Final Results
Rotork PLC
28 February 2006
28 February 2006
Rotork p.l.c.
Preliminary Announcement
Strong results with double digit growth in operating profit
Financial Highlights
• Record order book with order intake up 24% at £188m
• Sales revenue up 19% at £175m
• Operating profit up 20% at £36.5m
• Earnings per share up 16.7% at 28.6 pence per share
• £10m additional interim dividends during 2006
Operational Review
• Strong performances in US and China
• Excellent growth in all three divisions
• Good business levels in all markets
• Continued high levels of growth achieved by Rotork Fluid System
Chief Executive Bill Whiteley, commenting on the results said:
'We saw further progress in many of our markets in 2005. The principal highlight
was the strength of our core electric actuator market especially in Asia and the
USA. This was supported by the continuing high levels of growth from Rotork
Fluid System.
Conditions in most of our end user and geographic markets continue to be buoyant
as reflected in the size of the order book at the start of 2006 and the strength
of the order input since then.'
For further information, please contact:
Rotork p.l.c. Tel: 01225 733200
Bill Whiteley, Chief Executive
Bob Slater, Finance Director
Financial Dynamics Tel: 020 7269 7224
Sally Lewis
Chairman's statement
Introduction
Excellent progress has been made in the year with the Group's order input
increasing by 24%. Group revenue advanced by 19% to £174.8m and double digit
growth in operating profit was achieved by all three divisions. Overall profit
increased by 20% to £36.5m. Earnings per share increased by nearly 17%. Strong
demand, particularly from the hydrocarbon and power sectors, coupled with growth
in all our geographical markets resulted in a 41% increase in the order book,
which closed the year at an all time high.
Business Review
The Electric actuator business, which accounts for 71% of Group revenue, saw
good output levels from the main plant in Bath, building on the progress made in
the first half. The US had a very positive year with Rochester making record
profits and successfully weathering the uncertain currency backdrop that was
with us through most of the year. Despite this uncertainty, currency overall had
a modest positive impact on reported results. The IQT actuator released at the
end of 2003 continues to be well received by customers worldwide. China is now
established as our biggest market for Electric products and this is recognised
through the development programme for both product and facilities that we have
for the business in the current year.
Rotork Fluid System (RFS) continued to build on the growth of the last few years
producing a very creditable increase of 46% in order input and 36% in sales
revenue for the year. The main plants in Lucca and Rochester have improved their
use of facilities and continued to develop product offerings during the year,
all of which have delivered quality improvements to our customers and increased
the range of services that we can offer. The PCI business in Melle, Germany,
acquired in March, further increases the division's production capacity giving
us the capability of handling very large projects when needed. This business has
now been integrated into the Group and we are looking for the impact of this
work to be reflected in improved performance during 2006.
Rotork Gears continues to develop its products and business and extend its
influence across the global markets that we serve. The Milan based Omag business
acquired in January 2006, while small in a Group context, holds a respected
position in the important Italian market. It has a strong engineering culture
with a largely complementary product range and will enhance the whole of our
Gears business as we develop an integrated approach from the four production
facilities in Leeds, Losser, Milan and Shanghai.
Corporate Governance
The Board is committed to continuously improving its corporate governance
framework and regularly reviews progress, both directly and through committees.
We have further improved compliance with the Combined Code in a number of areas
during the year with, for example, all our directors now having one year notice
periods or less. We have also recruited a third independent non-executive
director and all of our Board committees are now combined code compliant. The
Group has a well developed internal audit process and our internal audit
programme now extends beyond fiscal matters to Health and Safety and
Environmental issues
Dividend
The Board has a policy of distributing profits in the form of dividends
generally commensurate with increases in earnings. The level of cash held by the
Group at the end of the year, and anticipated continued cash generation in the
coming year, has however encouraged us to propose additional distributions to
shareholders during 2006.
