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 on other comprehensive income

Total other comprehensive income

Total comprehensive income
Transactions with owners, recorded directly in

equity

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Issued
equity
capital
£000

4,352
–

Share
Premium
£000

11,193
–

–

–
–
–

–

–
–
6
–
–
–

–

–
–
–

–

–
–
1,831
–
–
–

Translation
Reserve
£000

31,766
–

3,164

–
–
–

3,164

–
–
–
–
–
–

Capital
redemption
reserve
£000

1,644
–

Hedging
Reserve
£000

Retained
Earnings
£000

Total
£000

(1,147)
–

409,392
91,744

457,200
91,744

–

–
–
–

–

–
–
–
–
–
–

–

(24)
–
18

(6)

–
–
–
–
–
–

–

3,164

–
9,501
(1,446)

(24)
9,501
(1,428)

8,055

11,213

99,799

102,957

2,457
98
–
(4,850)
2,217
(48,288)

2,457
98
1,837
(4,850)
2,217
(48,288)

4,358
–

13,024
–

34,930
–

1,644
–

(1,153)
–

460,825
94,100

513,628
94,100

–

–
–
–

–

–
–
5
–
–
–

–

–
–
–

–

(12,643)

–
–
–

(12,643)

–
–
1,497
–
–
–

–
–
–
–
–
–

–

–
–
–

–

–
–
–
–
–
–

–

(12,643)

2,548
–
(467)

2,081

–
(8,058)
1,353

2,548
(8,058)
886

(6,705)

(17,267)

87,395

76,833

–
–
–
–
–
–

(1,011)
(8)
–
(5,287)
6,030
(52,287)

(1,011)
(8)
1,502
(5,287)
6,030
(52,287)

Balance at 31 December 2019

4,363

14,521

22,287

1,644

928

495,657

539,400

Detailed explanations for equity capital, the translation reserve, capital redemption reserve and hedging reserve can be seen in note 17.

117
117
117

Rotork Annual Report 2019
Rotork Annual Report 2019

Consolidated statement of cash flows
For the year ended 31 December 2019

Notes

2019
£000

2018
£000

Cash flows from operating activities
Profit for the year
Adjustments for:
Amortisation of intangibles
Other adjustments
Amortisation of development costs
Depreciation
Equity settled share-based payment expense
Loss/(profit) 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
Restructuring costs paid
Difference between pension charge and cash contribution
(Decrease)/increase in provisions
(Decrease)/increase in employee benefits

Income taxes paid

Net cash flows from operating activities
Investing activities
Purchase of property, plant and equipment
Development costs capitalised
Sale of property, plant and equipment
Disposal of businesses
Contingent consideration paid
Settlement of hedging derivatives
Interest received

Net cash flows from investing activities
Financing activities
Issue of ordinary share capital
Own ordinary shares acquired
Interest paid
Decrease in bank loans
Repayment of lease liabilities
Dividends paid on ordinary shares

Net cash flows from financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held

94,100

18,841
5,154
2,874
16,359
4,702
5
(2,087)
5,040
29,957

174,945
18,176
7,198
(391)
(5,151)
(6,070)
(347)
(1,160)

187,200
(32,769)

(17,306)
(1,937)
663
–
–
(3,070)
1,628

1,501
(5,287)
(2,828)
(59,967)
(4,717)
(52,287)

Cash and cash equivalents at 31 December

91,744

20,284
2,813
2,575
11,642
4,674
(134)
(2,278)
4,448
29,004

164,772
(2,140)
(2,322)
(5,761)
(7,795)
(5,809)
2,333
4,690

147,968
(30,084)

154,431

117,884

(10,430)
(3,831)
201
4,340
(10)
(815)
1,309

(20,022)

(9,236)

1,837
(4,850)
(2,837)
(14,934)
(3)
(48,288)

(123,585)

10,824
104,489
2,299

117,612

(69,075)

39,573
63,192
1,724

104,489

118
118
118

Rotork Annual Report 2019
Rotork Annual Report 2019

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Notes to the Group financial statements
For the year ended 31 December 2019

Except where indicated, values in these notes are in £000.

Rotork plc is a public company limited by shares, registered and domiciled in England. The consolidated financial statements of the Company for
the year ended 31 December 2019 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.

IFRS 16 Leases

New accounting standards and interpretations
i.
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining whether an Arrangement contains a Lease’, SIC
15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’). The new standard
has been applied using the modified retrospective approach, with no net effect of adopting IFRS 16 recognised in equity as an adjustment to the
opening balance of retained earnings for the current period. Prior periods have not been restated.

For contracts in place at the date of transition, being 1 January 2019, the Group has elected to apply the definition of a lease from IAS 17 and
IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as leases under IAS 17 and IFRIC 4.

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date
of transition. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any
prepaid or accrued lease payments that existed at the date of transition.

Instead of performing an impairment review on the right-of-use assets at the date of transition, the Group has relied on its historic assessment as
to whether leases were onerous immediately before the date of initial application of IFRS 16.

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of
low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a
straight line basis over the remaining lease term.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 4.5%.

The following is a reconciliation of total operating lease commitments at 31 December 2018 to the lease liabilities recognised at 1 January 2019:

Total operating lease commitments disclosed at 31 December 2018
Recognition exemptions:
Leases of low value assets
Leases with remaining lease term of less than 12 months

Operating lease liabilities before discounting
Discounted using incremental borrowing rate

Total lease liabilities recognised under IFRS 16 at 1 January 2019

£,000

17,789

(324)
(4,178)

13,287
(993)

12,294

Further information on the impact of the transition to IFRS 16 is disclosed in note 27.

ii. Amendments
A number of amended standards became applicable for the current reporting period. The application of these amendments has not had any
material impact on the disclosures, net assets or results of the Group.

119
119
119

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

1. Accounting policies continued
New standards and interpretations not yet adopted
i. Other amendments
Further narrow scope amendments have been issued which are mandatory for periods commencing on or after 1 January 2020. The application
of these amendments will not have any material impact on the disclosures, net assets or results of the Group.

Adjustments to profit
Adjustments to profit are items of income and expense which, because of the nature, size and/or infrequency of the events giving rise to them,
merit separate presentation. These specific items are presented on the face of the income statement to provide greater clarity and a better
understanding of the impact of these items on the Group’s financial performance. In doing so, it also facilitates greater comparison of the
Group’s underlying results with prior periods and assessment of trends in financial performance. This split is consistent with how underlying
business performance is measured internally.

Adjustments to profit items may include but are not restricted to: costs of significant business restructuring, significant impairments of
intangible or tangible assets, adjustments to the fair value of acquisition related items such as contingent consideration, acquired intangible
asset amortisation and other items due to their significance, size or nature, and the related taxation.

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.

Consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year to 31 December
2019. 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
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates
(its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company is
expressed in sterling, which is the functional currency of the company, and the presentational currency for the consolidated financial statements.

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 is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers
control of a product or service to a customer and is shown net of value-added tax, returns, rebates and discounts and after eliminating sales
within the Group.

Revenue from the sale of actuators, gearboxes and flow control products is recognised in the income statement when control of the goods has
transferred.

The Group provides service and support through preventative maintenance contracts, on-site and workshop service, retrofit solutions and the
client support programme. Revenue in respect of workshop service and retrofit solutions is recognised on completion of the work and after all
performance obligations have been completed. Revenue in respect of preventative maintenance contracts and the client support programme is
recognised as the services are performed in line with the contractual terms. The directors have assessed that these contracts are satisfied over
time given that the customer simultaneously receives and consumes the benefits provided by the Group.

120
120
120

Rotork Annual Report 2019
Rotork Annual Report 2019

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.

The Group has applied the practical expedient in IFRS 15.121 and therefore not disclosed the information in IFRS 15.120 regarding unsatisfied (or
partially unsatisfied) performance obligations on contracts with a duration of one year or less.

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.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

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 remeasured 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. Goodwill is not amortised but is reviewed for impairment annually. For the
purposes of impairment testing, goodwill is allocated to each of the Group’s cash generating units (CGUs) expected to benefit from the synergies
of the combination. An impairment loss is recognised whenever the carrying value of an asset or its CGU exceeds its recoverable amount.
Impairment losses are recognised in the income statement.

Intangible assets
i) Research 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 in the period in which it is incurred. Development costs incurred after the point at which the commercial and
technical feasibility of the product has 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 up to 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
Customer relationships
Other – product design patents
Other – order backlog

4 to 10 years
2 to 8 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 and impairment losses.

121
121
121

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

1. Accounting policies continued
Leases – Accounting policy applicable from 1 January 2019
i) The Group as a lessee
For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A lease is defined
as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for
consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:
• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the

time the asset is made available to the Group;

• the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use,

considering its rights within the defined scope of the contract; and

• the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to

direct ‘how and for what purpose’ the asset is used throughout the period of use.

ii) Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is
measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of
any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement
date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such
indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted
using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments, variable payments based on an index or rate,
amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any
reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use
asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a
right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over
the lease term.

On the balance sheet, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in loans
and borrowings.

Leases – accounting policy applicable before 1 January 2019
i) The Group as a lessee
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.

122
122
122

Rotork Annual Report 2019
Rotork Annual Report 2019

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 or in other comprehensive income, in which case it is recognised in equity or in other
comprehensive respectively. 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: the effect of taxable temporary differences for goodwill not deductible for tax purposes and the initial recognition of assets or liabilities in a
transaction which is not a business combination 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.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Inventory and work in progress
Inventory and work in progress is valued at the lower of cost and net realisable value. Cost is calculated either on a ‘first in, first out’ or an
average cost basis. 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 directly 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 the schedule of contributions agreed
with the Trustees. 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 other comprehensive income. The retirement benefit obligation recognised in the consolidated balance sheet represents the deficit
in the Group’s defined benefit pension schemes. 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 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.

123
123
123

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

1. Accounting policies continued
Employee benefits continued
The Rotork Long Term Incentive Plan grants 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 share schemes based on the prior
year profit of the participating Rotork companies. The value of the award to each employee is based on salary and 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 income statement over the period to which the employee has earned the award.

iii) Long term service leave
The Group’s net obligation in respect of long term service leave is the amount of future benefit that employees have earned in return for their
service in the current and prior periods.

iv) Other employee benefits
The Group offers a number of discretionary bonus schemes to employees around the world. The costs of these schemes are recognised in the
income statement as incurred.

Derivative financial instruments
The Group uses forward exchange contracts and swaps to hedge its exposure to foreign exchange risk arising from operational and financing
activities. These are the only derivative financial instruments used by the Group. In accordance with its Treasury Policy, the Group does not
hold or issue contracts for trading purposes. Forward exchange contracts that do not qualify for hedge accounting are accounted for as
trading instruments.

At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the
hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the
changes in cash flows of the hedged item and hedging instrument are expected to offset each other.

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 or a highly probable forecasted transaction, the effective part of any gain or loss on the forward
contract is recognised directly in other comprehensive income. 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) Critical accounting judgements
There are no critical accounting judgements requiring evaluation.

ii) Key sources of estimation uncertainty
Retirement benefits
The Group’s financial statements include costs in relation to, and provisions for, retirement benefit obligations. Management is required to estimate
the future rates of inflation, salary increases, discount rates and longevity of members, each of which may have a material impact on the defined
benefit obligations that are recorded. Sensitivities to changes in key estimates affecting the pension schemes’ liabilities are shown in note 24.

124
124
124

Rotork Annual Report 2019
Rotork Annual Report 2019

2. Alternative performance measures
The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these
measures facilitate greater comparison of the Group’s underlying results with prior periods and assessment of trends in financial performance.

The key alternative performance measures that the Group use include adjusted profit measures and organic constant currency (OCC).
Explanations of how they are calculated and how they are reconciled to IFRS statutory results are set out below.

a. Adjusted operating profit
Adjusted operating profit is the Group’s operating profit excluding the amortisation of acquired intangible assets and other adjustments that are
considered to be significant and where treatment as an adjusted item provides stakeholders with additional useful information to assess the
trading performance of the Group on a consistent basis. Further details on these adjustments are given in note 4.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

b. Adjusted profit before tax
The adjustments in calculating adjusted profit before tax are consistent with those in calculating adjusted operating profit above.

Profit before tax
Adjustments:
Amortisation of acquired intangible assets
Curtailment gain from the closure of defined benefit pension schemes to future accrual
Guaranteed Minimum Pension equalisation expense
Consultancy costs associated with the Growth Acceleration Programme
(Gain)/loss on disposal of businesses
Redundancy and executive change costs
Other restructuring costs

Adjusted profit before tax

2019

2018

124,057

120,748

18,841
–
–
–
(2,539)
2,791
4,902

20,284
(8,575)
920
4,052
658
2,896
2,862

148,052

143,845

c. Adjusted basic and diluted earnings per share
Adjusted basic earnings per share is calculated using the adjusted net profit attributable to the ordinary shareholders and dividing it by the
weighted average ordinary shares in issue (see note 18). Adjusted net profit attributable to ordinary shareholders is calculated as follows:

Net profit attributable to ordinary shareholders
Adjustments:
Amortisation of acquired intangible assets
Curtailment gain from the closure of defined benefit pension schemes to future accrual
Guaranteed Minimum Pension equalisation expense
Consultancy costs associated with the Growth Acceleration Programme
(Gain)/loss on disposal of businesses
Redundancy and executive change costs
Other restructuring costs
Tax effect on adjusted items

2019

94,100

18,841
–
–
–
(2,539)
2,791
4,902
(4,908)

2018

91,744

20,284
(8,575)
920
4,052
658
2,896
2,862
(5,025)

Adjusted net profit attributable to ordinary shareholders

113,187

109,816

Diluted earnings per share is calculated by using the adjusted net profit attributable to ordinary shareholders and dividing it by the weighted
average ordinary shares in issue adjusted to assume conversion of all potentially dilutive ordinary shares (see note 18).

d. Adjusted dividend cover
Dividend cover is calculated as earnings per share divided by dividends per share. Adjusted dividend cover is calculated as adjusted earnings per
share as defined in note 2c above divided by dividends per share.

e. Total shareholder return
Total shareholder return is the movement in the price of an ordinary share plus dividends during the year, divided by the opening share price.

125
125
125

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

2. Alternative performance measures continued
f. Return on capital employed
The return on capital employed ratio is used by management to help ensure that capital is used efficiently.

Adjusted operating profit
Capital employed
Shareholders' funds
Cash and cash equivalents
Interest bearing loans and borrowings
Pension deficit net of deferred tax

Capital employed

Average capital employed

Return on capital employed

2019

2018

151,005

146,015

539,400
(117,612)
11,543
23,942

457,273

474,647

31.8%

513,628
(104,489)
60,881
22,001

492,021

500,380

29.2%

Average capital employed is defined as the average of the capital employed at the start and end of the relevant year.

g. Working capital as a percentage of revenue
Working capital as a percentage of revenue is monitored as control of working capital is key to achieving our cash generation targets. It is
calculated as inventory plus trade receivables, less trade payables, divided by revenue.

h. Organic constant currency (OCC)
OCC results remove the results of businesses acquired or disposed of during the period that are not consistently presented in both periods’
results. The 2019 results are restated at 2018 exchange rates. There are no disposals or acquisitions in 2019 that are not consistently presented
in both periods.

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

Revenue
Cost of sales

Gross margin
Overheads

Adjusted operating profit
Interest

Adjusted profit before tax
Adjusted taxation

Adjusted profit after tax

Revenue
Cost of sales

Gross margin
Overheads

Adjusted operating profit
Interest

Adjusted profit before tax
Taxation

Adjusted profit after tax

31 December
2019

Currency
adjustment

669,344
(357,718)

311,626
(160,621)

151,005
(2,953)

148,052
(34,865)

113,187

(6,950)
4,010

(2,940)
1,124

(1,816)
172

(1,644)
386

(1,258)

OCC
31 December
2019

662,394
(353,708)

308,686
(159,497)

149,189
(2,781)

146,408
(34,479)

111,929

31 December
2018

Impact of 2018
disposals

31 December
2018

695,713
(384,203)

311,510
(165,495)

146,015
(2,170)

143,845
(34,029)

109,816

(3,145)
1,943

(1,202)
1,141

(61)
(4)

(65)
40

(25)

692,568
(382,260)

310,308
(164,354)

145,954
(2,174)

143,780
(33,989)

109,791

126
126
126

Rotork Annual Report 2019
Rotork Annual Report 2019

3. Operating segments
The Group has chosen to organise the management and financial structure by the grouping of related products. The four identifiable operating
segments for which 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

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

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:

Revenue from external customers
Inter segment revenue

Total revenue

Adjusted operating profit*
Amortisation of acquired intangible assets

Segment result before adjustments
Other adjustments

Operating profit
Net finance expense
Income tax expense

Profit for the year

Revenue from external customers
Inter segment revenue

Total revenue

Adjusted operating profit*
Amortisation of acquired intangible assets

Segment result before adjustments
Other adjustments

Operating profit
Net finance expense
Income tax expense

Profit for the year

Controls
2019

Fluid
Systems
2019

Gears
2019

Instruments
2019

Elimination
2019

Unallocated
2019

Group
2019

353,167
–

137,929
–

73,970
9,038

104,278
4,303

–
(13,341)

353,167

137,929

83,008

108,581

(13,341)

–
–

–

113,082
(1,442)

8,334
(301)

14,954
(3,294)

26,245
(13,804)

111,640

8,033

11,660

12,441

–
–

–

(11,610)
–

(11,610)

669,344
–

669,344

151,005
(18,841)

132,164
(5,154)

127,010
(2,953)
(29,957)

94,100

Controls
2018

Fluid
Systems
2018

Gears
2018

Instruments
2018

Elimination
2018

Unallocated
2018

Group
2018

351,858
–

166,328
–

76,260
9,352

101,267
5,887

–
(15,239)

351,858

166,328

85,612

107,154

(15,239)

–
–

–

101,344
(2,851)

16,135
(779)

15,307
(2,082)

24,085
(14,572)

98,493

15,356

13,225

9,513

–
–

–

(10,856)
–

(10,856)

695,713
–

695,713

146,015
(20,284)

125,731
(2,813)

122,918
(2,170)
(29,004)

91,744

* Adjusted operating profit is operating profit before the amortisation of acquired intangible assets and other adjustments (see note 4).

127
127
127

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

3. Operating segments continued

Depreciation
Amortisation:
– Acquired intangible assets
– Development costs
Impairment of development cost assets
Impairment of property, plant and equipment
Non-cash items: equity settled share-based payments
Net financing expense
Capital expenditure (excluding leases)

Controls
2019

8,136

1,442
1,400
–
–
2,417
–
11,550

Controls
2018

5,113

2,851
1,463
–
–
2,107
–
5,201

Fluid
Systems
2019

3,133

301
169
–
–
508
–
1,396

Fluid
Systems
2018

2,507

779
216
–
–
925
–
1,598

Gears
2019

Instruments
2019

Unallocated
2019

Group
2019

2,943

2,103

16,359

3,294
277
–
–
479
–
1,902

13,804
1,028
–
–
578
–
1,703

–
–
–
1,935
720
(2,953)
–

18,841
2,874
–
1,935
4,702
(2,953)
16,551

Gears
2018

Instruments
2018

Unallocated
2018

Group
2018

2,374

1,616

11,642

2,082
242
–
–
532
–
2,023

14,572
654
–
–
522
–
1,606

–
–
699
1,350
588
(2,170)
–

20,284
2,575
699
1,350
4,674
(2,170)
10,428

Balance sheets are reviewed by subsidiary and operating segment balance sheets are not prepared, therefore no further analysis of operating
segments assets and liabilities is presented.

Geographical analysis:

Revenue by location of subsidiary

UK
Italy
Rest of Europe
US
Other Americas
China
Rest of World

Non-current assets:
– Goodwill
– Intangible assets
– Property, plant and equipment

2019

2018

70,779
68,448
121,118
140,965
40,732
69,682
157,620

71,458
80,772
127,960
149,180
42,235
57,506
166,602

669,344

695,713

Rest of
World
2019

Group
2019

40,949
4,789
18,221

222,052
40,848
89,062

Rest of
World
2018

Group
2018

UK
2019

Europe
2019

US
2019

61,342
27,585
30,402

63,955
4,336
30,271

55,061
4,138
8,230

UK
2018

Europe
2018

US
2018

Other
Americas
2019

745
–
1,938

Other
Americas
2018

61,342
36,154
23,651

67,424
7,380
28,762

57,040
8,761
8,596

742
–
969

43,609
9,222
17,360

230,157
61,517
79,338

128
128
128

Rotork Annual Report 2019
Rotork Annual Report 2019

4. Other Adjustments
The other adjustments are adjustments that management consider to be significant and where separate disclosure enables stakeholders to assess
the underlying trading performance of the Group on a consistent basis.