The final dividend proposed by the Directors for 2005 is 9.90p per share payable
on 26 May to shareholders on the register on 5 May 2006. In addition, the Board
is proposing to make further additional distributions to shareholders by way of
dividend, in the amount of £10 million over and above the sum of the final
dividend being recommended for 2005 and the proposed core interim dividend for
2006. This additional distribution will take the form of two further interim
dividends for 2006 paid in July and December, which with the final dividend for
2005 and the core 2006 interim paid in September, means that we plan to make
four dividend payments to shareholders during 2006. The timing of these dividend
payments is intended to match the Group's cash generation profile. A table
showing the timing and amount of the four dividends proposed to be paid during
2006 is set out in the Operating and Financial Review.
Recognising the present deficit in the main defined benefit pension scheme, the
Board has decided to make additional contributions to the scheme equivalent to
this additional dividend. It is anticipated that this will put the scheme on a
firmer footing prior to the next actuarial valuation in March 2007.
Jeremy Fry
It was with sadness that we record the death of Jeremy Fry, the founder of
Rotork, in 2005. A tribute to Jeremy will appear in the Annual Report and
Accounts.
Outlook
Conditions in most of our end user and geographic markets continue to be buoyant
as reflected in the size of the order book at the start of the year and the
strength of the order input since then. Based on this we are looking forward to
further good progress in 2006.
Roger Lockwood
Chairman
27 February 2006
Operating and Financial Review
Business Strategy
The objective of Rotork p.l.c. is to increase shareholder value by developing
its leadership position in worldwide valve actuator activities. All of the
Group's activities are focused on the specialist area of valve automation. The
origins of the Company lie with the founder, Jeremy Fry, who developed an
electric valve actuator in 1952. Over the years Rotork continued to build on its
reputation as an innovator of new concepts in this field and has provided users
with increasing levels of functionality, performance and assurance.
Recent strategy has focused on opportunities to leverage our leadership position
in heavy-duty electric actuation into other closely associated areas of valve
automation. Today Rotork's business is split into three actuation divisions;
Rotork Electric, the original and largest activity supplying high quality, state
of the art products for controlling pipeline and other valves; Rotork Fluid
System, which supplies heavy-duty pneumatic and hydraulic valve actuators for
operation in emergency shut down and other critical applications; Rotork Gears,
involved in the supply of gearboxes, adaptors and ancillaries for the valve
industry. Key programmes relate to the development of products, marketing
initiatives, creating service revenue opportunities and driving cost reductions
relating to these businesses.
Year Under Review
We saw a further strengthening of many of our markets in 2005 which had been
evident in the second half of the prior year. For once currencies were not a
significant factor with the average US dollar and euro exchange rates against
the pound for the year as a whole giving us a small currency gain. Order intake
was up 23.7% with all three divisions participating in active markets. The order
book at the end of the year was £63.7m which is 35.6% up on the start of the
year adjusted for the acquisition of PCI and 1.4% up on the order book at the
half year. Revenue was up 19.0% and operating profits were up 20.0%.
The principal highlight was the strength of our core electric actuator market
especially in Asia and the USA where we enjoy good market positions due to our
strong sales and support presence and the desire in these regions to purchase
the best available technology. This was supported by the continuing strong
growth of Rotork Fluid System, whose business was enhanced last March by the
acquisition of PC-Intertechnik in Germany.
The key drivers for the Group's businesses relate to investment in oil and gas,
water and waste water and power generation installations around the world with
demand being generated by new and expanded capacity, upgrades to existing
facilities and replacements. This is often linked to projects which are aimed at
improving the efficiency, safety and environmental performance of plants. Valve
actuators are critical components and their long-term reliability and
performance is extremely important to users. They also act as a key interface
between plant control systems and related hardware. Rotork's reputation for
quality, worldwide support and technical innovation is crucial to its leadership
position in the field. The broad geographic spread of our operations and
applications means that we have a large number of repeat customers around the
world and no one customer accounts for more than 5% of our revenue in any year.