The other adjustments to profit included in statutory profit are as follows:

Curtailment gain from the closure of defined benefit pension schemes to future accrual
Guaranteed Minimum Pension (GMP) equalisation expense

Consultancy costs associated with the Growth Acceleration Programme
Gain/(loss) on disposal of businesses
Redundancy and executive change costs
Other restructuring costs

2019

–
–

–

–
2,539
(2,791)
(4,902)

(5,154)

2018

8,575
(920)

7,655

(4,052)
(658)
(2,896)
(2,862)

(10,468)

(2,813)

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Gain/(loss) on disposal of business
The gain on disposal of £2,539,000 (2018: £658,000 loss on disposal) relates to the sale of the Pittsburgh business. The assets of £1,639,000
disposed of included goodwill (£452,000) and working capital (£1,187,000). Other costs incurred totalled £93,000. Proceeds of £4,271,000 were
contractually agreed and included in other receivables at the balance sheet date.

Redundancy and executive change costs
On 28 February 2019 it was announced that the Group’s operations in Taunton, UK would cease during the second half of 2019 and the
production would transfer to the Group’s manufacturing plant in Manchester, UK. The closure of the Taunton facility resulted in redundancy
costs of £798,000.

The operations in Tulsa, US ceased on 30 June 2019 and the production transferred to other manufacturing plants in the US. The closure of the
Tulsa facility has resulted in redundancy costs of £415,000.

A further £1,578,000 (2018: 2,896,000) redundancy and executive change costs have been incurred as a result of the progress made with the
Growth Acceleration Programme.

Other restructuring costs
Other restructuring costs include £1,046,000 related to the closure of the Taunton facility and £2,096,000 related to the closure of the Tulsa
facility, including asset write-downs of £1,657,000. £200,000 (2018: £700,000) relates to ending development and sales of products for the
containment area of nuclear power plants and £1,560,000 (2018: £1,350,000) relates to the ongoing review of the global footprint, including a
£413,000 loss on disposal of a property.

Income statement disclosure
The gain on disposal of business is included in other income and the loss on disposal of property is included in other expenses. All other 2019
adjustments are included in administrative expenses. In 2018 all adjustments were included in administrative expenses, with the exception of the
credit related to the closure of the defined benefit pension scheme to future which was included in other income. The adjustments are taxable or
tax deductible in the country in which the expense is incurred.

129
129
129

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

5. Other income and expense

Curtailment gain from the closure of defined benefit pension schemes to future accrual (note 4)
Gain on disposal of business (note 4)
Gain on disposal of property, plant and equipment
Other

Other income

Loss on disposal of business
Loss on disposal of property, plant and equipment
Other

Other expense

6. Personnel expenses

Wages and salaries (including bonus and incentive plans)
Social security costs
Pension costs (note 24)
Share-based payments (note 25)
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

2019

–
2,539
178
158

2,875

2019

–
599
50

649

2019

153,879
20,947
7,363
4,702
632

187,523

2019
Number

1,854
718
421
619

3,612

971
2,641

3,612

2018

8,575
–
120
295

8,990

2018

658
58
82

798

2018

159,914
21,747
7,882
4,674
95

194,312

2018
Number

1,953
766
470
664

3,853

1,033
2,820

3,853

130
130
130

Rotork Annual Report 2019
Rotork Annual Report 2019

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

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2019

1,803
284

2,087

2019

(3,117)
(750)
(1,173)

(5,040)

2018

1,618
660

2,278

2018

(3,072)
(1,055)
(321)

(4,448)

Included within interest expense in 2019 is £431,000 of interest payable resulting from the adoption of IFRS 16 on 1 January 2019 (see note 1).

Recognised in other comprehensive income

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 lease contracts
Amortisation:
– Other intangibles
– Development costs
Impairment of development cost assets
Impairment of property, plant and equipment
Inventory write downs recognised in the year
Research and development expenditure
Exchange differences realised

Audit fees and expenses paid to Deloitte:
– Audit of the Group 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:
– 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 finance income and expenses.

131
131
131

2019

1,125
1,423
(12,643)

(10,095)

2,548
(12,643)

(10,095)

2018

(1,423)
1,399
3,164

3,140

(24)
3,164

3,140

Notes

2019

2018

i
i

iii
iii
iii
iii
ii
iii
iv

11,924
4,435

18,841
2,874
–
1,935
3,102
11,272
889

886
268

1,154
10

1,164

11,148
494

20,284
2,575
699
1,350
3,483
11,715
(339)

869
231

1,100
22

1,122

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

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

Profit before tax
Profit before tax multiplied by the blended standard rate of corporation tax in
the UK of 19.0% (2018: 19.0%)
Effects of:
Different tax rates on overseas earnings
Permanent differences
Losses not recognised
Tax incentives
Impact of rate change
Adjustments to tax charge in respect of prior years

Total tax charge for year

Effective tax rate

Adjusted profit before tax (note 2b)
Total tax charge for the year
Amortisation of acquired intangible assets
Defined benefit pension schemes (note 4)
Restructuring costs (note 4)

Adjusted total tax charge for the year

Adjusted effective tax rate

2019

2018

3,777
(570)

28,082
(235)

(1,135)
173
(135)

3,207

27,847

31,054

(1,097)

29,957

124,057

23,571

6,856
1,537
(66)
(1,174)
173
(940)

29,957

24.1%

148,052
29,957
4,070
–
838

34,865

23.5%

3,476
(851)

27,646
(223)

(1,307)
30
233

2,625

27,423

30,048

(1,044)

29,004

120,748

22,942

7,107
1,015
(90)
(1,159)
30
(841)

29,004

24.0%

143,845
29,004
4,499
(1,301)
1,827

34,029

23.7%

A tax charge of £8,000 (2018: £98,000 credit) in respect of share-based payments has been recognised directly in equity in the year.

The effective tax rate for the year is 24.1% (2018: 24.0%). The adjusted effective tax rate is 23.5% (2018: 23.7%) and is lower than the
effective tax rate for the year principally because of the tax treatment of expenses included in exceptional items.

The adjusted effective tax rate has fallen from 23.7% in 2018 to 23.5% in 2019, principally because of the reduction in the Indian corporate tax
rate from 35% to 25%, which came into effect on 1 April 2019. This has resulted in a reduction in the Indian tax charge because of the lower
rate of tax. The Group expects its adjusted effective tax rate to continue to fall in line with the current trend in corporate tax rates where Rotork
operates. However, the adjusted effective tax rate will still be higher than the standard UK rate due to higher rates of tax in China, the US,
South Korea, Germany, India, Canada and Australia.

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 £312,364,000 (2018: £321,281,000).

132
132
132

Rotork Annual Report 2019
Rotork Annual Report 2019

10. Goodwill

Cost
At 1 January
Derecognised on disposal of business
Exchange adjustments

At 31 December

Provision for impairment
At 1 January
Exchange adjustments

At 31 December

Net book value

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2019

2018

251,848
(452)
(7,700)

243,696

21,691
(47)

21,644

249,622
(2,239)
4,465

251,848

21,594
97

21,691

222,052

230,157

Cash generating units
Goodwill acquired through business combinations has been allocated to the lowest level of cash generating unit (CGU). 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, following the
merger of businesses, the Mastergear Italy CGU was consolidated with the Gears Italy CGU and the Dallas CGU was consolidated with the Rotork
Controls Inc CGU. In each case this is the lowest level at which the goodwill is monitored for internal management purposes. The disposal relates
to the goodwill attributable to the Hiller nuclear business which was sold during the year.

Cash generating unit

Schischek
Rotork Fluid Systems
Rotork Controls Inc
Bifold
Instruments sub-group
Other cash generating units

Total Group

Discount rate

2019

2018

13.7% (2018: 13.3%)
13.4% (2018: 12.9%)
11.0% (2018: 10.7%)
12.1% (2018: 11.6%)
11.6% (2018: 11.2%)

19,514
15,019
16,057
47,467
104,327
19,668

222,052

20,506
15,782
14,527
47,467
103,454
28,421

230,157

Impairment testing
The Group is required to test, on an annual basis, whether goodwill has suffered any impairment.

The key assumptions used in the annual impairment review which are common to all CGUs are set out below:

i) Discount rates
The discount rates for the significant CGUs presented above are pre-tax rates that reflect current market assessments of the time value of money
and the risks specific to the CGU for which the future cash flows have not been adjusted. Discount rates are based on estimations that market
participants operating in similar sectors to Rotork would make, using the Group’s economic profile as a starting point. For each CGU we adjusted
the risk premium on a weighted average basis to reflect the region in which the CGU carries out the majority of its business, applied a premium
based on the size of the CGU and applied a market participant tax rate in the region the CGU operates. In calculating the discount rates,
consideration was given to exclude risks that were not relevant or which had already been reflected in the cash flows.

ii) Growth rates
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 Group’s three year strategic 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 two and
three 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 Group annual budget and the three year plan are reviewed and approved by the Board each year. The
compound annual revenue growth forecast for the Group during years one to three, used within the impairment models, is 5.5% (2018: 7.5%).

In the period after the three year plan growth rates are forecast at 5% (2018: 5%) per annum for the next two years and at 2% (2018: 2%) for
the long-term growth rate. The 5% rate reflects a realistic market forecast for the flow control market up until 2024.

133
133
133

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

10. Goodwill continued
Sensitivity analysis
The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used to determine the
recoverable amount for each of the CGUs to which goodwill is allocated.

For all CGUs the sensitivity analysis shows that if pre-tax discount rates are raised by 1%; short term growth rates are lowered by 10% in years
one to three; or long term growth rates are lowered by 1% then no impairment would arise. Each of these sensitivities are considered to be a
reasonably possible change.

11. Intangible assets

Cost
31 December 2017
Internally developed
Disposal of business
Disposals
Exchange Adjustments

31 December 2018
Internally developed
Disposal of business
Disposals
Exchange adjustments

31 December 2019

Amortisation
31 December 2017
Charge for the year
Impairment charge
Disposal of business
Disposals
Exchange Adjustments

31 December 2018
Charge for the year
Impairment charge
Disposal of business
Disposals
Exchange adjustments

31 December 2019

Net book value
31 December 2018

31 December 2019

Research and
development
costs

Brands

Customer
relationships

Other

Total

Acquired intangible assets

23,705
3,831
(1,434)
(4,447)
52

21,707
1,937
–
(3,114)
(128)

20,402

14,324
2,575
699
(568)
(4,455)
23

12,598
2,874
–
–
(3,114)
(61)

12,297

9,109

8,105

52,070
–
(775)
–
1,304

52,599
–
–
–
(1,727)

50,872

31,552
5,753
–
(775)
–
1,061

37,591
6,035
–
–
–
(1,479)

42,147

15,008

8,725

120,480
–
(2,471)
–
2,182

120,191
–
–
–
(3,498)

116,693

74,721
12,636
–
(2,471)
–
1,826

86,712
10,767
–
–
–
(2,960)

94,519

33,479

22,174

24,934
–
(2,733)
–
312

22,513
–
–
–
(643)

21,870

19,136
1,895
–
(2,733)
–
294

18,592
2,039
–
–
–
(605)

20,026

3,921

1,844

221,189
3,831
(7,413)
(4,447)
3,850

217,010
1,937
–
(3,114)
(5,996)

209,837

139,733
22,859
699
(6,547)
(4,455)
3,204

155,493
21,715
–
–
(3,114)
(5,105)

168,989

61,517

40,848

Other acquired intangible assets represent order books and intellectual property.

The amortisation charge is recognised within administrative expenses in the income statement. The impairment charge in 2018 relates to the
cost of ending development and sales of products for the containment area of nuclear power plants.

134
134
134

Rotork Annual Report 2019
Rotork Annual Report 2019

12. Property, plant and equipment

Cost
31 December 2017
Additions
Disposals
Exchange adjustments

31 December 2018
Recognition of right-of-use asset on initial application of IFRS 16

Adjusted balance at 1 January 2019
Additions
Disposals
Exchange adjustments

31 December 2019

Depreciation
31 December 2017
Charge for the year
Disposals
Impairment charge
Exchange adjustments

31 December 2018
Charge for the year
Disposals
Impairment charge
Exchange adjustments

31 December 2019

Net book value
31 December 2018

31 December 2019

Net book value of land and buildings can be analysed between:

Land
Buildings

Net book value at 31 December

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Land and
buildings

Plant and
equipment

63,654
772
(464)
962

64,924
8,978

73,902
2,557
(163)
(1,862)

107,684
9,656
(5,035)
1,535

113,840
3,316

117,156
17,066
(7,385)
(4,043)

Total

171,338
10,428
(5,499)
2,497

178,764
12,294

191,058
19,623
(7,548)
(5,905)

74,434

122,794

197,228

15,304
2,030
(8)
1,312
461

19,099
4,882
(128)
1,883
(868)

74,309
9,612
(4,768)
38
1,136

80,327
11,477
(6,101)
52
(2,457)

89,613
11,642
(4,776)
1,350
1,597

99,426
16,359
(6,229)
1,935
(3,325)

24,868

83,298

108,166

45,825

49,566

33,513

39,496

79,338

89,062

2019

7,060
42,506

49,566

2018

7,385
38,440

45,825

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. The impairment charge of £1,935,000 (2018: £1,350,000) arose as a result of the ongoing review of the global footprint (note 4).

135
135
135

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

13. Deferred tax assets and liabilities

Property, plant and equipment
Intangible assets
Employee benefits
Inventory
Other items

Net tax assets/(liabilities)
Set off of tax

Assets
2019

618
3
7,723
4,648
4,344

Liabilities
2019

(1,072)
(7,970)
–
–
(4,457)

17,336
(2,754)

(13,499)
2,754

14,582

(10,745)

Net
2019

(454)
(7,967)
7,723
4,648
(113)

3,837
–

3,837

Assets
2018

450
4
7,481
5,896
5,231

19,062
(1,725)

Liabilities
2018

(1,346)
(12,530)
–
–
(3,571)

(17,447)
1,725

17,337

(15,722)

Movements in the net deferred tax balance during the year are as follows:

Balance at 1 January
Credited to the income statement

(Charged)/credited directly to equity in respect of share-based payments

Credited/(charged) directly to equity in respect of pension schemes

(Charged)/credited directly to hedging reserves in respect of cash flow hedges

Exchange differences

Balance at 31 December

2019

1,615
1,086
(8)
1,353
(467)
258

3,837

Net
2018

(896)
(12,526)
7,481
5,896
1,660

1,615
–

1,615

2018

1,839
1,044
98
(1,446)
18
62

1,615

A deferred tax asset of £14,582,000 (2018: £17,337,000) has been recognised at 31 December 2019. 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 has not been recognised in relation to capital losses of £7,632,000 (2018: £6,936,000). This asset may be recovered if
sufficient capital profits are made in future in the companies concerned. There is no expiry date in relation to this asset.

14. Inventories

Raw materials and consumables
Work in progress
Finished goods

2019

2018

58,153
3,751
12,001

70,866
6,897
16,976

73,905

94,739

Included in cost of sales was £196,265,000 (2018: £235,708,000) in respect of inventories consumed in the year.

136
136
136

Rotork Annual Report 2019
Rotork Annual Report 2019

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

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2019

–

135,333
(5,943)

129,390

4,830

7,674
13,373
6,511

27,558

2018

352

152,089
(6,580)

145,509

1,429

3,299
11,747
8,115

23,161

Included within non-trade receivables is £Nil (2018: £89,000) which relates to collateral held by a third party in respect of the Group’s
outstanding forward exchange contracts.

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

2019

78,560
108
38,944

117,612
–

117,612

2018

73,136
56
31,297

104,489
–

104,489

137
137
137

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

17. Capital and reserves

At 1 January
Issued under employee share schemes

At 31 December

Number of shares (000)

0.5p Ordinary
shares
issued
and fully
paid up
2019

4,358
5

4,363

872,538

£1 Non-
redeemable
preference
shares
2019

40
–

0.5p Ordinary
shares
issued
and fully
paid up
2018

4,352
6

4,358

871,625

£1 Non-
redeemable
preference
shares
2018

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 £1,501,000 (2018: £1,837,000) in respect of the 912,549 (2018: 1,197,838) ordinary shares issued during the
year: £4,563 (2018: £5,980) was credited to share capital and £1,496,647 (2018: £1,831,000) 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 £3,485,000 (2018: £4,227,000) and represents
1,136,000 (2018: 1,387,000) 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:

3.70p final dividend for 2018 (final dividend for 2017: 3.35p)
2.30p interim dividend for 2019 (interim dividend for 2018: 2.20p)

2019
Payment date

22 May
27 September

2019

32,248
20,039

52,287

2018

29,154
19,134

48,288

After the balance sheet date the following dividends per qualifying ordinary share were proposed by the directors. The dividends have not been
provided.

Final proposed dividend per qualifying ordinary share
3.90p

3.70p

2019

2018

34,029

32,250

138
138
138

Rotork Annual Report 2019
Rotork Annual Report 2019

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 871.0m shares (2018: 869.9m shares) being the weighted average number of ordinary shares in issue
(net of own ordinary shares held) for the year.

Net profit attributable to ordinary shareholders

Weighted average number of ordinary shares
Issued ordinary shares at 1 January
Effect of own shares held
Effect of shares issued under Sharesave plans

Weighted average number of ordinary shares during the year

Basic earnings per share

2019

94,100

870,238
387
401

871,026

10.8p

2018

91,744

869,863
(115)
123

869,871

10.5p

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

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 impact of the adjustments. The reconciliation showing how adjusted net profit attributable to
ordinary shareholders is derived is shown in note 2.

Adjusted net profit attributable to ordinary shareholders

Weighted average number of ordinary shares during the year

Adjusted basic earnings per share

2019

2018

113,187

871,026

13.0p

109,816

869,871

12.6p

Diluted earnings per share
Diluted earnings per share is based on the profit for the year attributable to the ordinary shareholders and 873.6m shares (2018: 874.0m shares).
The number of shares is equal to the weighted average number of ordinary shares in issue (net of own ordinary shares held) adjusted to assume
conversion of all potentially dilutive ordinary shares. The Company has two categories of potentially dilutive ordinary shares: those share options
granted to employees under the Sharesave plan where the exercise price is less than the average market price of the Company’s ordinary shares
during the year and contingently issuable shares awarded under the Long Term Incentive Plan (LTIP).

Net profit attributable to ordinary shareholders

Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares for the year
Effect of Sharesave options
Effect of LTIP share awards

Weighted average number of ordinary shares (diluted) during the year

Diluted earnings per share

Adjusted diluted earnings per share

Adjusted net profit attributable to ordinary shareholders

Weighted average number of ordinary shares (diluted) during the year

Adjusted diluted earnings per share

2019

94,100

871,026
1,214
1,347

873,587

10.8p

2018

91,744

869,871
1,583
2,514

873,968

10.5p

2019

2018

113,187

873,587

13.0p

109,816

873,969

12.6p

139
139
139

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

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.

2019

2018

Non-current liabilities
Preference shares classified as debt
Bank loans
Lease liabilities

Current liabilities
Bank loans
Lease liabilities

Terms and debt repayment schedule
The terms and conditions of outstanding bank loans and preference shares were as follows:

Non-redeemable preference shares
Bank loans and overdrafts
Bank loans and overdrafts

Repayment profile
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

Currency

Interest rates

Year of maturity

Sterling
Sterling
Euro

9.5%
–
2.35%

–
–
2032

Principal
2019

762
–

828

Interest
2019

105
–

124

Minimum
payments
2019

867
–

952

Principal
2018

30,008

30,831
–

60,839

During the year the Group repaid £60,000,000 of its committed facilities.

The debt repayment profile for leases is disclosed in note 27.

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.

140
140
140

40
762
5,989

6,791

66
4,686

4,752

2019

40
–
828

868

Interest
2018

275

131
–

406

40
30,831
–

30,871

30,008
2

30,010

2018

40
59,899
940

60,879

Minimum
payments
2018

30,283

30,962
–

61,245

2019

2018

223,222
(193,646)

207,021
(179,728)

29,576
241
20,399
542
2,227
5,325

58,310

33,576
24,734

58,310

27,293
409
21,703
641
2,677
5,040

57,763

31,274
26,489

57,763

Rotork Annual Report 2019
Rotork Annual Report 2019

21. Provisions

Balance at 1 January 2019
Exchange differences
Charge to the income statement
Provisions utilised during the year
Disposal of business

Balance at 31 December 2019

Maturity at 31 December 2019
Non-current
Current

Maturity at 31 December 2018
Non-current
Current

Contingent
consideration

299
(14)
–
–
–

285

–
285

285

–
299

299

Warranty
provision

6,511
(164)
1,763
(2,255)
96

5,951

1,964
3,987

5,951

2,149
4,362

6,511

Restructuring
provision

1,576
(3)
3,360
(4,354)
–

579

–
579

579

–
1,576

1,576

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Total

8,386
(181)
5,123
(6,609)
96

6,815

1,964
4,851

6,815

2,149
6,237

8,386

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.