Electric Actuators
The principal markets for electric actuators are oil and gas, water and waste
water treatment and power generation. As a percentage of unit actuator order
input oil & gas represented 37% (38%), water & waste water 24% (30%), power
generation 31% (24%) and miscellaneous 9% (8%) with the prior year's figures in
brackets. The oil & gas markets received much general attention during the year
due to the relatively high oil and gas prices affecting the costs to consumers
of energy. Much of the focus for investment by the oil and gas companies
remained on upstream activities, such as exploration and production. However
there was evidence that downstream activities were beginning to receive more
focus due to shortages in refining and storage capacity. The majority of the
electric actuators we sell into this sector go into downstream operations such
as refinery offsites, storage and distribution facilities. Liquefied Natural Gas
(LNG) investment was also particularly active. Our main opportunities in this
business area reside with our fluid power actuator activities, but we did see
good levels of demand for electric actuators especially on the export and
receiving terminals. The power market was particularly active for the year under
review. Sales of actuators into this market were heavily weighted towards Asia,
in particular China and India. The water market also remains a key focus of our
activities: we were successful in winning a number of important projects around
the world, however as a percentage of our total units ordered, it fell due to
this market lagging behind the exceptional growth in power and oil and gas.
UK Operations
The UK domestic market remained quiet for much of the year as the water
companies moved from AMP 3 to AMP 4. Encouragingly we saw an increase in quote
activity towards the end of the year. We also saw an increased level of business
for power station work over the prior year.
The Bath plant remains our main electric actuator assembly plant. It performed
particularly well during the year reaching record output levels. Improvements to
the supply chain, coupled with some strategic dual source arrangements, meant
that we did not see a re-occurrence of the supply difficulties experienced in
2004. Despite severe increases in some raw materials and energy costs our
component cost increases were kept well under control due to continued
procurement initiatives. Further engineering and procurement cost initiatives
were worked on during the year which should help mitigate further material &
energy cost increases in 2006.
Our Bath and Leeds Service and Retrofit organisations developed their businesses
well during the year, in terms of both their capabilities and financial
performance.
Europe
Although the business environment was somewhat subdued in some of our European
markets, especially France, our sales subsidiaries performed well, in some cases
boosted by projects won through their local valve makers for export to the
Middle and Far East. The Italian and Spanish operations increased profits over
2004, while the Dutch, German and French companies performed well and ended the
year with strong order books and good prospects for the current year. Business
from Eastern Europe and Russia was at similar levels to the prior year. A new
Rotork company has been registered in Russia in place of the existing sales
office as we believe that there will be growing opportunities for our products
in this important oil and gas economy.
The Americas
The U.S. subsidiary based in Rochester, N.Y., had a very successful year. It
built on its strength in the water and waste water business with the
municipalities who continued to make investments in expanding and improving
their infrastructure. We also saw modest improvements in the prospects for oil &
gas business, especially in Mexico. The company benefited from increased export
business won by U.S. valve makers who were assisted by a relatively weak US
dollar.
Jordan Controls, our subsidiary manufacturing process control actuators based in
Milwaukee, saw an improvement in its order intake and financial performance. A
largely new management team has been put into place to help further develop this
element of our business.
The Canadian subsidiary's performance saw an improvement over the prior year due
to a better performance in the West. The Venezuelan subsidiary continued to
perform well in a difficult environment.
The Far East and the Rest of the World
Rotork benefits from a strong presence and reputation in Asia, and it is this
area which has seen the most significant growth in the period. China and India
represent the biggest market opportunities and we achieved exceptional growth at
our operations in both countries. Much of this related to power plant
construction, but it was encouraging to see a strong increase in business from
Chinese tank farm and gas projects. Our Indian subsidiary has assembly plants in
Chennai and Bangalore and continues to achieve excellent margins from these
plants. The decision was taken to make actuators in China and to this end a new
company has been registered and a plant leased in Shanghai to assemble both
gearboxes and electric actuators in order to become more deeply embedded in this
market with its continuing growth opportunities.
Elsewhere all three sales companies in South East Asia had excellent
performances. The Korean and Japanese subsidiaries also managed improved profit
performances despite relatively poor domestic investment levels. Rotork
Australia increased its profits and performed well while our South Africa
subsidiary had a disappointing performance. The Middle East is a key business
area for the Company, although orders for projects from this region are
frequently routed through European and American OEMs. Project activity was
driven by high levels of investment in oil & gas, including LNG activities as
well as other infrastructure projects.
The Malaysian manufacturing plant experienced strong order intake especially in
the first half of the year and had by the end of the third quarter managed to
increase its capacity to cope with the increased business. The AWT product,
which is made in the plant, is an important addition to our product range, which
has assisted our marketing effort in a number of important non oil and gas
markets.
Rotork Fluid System
Rotork Fluid System design, assemble and market heavy-duty fluid power valve
actuators which are operated either pneumatically or hydraulically. The main
markets served by our product are oil & gas related and unlike the electric
actuators the bulk of these products are destined for upstream applications,
transmission and LNG plants and terminals. These areas are benefiting from
increased investment by most of the international oil & gas companies. The
principal assembly plant is based in Lucca, Italy, with product also assembled
in Rochester N.Y. and, with the acquisition of PCI, Northern Germany.
We continued to see exceptional growth levels from this business with order
input up 45.8% (30.4%) output up 35.8% (18.4%) and net profits up 23.9% (21.1%).
The figures, excluding the acquisition of PCI, are in brackets. I am pleased to
report that margins recovered considerably in the second half of the year due to
project timings and some relief from the €/$ exchange rate. It was also notable
that the division made good progress towards reaching its target of representing
20% of Group revenue. The 71% increase in the order book year on year means that
it is well placed to meet that target in 2006.
PC Intertechnik (PCI) was purchased in March for £6.5m. It has an excellent
reputation for the design and manufacture of high pressure actuators. This
acquisition has done much to enhance our product offerings and strengthen our
marketing position in Germany, Eastern Europe and Russia and has also
substantially added to our manufacturing capability and capacity. The profits
were impacted by IFRS intangible amortisation and other initial ownership costs.
The division continued to build its worldwide marketing reach and benefited from
its investment in leveraging Rotork's worldwide sales companies' coverage of the
market. Most of these now have specialist fluid power capabilities including the
ability to package product locally by designing and mounting bespoke control
packages on actuators supplied from the assembly plants. The Rotork operations
in Canada, Spain, France and The Netherlands all recorded good increases in
business and profitability. The Italian plant again saw a significant increase
in sales and profits while the US operation turned a first half loss into a
profit and met its targets for the year.
The business benefited from its expanding product range. In particular products
that have been introduced within the past two years, including the electric
hydraulic and gas over oil range, sold well. During the year a range of sub-sea
products was designed and successfully sold into a challenging area of business
which is set to expand over the next few years.
Rotork Gears
Rotork Gears experienced good levels of demand in most of its markets, the main
exception being the UK. Order intake for the year was up 6.4%, sales output up
7.1% and operating profits up 19.8% with both the Leeds and Dutch plant in
Losser performing well.
The key strategies of this business are to expand its marketing reach and reduce
the costs of its products as it operates in a price sensitive environment. Good
progress is being made on both of these fronts. During the year the US operation
continued to make inroads into the important North American market and in
January 2006 we acquired the business assets of Omag Snc for £1.1m. The new
company will be named Rotork Gears S.r.l. Omag is a respected gears manufacturer
and supplier to the Italian heavy duty industrial valve industry and is based in
Milan. This acquisition provides the division with a manufacturing and sales
base in the globally significant Italian valve market in addition to its sites
in Leeds, the USA, the Netherlands and China. Small scale manufacture of
gearboxes commenced in Shanghai at the start of 2005. As already mentioned a new
larger plant is being set up in Shanghai of which half will be devoted to
gearbox manufacture. It is anticipated that gearbox assembly will commence in
the second quarter of this year in the new plant. The business also completed a
successful cost engineering exercise on two of its smaller gearbox ranges prior
to tooling up for Chinese assembly. It is planned that the exercise will move
onto the other main product ranges this year.