The restructuring provision relates to amounts outstanding in respect of redundancy and other restructuring costs associated with the Growth
Acceleration Programme.

22. Trade and other payables

Trade payables

Corporation tax

Current tax

Other taxes and social security
Payments on account
Other payables and accrued expenses

Other payables

23. Derivative financial instruments

Forward foreign exchange contracts – cash flow hedges
Foreign exchange swaps – cash flow hedges

Total

Less non-current portion:
Forward foreign exchange contracts – cash flow hedges

Current portion

2019

41,195

13,270

11,101
6,587
22,893

40,581

2018
Assets

–
308

308

–

308

2018

47,332

11,792

10,600
6,586
22,964

40,150

2018
Liabilities

1,407
1,275

2,682

–

2,682

2019
Assets

1,275
921

2,196

–

2,196

2019
Liabilities

176
–

176

(124)

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 2019 are recognised in the income statement in the period or periods
during which the hedged forecast transaction affects the income statement.

141
141
141

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

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.

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 UK Scheme which was closed to new entrants in
2003 was closed to future accrual from 1 April 2018.

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
US Pension plan which was closed to new entrants in 2009 was closed to future accrual on 31 December 2018.

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. The Schemes have a relatively balanced investment in equities, debt instruments and property. Due to the long-term nature of the
plan liabilities, the Trustees of the pension funds consider it appropriate that a reasonable portion of the plan assets should be invested in
equities and in property to leverage the return generated by the funds.
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. A decrease in the bond interest
rate will increase the Schemes’ liabilities but this will be partially offset by an increase in the return of the Schemes’ debt investments.
Inflation risk – a significant proportion of the benefits under the UK Scheme is linked to inflation. Although the UK Scheme’s 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 Schemes.

Upon the closure to future accrual of the UK and US defined benefit pension scheme the members were invited to join the relevant defined
contribution scheme. The total gain of £8,575,000 from the two curtailments is disclosed in other income in the income statement in 2018.

The High Court judgement in the case of Lloyds Banking Group on 26 October 2018 clarified that pension benefits under the UK Scheme need
to be equalised for the effects of unequal GMPs. The impact of GMP equalisation was estimated to be £920,000 In 2018 and is shown as a
past service cost in the income statement for that year.

Movements in the present value of defined benefit obligations

Liabilities at 1 January
Current service costs
Administration costs
Member contributions
Interest cost
Benefits paid
Actuarial loss/(gain)
Curtailment gain from scheme closures to future accrual
Past service cost – Guaranteed minimum pension equalisation
Currency (gain)/loss

Liabilities at 31 December

2019

2018

207,021
–
330
–
5,984
(15,951)
26,527
–
–
(689)

223,222

237,054
1,427
208
152
5,864
(10,818)
(20,795)
(8,575)
920
1,584

207,021

142
142
142

Rotork Annual Report 2019
Rotork Annual Report 2019

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 (loss)/gain

Assets at 31 December

Expense recognised in the income statement

Current service costs
Administration costs
Curtailment gain from scheme closures to future accrual
Past service cost – Guaranteed minimum pension adjustment
Net interest cost

The expense is recognised in the following line items in the income statement

Cost of sales
Administrative expenses
Other income
Net finance expense

Remeasurements over the year

Experience adjustments on plan assets
Experience adjustments on plan liabilities
Actuarial (loss)/gain from changes to financial assumptions
Actuarial gain from changes to demographic assumptions
Curtailment gain from scheme closures to future accrual
Past service cost – Guaranteed minimum pension adjustment
Experience adjustments on currency

i) Defined benefit pension schemes continued
Reconciliation of net defined benefit obligation

Net defined benefit obligation at the beginning of the year
Current service costs
Administration costs
Net financing expense
Remeasurements over the year
Employer contributions

143
143
143

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2019

2018

179,728
5,234
6,622
–
(15,951)
18,469
(456)

193,646

188,844
4,809
7,187
152
(10,818)
(11,294)
848

179,728

2019

–
330
–
–
750

1,080

2019

112
218
–
750

1,080

2019

18,469
(3,926)
(23,586)
985
–
–
233

(7,825)

2018

1,427
208
(8,575)
920
1,055

(4,965)

2018

571
1,984
(8,575)
1,055

(4,965)

2018

(11,294)
(451)
19,781
1,465
8,575
(920)
(736)

16,420

2019

2018

27,293
–
330
750
7,825
(6,622)

48,210
1,427
208
1,055
(16,420)
(7,187)

29,576

27,293

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

24. Pension schemes continued
Liability for defined benefit obligations
The principal actuarial assumptions at 31 December 2019 (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)

2019

2.1
n/a
2.8
4.6
2.9

2018

2.8
n/a
3.1
4.6
3.2

2019

3.4
n/a
0.0
0.0
n/a

2018

4.4
n/a
0.0
0.0
n/a

2019

2.2
n/a
2.5
4.1
2.9

2018

3.0
n/a
2.8
4.1
3.2

In the UK the Retail Price Index is used as the rate of inflation as it is a requirement of the UK Scheme’s rules.

The split of the Schemes’ assets were as follows:

Equities (quoted)
Targeted return (quoted)
Property
Corporate bonds (quoted)
LDI/absolute return bonds (quoted)
US deposit administration contract

Total

Actual return on the Schemes’ assets

2019
Fair value

35,588
50,409
11,683
47,526
31,940
16,500

2018
Fair value

30,581
45,243
17,326
41,740
29,892
14,946

193,646

179,728

23,703

(6,485)

The UK Scheme has a strategic asset allocation which was agreed after considering its liability profile, funding position, expected return of the
various asset classes and the need for diversification. The level of interest rate and inflation hedging is being gradually increased by the use of
LDI funds. Currently the Scheme has hedged around 27% of its liabilities, as measured on a low risk gilts basis, and this will automatically
increase by 3% each year. A series of triggers have also been agreed so that, if/when gilt yields rise, the pace of hedging will be accelerated.

The demographic assumptions for the UK Scheme have been changed in three areas. The allowance for cash commutation now assumes that
members will commute 70% of the maximum possible amount at retirement (2018: 90%), whilst the proportion of members with a dependant
at retirement or on earlier death is assumed to be 80% (2018: 90%).

As a result of longevity analysis carried out for the 2019 valuation of the UK Scheme, the mortality base table is now 90% of the S3PMA table
for males and 115% of the S3PFA table for females (2018: 100% of S2NXA for males and females). Future changes in mortality are now based
on the CMI_2018 projections with an initial addition parameter of +0.5% (2018: CMI_2017 projections) with a long-term rate of improvement
of 1.25% per annum (2018: 1.25%).

By way of example the respective mortality tables indicate the following life expectancy:

Current age

65
45

2019
Life expectancy at age 65

2018
Life expectancy at age 65

Male

22.9
24.2

Female

23.3
24.8

Male

22.1
23.5

Female

24.1
25.6

144
144
144

Rotork Annual Report 2019
Rotork Annual Report 2019

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
Life expectancy
Decrease mortality rates by a factor of 10%
Increase mortality rates by a factor of 10%

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Approximate effect
on liabilities

(21,200)
23,600

12,900
(12,200)

7,300
(6,200)

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 cash flows
The Group is required to agree a Schedule of Contributions with the Trustees of the UK Scheme following a valuation which must be carried out
at least once every three years. Following the valuation of the UK Scheme as at 31 March 2016, the Group is continuing to pay deficit
contributions of £5,500,000 a year. The next valuation is ongoing and is being carried out with an effective date of 31 March 2019.

The Group estimates that cash contributions to the Group’s defined benefit pension schemes during 2020 will be £6,643,000
(2019: £6,622,000).

The weighted average duration of the defined benefit obligation is approximately 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 £7,363,000 (2018: £6,455,000).

145
145
145

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

25. Share-based payments
The Group awards shares under the Long Term Incentive Plan (LTIP), 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)

2019

577
1,513
2,612

4,702

2018

637
1,385
2,652

4,674

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.

Volatility assumptions for equity-based payments continued
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

2019

2018

2019

2018

10 October
300p
255p
656,347
3 years
29.0%
0.34%
2.00%
2%
70p

1 October
333p
272p
711,745
3 years
30.2%
0.95%
1.67%
2%
91p

10 October
300p
255p
184,145
5 years
29.0%
0.32%
2.00%
2%
77p

1 October
333p
272p
178,422
5 years
27.8%
1.17%
1.67%
2%
97p

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

2019

Average
option price
per share

189p
255p
166p
199p

149p

Options

4,082,962
840,492
(912,549)
(319,796)

3,691,109

2018

Average
option price
per share

163p
272p
154p
172p

189p

Options

4,547,201
890,167
(1,197,838)
(156,568)

4,082,962

Of the 3,691,109 outstanding options (2018: 4,082,962), 121,000 are exercisable (2018: 380,000).

The Group received proceeds of £1,501,000 in respect of the 912,549 options exercised during the year: £5,000 was credited to share capital
and £1,497,000 to share premium. The weighted average share price at date of exercise was 279p (2018: 269p).

The weighted average remaining life of 1,743,456 (2018: 2,036,424) awards outstanding under the 3 year plan is 1.9 years. The weighted
average remaining life of 1,947,653 (2018: 2,046,538) awards outstanding under the 5 year plan is 1.9 years.

146
146
146

Rotork Annual Report 2019
Rotork Annual Report 2019

b) Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) is a performance share plan under which shares are conditionally allocated to selected members of senior
management at the discretion of the Remuneration Committee on an annual basis. Following shareholder approval of the LTIP at the Company’s
AGM on 18 May 2000, awards over shares are made to executive directors and senior managers each year.

2010 LTIP plan
Following shareholder approval of the 2010 LTIP plan at the Company’s AGM on 23 April 2010, awards of shares have been made annually to
executive and senior managers. For 2016 awards, half of these awards vested under a TSR performance condition and half under an EPS
performance condition. A Return on Invested Capital (ROIC) performance condition was introduced in the 2017, 2018 and 2019 LTIP awards,
details of which are shown in the 2016 Annual Report & Accounts. A third of the awards vest under each 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 9% over the vesting period up to a maximum of
100% vesting if EPS growth exceeds 35%.