Research and Development
The last quarter saw the successful introduction of a new generation controller
for our IQ and IQT actuators. In addition to extending our market leading
diagnostics this new platform allows easier set up and configuration through
language specific menus. A unique feature allows alternate languages to be added
post manufacture enabling the product to be optimised to meet the needs of our
international customer base.
An all new infra-red setting device has also been developed that facilitates the
rapid transfer of logged data between the actuator and the control or
maintenance room. The new device is suitable for use within all of the areas
where actuators are installed and will in future be shipped as standard. As
such, it will eliminate the need for third party tools and increase the
customer's access to data stored within the actuator.
Bringing all of this together is a new version of our PC based Insight
diagnostic software which for the first time allows the actuator's embedded
software to be non-intrusively upgraded in the field. In addition to enhancing
our manufacturing flexibility and allowing more rapid product introduction, the
feature also enables post installation upgrade, which is in keeping with our
strategy of offering through life support and maintenance.
During 2005 we have continued to develop and enhance our network offerings
including research into various technologies that could increase the speed and
flexibility of field communications. Our proprietary Pakscan system has also
been the focus of significant development work.
Following the success of introducing our IQ technology into the Skilmatic and
RFS products our UK based development engineers have been working closely with
those at our US subsidiary Jordan Controls on a number of longer term
developments focused on the process control market.
Quality
Even prior to ISO 9001: 2000, Rotork was completely committed to the key
principles of customer focus and continual improvement. Recent LRQA audits of
the main manufacturing site in Bath have yielded no formal findings and have
included very positive summaries, commenting on the evident commitment to
improvement. The rigour applied to the review, testing and validation of new
products prior to release in the market place, has also been noted favourably.
One significant innovation was the 'gated' Design Review process where all new
products and significant changes to established ones, are assessed at every
critical development stage. Prototypes are scrutinised for potential build or
field reliability problems, as well as compliance with agreed specifications. A
simple and highly effective 'traffic light' system is employed to note the
status of each design, manufacturing or system aspect. Any 'red lights' at a
Design Review drive further consideration of the aspect in question before
proceeding to the next 'gate' in the project. This has had a major, positive
impact, preventing projects progressing with inherent problems, which prove
intractable in the final stages. The most recent new product introductions are a
testament to these controls. New and significantly revised products have been
implemented with minimal initial build issues and excellent field reliability
performance from day one.
One very powerful tool in identifying improvement opportunities is regular
review of Key Performance Indicators (KPI). Studying actual against target
performance in principal customer facing objectives, highlights areas requiring
particular focus. Similarly, a comprehensive Vendor Rating (VR) mechanism,
measuring suppliers against quality, delivery, service and cost parameters, has
proved extremely effective in driving improvement in suppliers' performance.
Both the KPI and VR systems are run on the same 'traffic light' system as Design
Reviews - any red is a trigger for immediate corrective relief.
Pensions
It has been clear over the last couple of years that deficits in defined benefit
pension schemes have been adversely affected by a number of factors. The present
assessment of life expectancy is leading to an increase in liabilities of
schemes generally as these go through their actuarial valuation process. The
steady reduction in bond yields over the recent past also increases scheme
liabilities through less aggressive discounting of future costs as well as the
projection of lower future income levels for schemes. The effect of these issues
on Rotork is felt through the main UK defined benefit scheme. We have taken
action to mitigate costs within the scheme and have taken no new entrants into
the scheme since 2002. In addition, members have accepted increases in their
level of contributions recognising the additional costs being borne by the
employer companies. Although we have not prepared a complete update to the
actuarial valuation since the last full valuation in 2004, it is the opinion of
the scheme's actuary that there is a risk that the deficit has risen since that
time and that a significant shortfall will be seen at the next valuation in
March 2007. This would bring the actuarial deficit closer to the numbers
reported in these accounts under IAS 19. In view of this the Board has decided
to make a further cash contribution of £10m over and above the employers'
regular contributions to address this in some large part. The first tranche of
this, £2m, was paid to the trustees in December 2005, and the balance will be
spread through 2006 and early 2007. It is believed that by taking this action
now the strength of the fund at the March 2007 actuarial valuation will be much
sounder than would have been the case. This will not affect the Company's
results as the underlying cost to the business is taken into account in the IAS
19 calculations.