Vesting of awards under the ROIC condition is determined by calculating the growth in ROIC, on a cumulative basis, over the performance
period. For the 2017, 2018 and 2019 awards, the awards will vest by comparing the average ROIC over the performance period against a set of
pre-defined targets.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

The performance period for the 2016 awards ended on 31 December 2018. Messrs. PricewaterhouseCoopers LLP as independent actuaries
certified to the Remuneration Committee that there was a 79.2% vesting of this award as the Company was in the 85th percentile relative to the
comparator group and the Group’s EPS growth was 22.3% over the performance period. These awards vested during 2019.

The performance period for the 2017 awards ended on 31 December 2019. Messrs. PricewaterhouseCoopers LLP as independent actuaries
certified to the Remuneration Committee that there was a 84.4% vesting of this award as the Company was in the 73rd percentile relative to the
comparator group, the Group’s EPS growth was 39.6% over the performance period and the Group’s growth in economic profit was 14.3%.
These awards will vest during 2020.

2019

2018

Grant date
Share price at grant date
Shares granted under scheme
Vesting period
Expected volatility
Risk free rate
Expected dividends expressed as a dividend yield
Probability of ceasing employment before vesting
Fair value of awards under TSR performance conditions
Fair value of awards under EPS and ROIC performance conditions

16 May 2019
292p
1,354,671
3 years
27.3%
0.7%
0.0%
5% p.a.
147p
292p

2016 Award
2017 Award
2018 Award
2019 Award

Outstanding
at start
of year

1,351,468
741,484
1,051,756
–

Granted
during year

–
–
–
1,354,671

Vested
during year

(1,067,541)
–
–
–

Lapsed

(283,927)
(51,183)
(64,699)
(104,090)

7 Mar 2018
264p
1,301,159
3 years
30.9%
0.8%
2.0%
5% p.a.
149p
250p

Outstanding
at end
of year

–
690,301
987,057
1,250,581

3,144,708

1,354,671

(1,067,541)

(503,899)

2,927,939

The weighted average remaining life of awards outstanding is one year.

c) Overseas profit linked share plan (OPLSS) and the share incentive plan (SIP)
These discretionary profit linked shares schemes are annual schemes based on the prior year profit of participating Rotork companies. The value
of the award to each employee is based on salary and length of service and can be up to £3,600.

147
147
147

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

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 over 80% 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

Carrying amount

2019

2018

129,390
27,558
117,612

274,560

145,509
23,513
104,489

273,511

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

Provisions against trade receivables
The following table shows the expected credit loss (ECL) that has been recognised for trade receivables:

Carrying amount

2019

17,910
30,948
43,395
37,137

2018

18,964
36,617
54,236
35,692

129,390

145,509

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
2019

98,833
17,738
7,035
3,467
8,260

135,333

Provision
2019

(20)
(7)
–
(59)
(5,857)

(5,943)

Gross
2018

96,719
27,425
10,629
5,050
12,266

152,089

Provision
2018

(26)
–
(38)
(93)
(6,423)

(6,580)

148
148
148

Rotork Annual Report 2019
Rotork Annual Report 2019

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 (2018: £7m) on which interest would be payable at base rate plus 1.5% and a €5m overdraft facility (2018: €5m) on
which interest would be payable at base rate plus 1.1%.

During 2019 the Group repaid the remaining £30,000,000 of its £90,000,000 term facility. The Group has a £60,000,000 Revolving Credit
Facility which matures in August 2020. At year end none of the committed facilities were drawn, resulting in £60,000,000 being available.

The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

31 December 2019

Bank loans and overdrafts
Lease liabilities
Trade and other payables
Contingent consideration
Foreign exchange contracts
Non-redeemable preference shares

31 December 2018

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

828
10,675
81,776
285
176
40

93,780

953
11,641
81,776
285
176
40

94,871

85
5,185
81,776
285
176
–

87,507

84
3,103
–
–
–
–

3,187

784
3,069
–
–
–
–

3,853

–
284
–
–
–
40

324

Analysis of contractual cash flow maturities

Carrying amount

Contractual cash
flows

Less than
12 months

60,840
2
87,482
299
1,407
40

61,245
2
87,482
299
1,407
40

30,284
2
87,482
299
1,407
–

150,070

150,475

119,474

1-2 years

30,049
–
–
–
–
–

30,049

2-5 years

More than
5 years

912
–
–
–
–
–

912

–
–
–
–
–
40

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 £168,714,000 (2018: £182,855,000) and the gross
inflow is £170,735,000 (2018: £180,480,000).

c) Market risk
Market risk arises from changes in market prices, such as currency rates and interest rates, and may affect the Group’s results. The objective of
market risk management is to manage and control market risk within suitable parameters.

i) Currency risk
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the business unit’s
functional currency. The currencies primarily giving rise to this risk are the US dollar and related currencies and the euro. The Group hedges up to
75% of forecast US dollar or euro foreign currency exposures using forward exchange contracts. In respect of other non-sterling monetary assets
and liabilities the exposures may also be hedged up to 75% where this is deemed appropriate.

As part of the Group’s cash management some of the overseas subsidiaries have loan and deposit balances where their intra-group counterparty
is in the UK. The balances are typically in local currency for the subsidiary so the UK holds a foreign currency current asset or liability which is
usually hedged through the use of foreign exchange swaps. At the balance sheet date only the ‘forward’ part of the swap remains and this is
designated as a cash flow hedge to match the currency exposure of the intercompany loan asset.

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 2019 was a £2,020,000 asset (2018: £2,374,000 liability) comprising an asset of £2,196,000 (2018: £308,000) and a liability of
£176,000 (2018: £2,682,000). Forward exchange contracts in place at 31 December 2019 mature in 2020.

149
149
149

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

26. Financial instruments continued
Financial risk and treasury policies
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 2019 of £300,000 (2018:
£400,000) and a change of one cent in the value of US dollar against sterling would have had an impact on the Group’s operating profit for the
year ended 31 December 2019 of £700,000 (2018: £600,000). 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

ii) Interest rate risk
The Group does not undertake any hedging activity in this area.

Average rate

Closing rate

2019

1.28
1.14

2018

1.34
1.13

2019

1.31
1.17

2018

1.28
1.11

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 (excluding leases) at 31 December was as follows:

Fixed rate financial liabilities
Floating rate financial liabilities

2019

40
828

868

2018

40
60,839

60,879

The fixed and floating rate financial liabilities comprise preference shares and bank loans. The floating rate 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 9.5% (2018: 9.5%).

The maturity profile of the Group’s financial liabilities (excluding leases) 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

2019

66
66
696
40

868

2018

30,010
30,030
209
632

60,881

150
150
150

Rotork Annual Report 2019
Rotork Annual Report 2019

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 debt plus equity attributable to shareholders. There are no externally imposed restrictions on the Group’s capital
structure. The reconciliation of the Group’s definition of capital employed is shown in note 2. The Group’s reconciliation of net debt to net cash is
shown below.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Total borrowings
Total cash and cash equivalents

Group net cash/(debt)

Reconciliation of changes in cash and cash equivalents to movements in net debt
Net increase in cash and cash equivalents
Repayment of borrowings
Net (increase)/decrease in lease liabilities
Effect of exchange rate fluctuations

Movement in net debt
Net cash/(debt) at start of year

Net cash at end of year

Notes

19
16

2019

2018

(11,543)
117,612

106,069

10,874
60,013
(10,673)
2,247

62,461
43,608

106,069

(60,881)
104,489

43,608

39,573
15,087
66
1,497

56,223
(12,615)

43,608

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
Lease liabilities

Carrying
amount
2019

Fair value
2019

Carrying
amount
2018

Fair value
2018

129,390
27,558

145,509
23,513

117,612

104,489

2,196
(176)

12
(2,387)

(828)
(81,776)
(285)
(40)
(10,675)

(60,840)
(87,482)
(299)
(40)
(2)

182,976

122,473

151
151
151

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Group financial statements continued
For the year ended 31 December 2019

26. Financial instruments continued
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 other
comprehensive income estimated using market foreign exchange rates at the balance sheet date. All derivative financial instruments are
categorised at Level 2 of the fair value hierarchy.

The other financial instruments are classified as Level 3 in the fair value hierarchy and are valued as follows:

i) Trade and other receivables/payables
As the majority of receivables/payables have a remaining life of less than one year, the notional amount is deemed to reflect the fair value.

ii) Contingent consideration
As all the contingent consideration is contractually due for payment within 12 months (2018: 12 months), the carrying amount is equal to the
fair value. Further information on the contingent consideration is shown in note 21.

27. Leases
The Group leases many assets including land and buildings, vehicles, machinery and IT equipment. Information about leases for which the
Group is a lessee is presented below.

Right-of-use assets
The right-of-use assets are disclosed as a non-current asset and are part of the property, plant and equipment balance of £89,062,000 at
31 December 2019.

2019

Balance at 1 January
Depreciation charge for the year
Impairment
Additions to right-of-use assets
Derecognition of right-of-use assets
Foreign exchange differences

Balance at 31 December

Lease liabilities

Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than 5 years

Total undiscounted lease liability at 31 December
Interest cost associated with future periods

Lease liabilities included in statement of financial position at 31 December

Current
Non-current

Land and buildings

8,978
(2,871)
(695)
1,638
(16)
(47)

6,987

Plant and
equipment

3,316
(1,564)
–
1,434
(44)
(32)

3,110

Total

12,294
(4,435)
(695)
3,072
(60)
(79)

10,097

2019

5,185
6,172
284

11,641
(966)

10,675

4,686
5,989

Amounts recognised In profit and loss
The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of
low value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certain variable lease payments are not
permitted to be recognised as lease liabilities and are expensed as incurred.

2019 – Leases under IFRS16
Interest on lease liabilities
Expenses relating to short-term leases and leases of low-value assets
Impairment of right-of-use assets
Depreciation of right-of-use assets

2018 – Operating leases under IAS17
Lease expense

152
152
152

2019

431
1,910
695
4,435

2019

6,368

Rotork Annual Report 2019
Rotork Annual Report 2019

Amounts recognised In statement of cash flows

Total cash outflow for leases

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

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2019

7,058

2018

2,313

2018

9,138

2019

8,225

2019

9,695

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 page
158 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.