Tax
Rotork is an international business with 60% of the Group's profits being earned
outside the UK. A number of these jurisdictions have rates of corporate tax
higher than that in the UK. The effective rate of tax on profit was 33% in the
year (2004: 33%). We anticipate the rate of tax applicable to 2006 to be broadly
similar to that in 2005.
Performance Indicators
The Group measures its performance internally through a range of indicators
largely income and cash focussed. We have for some time published a number of
these in graphical form, augmented more recently by information on total
shareholder return.
International Financial Reporting Standards
On June 21 2005 the Group released audited restated accounts for 2004 under
IFRS. These accounts have been used as the comparative numbers in this report
and as a consequence there is no reference to UK GAAP (generally accepted
accounting principles) within the Group financial statements.
Dividends
The Group's strong cash generation in the year has resulted in a closing cash
balance of £27.2m. In view of there being no immediate requirement for this
within the Group the Board is recommending that additional dividends be paid
during 2006 which will distribute £10m of this back to shareholders. At the time
that the last additional dividend was paid from 2004 profits, we said that in a
year where we made such a distribution, we would recommend that the ongoing, or
'core' dividends be increased by an amount lower than earnings growth.
The Board are therefore recommending payments of the following dividends in the
current year:
• Final proposed dividend for 2005 of 9.90p - to be paid on 26 May 2006 to
shareholders on the register on 5 May 2006
• Additional interim dividend for 2006 of 5.80p - to be paid on 27 July 2006
to shareholders on the register on 16 June 2006
• Regular interim dividend for 2006 to be announced with interim results -
to be paid on 28 September 2006 to shareholders on the register on 8
September 2006
• Additional interim dividend for 2006 of 5.80p - to be paid on 21 December
2006 to shareholders on the register on 1 December 2006.
The final proposed dividend for 2005 represents a 2% increase over the final for
2004. The two dividends payable in July and December between them represent the
distribution of £10m additional dividend for 2006.
Treasury
The Group's treasury function in Bath manages financial risks to the Group.
These primarily relate to foreign currency exposure as a result of the
international nature of the Group's business, and managing cash.
The main currency exposure results from trading transactions between our
production plants, trading companies and customers around the world. Overall
around 30% of our income streams are denominated in US dollars (actual or near
equivalent), 20% in euros and 15% in sterling. The rest is a mix of other
convertible currencies across the operating companies. The main instrument for
covering this transaction exposure is the simple forward cover derivative
contract, and this is used for known exposures only where we can accurately
predict income. No speculative or non trading hedging takes place within the
Group.
The weighted average rates for translation of our two main trading currencies
into sterling over the last few years have been:
US dollar Euro
• 2002 1.52 1.58
• 2003 1.66 1.44
• 2004 1.83 1.46
• 2005 1.80 1.46
Overall then the movement in average rates between 2004 and 2005 has meant that
the effect of currency on our trading profits has been relatively small, under
£500k, although there are balance sheet differences due to the spot rates at the
two year ends having moved, materially in the case of the dollar. As a guide a
one cent movement in the US dollar can have an £150k effect on profit if taken
over a full year, and a one cent movement in the euro an equivalent effect of
£150k. In recent years we have developed overseas component sources and this
trend continued in the year. The production units outside the UK source
primarily in their own currencies, with the exception of the main facility in
the US which sources mainly from the UK. This approach to international sourcing
provides a further hedge to the effect of currency movements on our businesses.
Conversion of profit into cash is traditionally strong in Rotork due largely to
the business model, which does not require a large capital base to support it.
It is believed that this model allows management of the divisional businesses to
focus on customer facing issues and profitability to a greater degree than on
capital and production. Receivables collection has been good again in the year
and Group debtor days over the last three years have seen the benefit of
initiatives internally focussing on this. Inventory has increased over the last
two years due in part to the increasing complexity of our product range, the
impact of the Rotork Fluid System business which has very large projects as a
feature of its business, and the high work in progress at the end of December
resulting from the very strong order book at the end of the year.
Internal Audit
The Group has an effective and well-developed internal audit function that has
been moulded over many years. Audit work is performed by senior finance staff
from a number of our business units based on a common training process and audit
work programme developed with assistance from our Group auditors, KPMG. This
methodology provides feedback through regular reviews, and allows members of the
team to experience the control environment in different business areas while
enabling us to develop a common message throughout the Group. The audit
programme has inbuilt key performance indicators which are reported on, together
with summaries of work performed and issues raised, to each Audit Committee
meeting throughout the year.
Environment
2005 saw a major milestone in the development of the Environment Management
System (EMS) at the main Bath site when it achieved independent verification of
compliance with ISO 14001. The benefits of the management system itself are
equally remarkable. With the new environmental legislation being introduced on a
regular basis, having proper mechanisms in place to address the new requirements
has proved invaluable. There have also been some significant cost benefits,
mainly from reducing waste to landfill by 46% during 2005. As one of the site's
most significant environmental impacts, waste stream management has proved a
focal point of the EMS. The reduction in waste to landfill was achieved both by
minimising waste generation and by increased recycling, especially of wood and
cardboard.
While exempt from the specific provisions of the WEEE and RoHS directives,
Rotork is making every effort to reduce the environmental impact of its
products. Wherever possible, new product components are marked with the
appropriate standard EU recycling marks or labels. Information has also been
included in product handbooks regarding the materials the units contain and any
specific advice re disposal.
Rotork remains committed to meeting the requirements for inclusion in the
FTSE4Good index and to the 10 principles of the Global Compact. Rotork is very
conscious of the need for improved awareness of environmental issues and the
need to minimise the Group's environmental impact. During 2005 a project was
launched to improve the Group's reporting of environmental performance data.
This project is now well advanced and the number of subsidiaries reporting their
environmental data has increased significantly from 7 to 30. Over the next two
years, this project will further extend reporting on Rotork's global operational
impacts and, where possible, take action to reduce them. Details of Rotork's
global environmental performance are published in the Rotork Environmental
Report on the Rotork Web Site at www.rotork.com
Jeremy Fry
It was with great sadness that we learnt of the death of our founder, Jeremy
Fry, in July. Jeremy founded Rotork Engineering Company in 1957 and began
operations with about a dozen employees from his home in Bath, Widcombe Manor.
Jeremy recognised the potential of developing a 'valve actuator' in an era when
almost all valves were manually operated.
Everyone associated with Rotork is indebted to his vision, enterprise and energy
in founding Rotork and setting it on its path in becoming one of the most
successful UK engineering companies. Anyone who worked with Jeremy was instantly
aware of his restless search for the right answer to any problem, his
willingness to discard conventional wisdom and ability to think from first
principles.
When I joined Rotork from a large industrial group over 30 years ago I was
immediately attracted to the culture of the Company which reflected Jeremy's
unique contribution to the world of business, engineering and, in our case,
valve actuators. Although Rotork has seen many changes since his retirement in
1984 I believe that many of his principles still form the Company's core values.
The most important of these were his innovative approach to product design, his
international outlook to business and markets, his encouragement of young talent
and his keen interest in the welfare of everyone working for the Company.
Employees
I would again like to thank all of our employees for the dedication and
enthusiasm which they display in furthering Rotork's business. It is
particularly encouraging when their commitment to serving our customers is
rewarded by the level of financial success experienced in 2005.