Evoqua Water Technologies LLC is a related party of Rotork plc by virtue of M Lamb’s non-executive chairmanship. Sales to subsidiaries and
associates of Evoqua Water Technologies LLC totalled £2,000 during the year, none of which was outstanding at 31 December 2019.

Drax Group plc was a related party of Rotork plc by virtue of T Cobbold’s non-executive directorship which ended in September 2019. Sales to
subsidiaries and associates of Drax Group plc totalled £714,000 for the period to September 2019.

TechnipFMC plc is a related party of Rotork plc by virtue of A Andersen’s employment with the company which ended in July 2019. Sales to
subsidiaries and associates of TechnipFMC plc totalled £378,000 for the period to July 2019.

All the transactions above were on an arm’s length basis and on standard business terms.

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

2019

4,242
71
344
941

5,598

2018

4,199
73
294
788

5,354

153
153
153

Rotork Annual Report 2019
Rotork Annual Report 2019

Rotork plc Company balance sheet
At 31 December 2019

Non-current assets
Property, plant and equipment
Investments
Deferred tax assets

Current assets
Trade receivables
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
Current tax
Amounts owed to Group undertakings
Other payables

Total equity and liabilities

Notes

c
d
e

2019
£000

–
43,205
283

43,488

–
264,212
816
1,695

266,723

310,211

4,363
14,521
1,644
277,957

298,485

601
1,449
5,089
4,547

11,686

310,211

2018
£000

–
43,205
293

43,498

54
199,990
718
4,366

205,128

248,626

4,358
13,024
1,644
222,737

241,763

267
835
1,052
4,669

6,823

248,626

The Company reported a total comprehensive income for the financial year of £107,775,000 (2018: £71,252,000).

These Company financial statements, company number 00578327, were approved by the Board of Directors on 2 March 2020 and were signed
on its behalf by:

—
KG Hostetler and JM Davis
Directors

154
154
154

Rotork Annual Report 2019
Rotork Annual Report 2019

Rotork plc Company statement of changes in equity
At 31 December 2019

Balance at 31 December 2017
Total comprehensive income for the year
Equity settled share-based payment transactions
Share options exercised by employees
Own ordinary shares acquired
Own ordinary shares awarded under share schemes
Dividends

Balance at 31 December 2018
Total comprehensive income for the year
Equity settled share-based payment transactions
Share options exercised by employees
Own ordinary shares acquired
Own ordinary shares awarded under share schemes
Dividends

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Share
capital
£000

Share
premium
£000

Capital
redemption
reserve
£000

4,352
–
–
6
–
–
–

4,358
–
–
5
–
–
–

11,193
–
–
1,831
–
–
–

13,024
–
–
1,497
–
–
–

1,644
–
–
–
–
–
–

Retained
earnings
£000

199,949
71,252
2,457
–
(4,850)
2,217
(48,288)

222,737
107,775
(1,011)
–
(5,287)
6,030
(52,287)

Total

equity
£000

217,138
71,252
2,457
1,837
(4,850)
2,217
(48,288)

241,763
107,775
(1,011)
1,502
(5,287)
6,030
(52,287)

Balance at 31 December 2019

4,363

14,521

1,644

277,957

298,485

155
155
155

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Company financial statements

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 i relate to the Company rather than the Group. Except where indicated, values in these notes are in £000.

Basis of preparation
The financial statements have been prepared under the historical cost convention.

The Company has applied Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101) issued by the Financial Reporting
Council (FRC) incorporating the Amendments to FRS 101 issued by the FRC in July 2015, and the amendments to Company law made by
The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. 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; and
• 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 IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided.

IFRS 2 Share Based Payments in respect of Group settled share based payments; and

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 IAS 37.

As permitted by s408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account or statement of
comprehensive income for the year. The profit attributable to the Company is disclosed in the footnote to the Company’s balance sheet.

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.

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 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 IAS 19, 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 IFRS 9, Financial Instruments, the cumulative redeemable preference shares issued by the Company are
classified as long term debt. The preference dividends are charged within interest payable.

Share-based payments
The Company has adopted IFRS 2 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.

156
156
156

Rotork Annual Report 2019
Rotork Annual Report 2019

Deferred tax
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.

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

The Company 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.

There are no critical accounting estimates or judgements requiring evaluation.

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 payment charge

2019

5,122
786
101
717

6,726

2018

4,449
708
100
656

5,913

During the year there were 23 (2018: 19) employees of Rotork plc plus the two (2018: two) executive directors.

Disclosures required by paragraph 1 of schedule 5 of SI2008/410 are set out in the director’s remuneration report on pages 82 to 102.

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 IFRS 2 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.

2016 Award
2017 Award
2018 Award
2019 Award

Outstanding
at start
of year

541,741
232,404
540,421
–

1,314,566

Granted
during year

–
–
–
504,714

504,714

Vested
during year

(429,057)
–
–
–

Lapsed

(112,684)
–
–
–

Outstanding
at end
of year

–
232,404
540,421
504,714

(429,057)

(112,684)

1,277,539

The weighted average remaining life of awards outstanding at the year end is one year.

157
157
157

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Company financial statements continued

c) Property, plant and equipment in the Company balance sheet

Cost
At 1 January 2019

At 31 December 2019

Depreciation
At 1 January 2018
Charge for year

At 31 December 2019

Net book value
At 31 December 2019

At 31 December 2018

d) 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:

Subsidiary

Incorporated in

Registered address

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

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

Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ

Plant and
equipment

221

221
–

221

–

Total

221

221
–

221

–

2019

43,205

2018

43,205

100% owned by Rotork Controls Limited
Rotork Actuation (Shanghai) Co Limited

Rotork Trading (Shanghai) Co Limited

Rotork Controls (India) Private Limited

China

India

Rotork UK Limited
Valvekits Limited
Rotork Americas Holdings Limited

England and Wales
England and Wales
England and Wales

100% owned by Rotork Overseas Limited
Rotork Australia Pty Limited
Rotork Controls Comercio De Atuadores LTDA Brazil

Australia

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

Canada
Chile
England and Wales
England and Wales
France
Germany
Germany
Hong Kong
Israel

Building G, No.260 Liancao Road, Minhang District, Shanghai,
PRC 201108
Room 1177,No.400,Middle Zhejiang Road, HuangPu District,
Shanghai, China
28B, Ambattur Industrial Estate (North Phase), Ambattur, Chennai 600
098, India
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ

Level 26, 181 William Street, Melbourne, VIC, 3000, Australia
Rodovia SP 73, 4509 – Armazem Modulo 14 – NR Cond.,
Indaiatuba – SP, Brazil
#4-2850 Argentia Road, Mississauga, Ontario, L5N-8G4, Canada
Rotork es Presidente Kennedy 4700, Oficina 1001, Vitacura, Chile
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
75, rue Rateau 93126 La Courneuve Cedex, France
Siemensstr. 33, 40721 Hilden, Germany
Mühlsteig 45, 90579 Langenzenn, Germany
Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong
15 Hata'asia St. Ra'anana, Israel 4365408

158
158
158

Rotork Annual Report 2019
Rotork Annual Report 2019

Incorporated in

Registered address

Subsidiary

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
Rotork AG
Rotork Inc

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Italy
Japan
Jebel Ali Free Zone

Malaysia

Netherlands
Netherlands
Netherlands
Norway
Poland
Russia
Singapore
South Africa
South Korea

South Korea

Spain
Sweden
Switzerland
USA

Corso di Porta Vittoria 9 (Milano) Italy
2-2-24 Sengoku, Koto-ku, Tokyo, 135-0015 Japan
PUB-LC 07, near R/A 08, PO Box 262903, Jebel Ali Free Zone, Dubai,
United Arab Emirates
1-17-1, Menara Bangkok Bank, Berjaya Central Park, No 105, Jalan
Ampang, 50450 Kuala Lumpur, Malaysia
No 32, Jln anggerik Mokara 31/47, Kota Kemuning, 40460 Shah Alam,
Malaysia
Mandenmakerstraat 45, 3194 DA Hoogvliet, The Netherlands
Nijverheidstraat 25, 7581 PV Losser, The Netherlands
Strawinskylaan 3127, 8th floor, 1077 ZX Amsterdam, The Netherlands
Ormahaugvegen 3, 5347 Ågotnes, Norway
Tarnogórska 241, 44-100 Gliwice, Poland
Offices 203-205, ul. Otradnaya 2B, bld. 3, 127273 Moscow, Russia
426 Tagore Industrial Ave, Singapore 787808
136 Kuschke Street, Meadowdale Ext3, Germiston, 1601 South Africa
509, 5th Floor Leader's Bldg 342-1, Yatap-Dong, Bundang-gu, Seong-
nam si, Gyeonggi-do, South Korea 463-828
81, Hwanggeum-ro, 89beon-gil, Yangchon-eup, Gimpo-si, Gyeonggi-do,
Korea 10048
Larrondo Beheko Etorbidea, Edificio 2 – 48180 Loiu (Bizkaia) Spain
Box 80, 791 22 Falun, Sweden
Fuchsacker 678, 9426 Lutzenberg, Switzerland
The Corporation Trust Company, Corporation Trust Center, 1209 Orange
St., Wilmington, DE 19801 USA
Av. Casanova Torre banco plaza, piso 3 Ofic. 3D. Sabana Grande. Caracas
– Venezuela
Aydinli Mahallesi Melodi Sok. Bilmo Küçük Sanayi Sitesi No:35/2 Tuzla,
Turkey

Rotork Controls de Venezuela SA

Venezuela

Rotork Turkey Akış Kontrol Sistemleri Ticaret
Limited Şirketi

Turkey

100% owned by Valvekits Limited
Circa Engineering Limited

England and Wales

Rotork House, Brassmill Lane, Bath BA1 3JQ

100% owned by Rotork Trading (Shanghai) Co Limited
Centork Trading (Shanghai) Co. Ltd

China

Rotork Instruments Chengdu Co. Ltd

China

Room C-02, 1/F, West Area No. 2 Building, No. 29 Jiatai Road, Free Trade
Zone, Shanghai, China
Room 1201, 12/F, Unit no.1, Building No. 1, Building I, 88 Shenghe No.1
Road, High Tech Zone, Chengdu, Sichuan, China 610041

100% owned by Rotork UK Limited
Prokits Limited
Flowco Limited

England and Wales
England and Wales

Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ

100% owned by Rotork Italy Holdings Srl
Rotork Controls Italia Srl
Rotork Instruments Italy Srl
Rotork Fluid Systems Srl
Rotork Gears Srl

Italy
Italy
Italy
Italy

Viale Europa n.17 – 20090 Cusago (Milano) Italy
Viale Europa n.17 – 20090 Cusago (Milano) Italy
Via Padre Jacques Hamel, 138/B – 55016 Porcari (Lucca) Italy
Viale Europa n.17 – 20090 Cusago (Milano) Italy

100% owned by Rotork Gears Holding BV
Rotork Gears BV

Netherlands

Nijverheidstraat 25, 7581 PV, Overijssel, The Netherlands

100% owned by Rotork Inc
Rotork (Thailand) Limited

Rotork Controls Inc
Remote Control Inc
Ranger Acquisition Corporation

Thailand

US
US
US

35/8 Soi Ladprao124(Sawasdikarn) Ladprao Road, Plubpla,
Wangtonglang, Bangkok 10310 Thailand
675 Mile Crossing Blvd., Rochester, NY 14624, US
77 Circuit Dr. North Kingstown, RI 02852, US
The Corporation Trust Company, Corporation Trust Center, 1209 Orange
St., Wilmington, DE 19801 US

159
159
159

Rotork Annual Report 2019
Rotork Annual Report 2019

Notes to the Company financial statements continued

d) Investments in the Company balance sheet continued
Shares in Group companies continued
Subsidiary

Incorporated in

Registered address

100% owned by Rotork Controls Inc
Rotork Pittsburgh LLC
6005 Enterprise Drive LLC

100% owned by Ranger Acquisition Corp
Fairchild Industrial Products Company
Rotork Tulsa Inc

US
US

6005 Enterprise Drive, Export, PA 15632, US
6005 Enterprise Drive, Export, PA 15632, US

3920 West Point Blvd, Winston-Salem, NC 27103, US
4433 W 49th Suite D, Tulsa, OK 74017, US

100% owned by Fairchild Industrial Products Company
Fairchild Industrial Products (Sichuan) Company
Limited
Fairchild India Private Limited

China

India

Room 1201, Complex Square, No.88 West Shenghe No.1 Road, High Tech
Zone, Chengdu, Sichuan, China. 610041
56-C / Bb , Janakpuri, New Delhi-110058

100% owned by Bifold Group Limited
Bifold Fluidpower (Holdings) Limited

England and Wales

Rotork House, Brassmill Lane, Bath BA1 3JQ

100% owned by Bifold Fluidpower (Holdings) Limited
Bifold Fluidpower Limited
MTS Precision Limited
Marshalsea Hydraulics Limited
Bifold Company (Manufacturing) Limited

England and Wales
England and Wales
England and Wales
England and Wales

Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ
Rotork House, Brassmill Lane, Bath BA1 3JQ

100% owned by Bifold Fluidpower Limited
Fluidpower (Stainless Steel) Limited

England and Wales

Rotork House, Brassmill Lane, Bath BA1 3JQ

100% owned by Rotork Germany Holdings GmbH
Max Process GmbH
Schischek GmbH
Rotork GmbH

Germany
Germany
Germany

Rastenweg 10, 53489 Sinzig
Mühlsteig 45, 90579 Langenzenn
Mühlsteig 45, 90579 Langenzenn

100% owned by Rotork AG
Schischek Limited
Schischek EURL
Schischek Srl

England and Wales
France
Italy

Rotork House, Brassmill Lane, Bath BA1 3JQ
49 avenue du Président Salvador Allende, 77100 Meaux, France
Ranica (BG) – Via Adelasio 22, Italy

100% owned by Schischek GmbH (Germany)
Schischek Sales Europe Ltd

England and Wales Mühlsteig 45, 90579 Langenzenn

100% owned by Robusta Miry Brook BV
Rotork Servo Controles de Mexico S.A de C.V Mexico

Centeotl 223, Col. Industrial San Antonio, C.P. 02760, Azcapotzalco,
Ciudad de Mexico, Mexico

100% owned by Rotork Controls (Iberia) SL
Actuation Iberia S.L
Centork Valve Control S.L

Spain
Spain

C/ Ercilla, 21. , 48009 , Bilbao (Vizcaya), Spain
Pol. Ind. Ipintza 110, Txatxamendi 24-26 – 20100 Lezo (Gipuzkoa) – Spain

160
160
160

Rotork Annual Report 2019
Rotork Annual Report 2019

e) Deferred tax assets and liabilities in the Company balance sheet
Deferred tax assets and liabilities are attributable to the following:

Tangible fixed assets
Provisions

Movements in the net deferred tax balance during the year are as follows:

Balance at 1 January
(Debited)/credited to the income statement

Assets
2019

10
273

283

Liabilities
2019

–
–

–

Net
2019

10
273

283

Assets
2018

11
282

293

Liabilities
2018

–
–

–

2019

293
(10)

283

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

Net
2018

11
282

293

2018

150
143

293

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 £312,364,000 (2018: £321,281,000).

f) Other receivables in the Company balance sheet

Prepayments
Other receivables

g) Other payables in the Company balance sheet

Other taxes and social security
Other payables
Accruals

2019

256
560

816

2019

152
3,043
1,352

4,547

2018

210
508

718

2018

44
3,218
1,407

4,669

The Company has a £17,000,000 gross overdraft facility (2018: £17,000,000) and is part of a UK banking arrangement, see note h.

h) 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 2019 the Company repaid the remaining £30,000,000 of its term facility. The Company has a £60,000,000 Revolving Credit Facility
(2018: £60,000,000) which matures in August 2020. The facilities are available to the Company, Rotork Controls Limited and Rotork Overseas
Limited. At year end none of the committed facilities were drawn, resulting in £60,000,000 being available.

i) 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.

161
161
161

Rotork Annual Report 2019
Rotork Annual Report 2019

Ten year trading history

2019
£000

2018
£000

2017
£000

2016
£000

2015
£000

2014
£000

2013
£000

2012
£000

2011
£000

2010
£000

Revenue

669,344

695,713

642,229

590,078

546,459

594,739

578,440

511,747

447,833

380,560

Cost of sales

Gross profit

(357,718)

(384,253)

(358,090)

(328,410)

(296,944)

(309,280)

(304,066)

(272,199)

(236,359)

(199,742)

311,626

311,460

284,139

261,668

249,515

285,459

274,374

239,548

211,474

180,818

Overheads

(184,616)

(188,542)

(198,167)

(167,891)

(145,129)

(143,232)

(135,109)

(115,081)

(99,474)

(83,094)

Operating profit

127,010

122,918

85,972

93,777

104,386

142,227

139,265

124,467

112,000

97,724

Adjusted* operating

profit

151,005

146,015

130,162

120,588

125,272

157,167

151,412

131,866

115,921

99,442

Amortisation of

acquired intangible
assets

Disposal of property
Other adjustments

(18,841)
–
(5,154)

(20,284)
–
(2,813)

(27,183)
–
(17,007)

(26,811)
–
–

(20,886)
–
–

(14,940)
–
–

(12,147)
–
–

(7,399)
–
–

(3,921)
–
–

(1,718)
–
–

Operating profit

127,010

122,918

85,972

93,777

104,386

142,227

139,265

124,467

112,000

97,724

Net interest

(2,953)

(2,170)

(5,386)

(2,707)

(2,517)

(1,062)

(1,268)

(273)

550

131

Profit before taxation
Tax expense

124,057
(29,957)

120,748
(29,004)

80,586
(24,973)

91,070
(23,897)

101,869
(27,012)

141,165
(37,963)

137,997
(38,488)

124,194
(34,879)

112,550
(32,149)

97,855
(28,334)

Profit for the year

94,100

91,744

55,613

67,173

74,857

103,202

99,509

89,315

80,401

69,521

Dividends
Dividends per share

52,287
6.2p

48,288
5.9p

45,218
5.4p

43,876
5.1p

43,765
5.1p

42,702
5.0p

38,735
4.8p

33,924
4.3p

49,534
3.7p

35,912
3.3p

Basic EPS
Adjusted* EPS
Diluted EPS

10.8p
13.0p
10.8p

10.5p
12.6p
10.5p

6.4p
10.6p
6.4p

7.7p
10.0p
7.7p

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

* Adjusted is before the amortisation of acquired intangible assets, the disposal of property and other adjustments.

162
162
162

Rotork Annual Report 2019
Rotork Annual Report 2019

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

% Number of shares

e
s
c
t
n
n
a
e
n
m
r
e
e
v
t
o
a
t
G
S
e
l
a
t
a
i
c
r
n
o
a
p
n
r
o
i
F
C

2.5
96.8
0.5
0.2

0.1
0.1
0.2
0.3
1.5
1.1
96.7

75.5
22.7
1.0
0.8

22,117,855
844,148,714
4,429,292
1,856,050

100.0

872,551,911

100.0

29.1
12.0
17.6
11.5
16.4
3.6
9.8

427,238
646,469
2,098,601
2,977,231
12,923,200
9,366,008
844,113,164

100.0

872,551,911

100.0

2,700
813
35
28

3,576

1,041
429
628
411
588
127
352

3,576

Number of holdings

% Number of shares

Dividend information
The table below details the amounts of interim, final and additional dividends declared in respect of each of the last five years.

2019
2018
2017
2016
2015

Interim

dividend
(p)

2.30
2.20
2.05
1.95
1.95

Final

dividend
(p)

3.90
3.70
3.35
3.15
3.10

Total

dividends
(p)

6.20
5.90
5.40
5.10
5.05

Financial calendar
3 March 2020
9 April 2020
14 April 2020
24 April 2020
24 April 2020
4 August 2020

Preliminary announcement of annual results for 2019
Ex-dividend date for final proposed 2019 dividend
Record date for final proposed 2019 dividend
Announcement of trading update
Annual General Meeting held at Bailbrook House Hotel, Eveleigh Avenue, London Road, Bath, BA1 7JD
Announcement of interim financial results for 2020

163
163
163

Rotork Annual Report 2019
Rotork Annual Report 2019

Corporate directory

Company Secretary
Helen Barrett-Hague

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
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP

Morgan Stanley
20 Bank Street
Canary Wharf
London E14 4AD

Financial Advisors
Rothchild & Co
New Court
St Swithin's Lane
London EC4N 8AL

J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP

Morgan Stanley
20 Bank Street
Canary Wharf
London E14 4AD

Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ

Financial Public Relations
FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD

164
164
164