Bill Whiteley
Chief Executive
27 February 2006
Consolidated Income Statement
for the year ended 31 December 2005
Notes 2005 2004
£000 £000
Revenue 2 174,839 146,883
Cost of sales (95,358) (79,097)
______ ______
Gross profit 79,481 67,786
Other income 79 136
Distribution costs (1,959) (1,816)
Administrative expenses (41,002) (35,638)
Other expenses (69) (36)
______ ______
Operating profit 2 36,530 30,432
Financial income 4,479 4,854
Financial expenses (4,352) (3,780)
______ ______
Profit before tax 36,657 31,506
Tax expense 3 (12,043) (10,508)
______ ______
Profit for the year 24,614 20,998
===== =====
Pence Pence
Basic earnings per share 4 28.6 24.5
Diluted earnings per share 4 28.4 24.3
Consolidated Balance Sheet
at 31 December 2005
Notes 2005 2004
£000 £000
Assets
Property, plant and equipment 17,214 13,877
Intangible assets 22,038 20,169
Deferred tax assets 9,115 6,988
Other receivables 633 489
______ ______
Total non-current assets 49,000 41,523
Inventories 26,697 21,015
Trade receivables 36,492 34,060
Current tax 2,225 2,176
Other receivables 2,560 2,525
Cash and cash equivalents 27,878 25,298
______ ______
Total current assets 95,852 85,074
______ ______
Total assets 144,852 126,597
===== =====
Equity
Issued equity capital 4,310 4,300
Preference shares - 47
Share premium 5,609 4,993
Reserves 2,405 425
Retained earnings 68,241 58,489
______ ______
Total equity 5 80,565 68,254
====== ======
Liabilities
Interest-bearing loans and borrowings 236 268
Employee benefits 6 25,078 23,569
Deferred tax liabilities 1,164 1,155
Provisions 654 521
______ ______
Total non-current liabilities 27,132 25,513
Bank overdraft 698 473
Interest bearing loans and borrowings 1,016 253
Trade payables 14,937 15,609
Current tax 5,620 5,779
Other payables 13,129 9,674
Provisions 1,755 1,042
______ ______
Total current liabilities 37,155 32,830
Total liabilities 64,287 58,343
______ ______
Total equity and liabilities 144,852 126,597
====== ======
Total equity as shown above for 2004 contains £47,000 non-equity on an FRS 4
basis.
These financial statements were approved by the Board of Directors on 27
February 2006 and were signed on its behalf by WH Whiteley and RE Slater,
Directors.
Consolidated Statement of Cash Flows
for the year ended 31 December 2005
2005 2005 2004 2004
£000 £000 £000 £000
Cash flows from operating activities
Profit for the year 24,614 20,998
Adjustments for:
Amortisation of intangibles 179 70
Amortisation of development costs 293 322
Depreciation 2,671 2,577
Equity settled share based payment expense 312 208
Loss / (profit) on sale of fixed assets 22 (72)
Financial income (4,479) (4,854)
Financial expenses 4,352 3,780
Income tax expense 12,043 10,508
______ ______
40,007 33,537
Increase in inventories (3,359) (2,600)
Increase in trade and other receivables (685) (6,228)
Increase in trade and other payables 1,325 4,130
Difference between pension charge and cash (3,243) (5,633)
contribution
Increase / (decrease) in provisions 709 (130)
Increase in other employee benefits 1,509 748
______ ______
36,263 23,824
Income taxes paid (11,296) (10,441)
______ ______
Cash flows from operating activities 24,967 13,383
Investing activities
Purchase of tangible fixed assets (1,396) (3,099)
Development costs capitalised (291) (102)
Sale of tangible fixed assets 94 295
Acquisition of subsidiary net of cash acquired (7,227) (912)
Interest received 776 973
______ ______
Cash flows from investing activities (8,044) (2,845)
Financing activities
Issue of ordinary share capital 626 458
Purchase of ordinary share capital (2,236) (691)
Purchase of own preference shares - (5)
Interest paid (232) (136)
Repayment of amounts borrowed 677 188
Repayment of finance lease liabilities (100) (58)
Dividends paid on ordinary shares (13,437) (17,751)
Dividends paid on preference shares - (4)
______ ______
Cash flows from financing activities (14,702) (17,999)
______ ______
Net increase / (decrease) in cash and cash 2,221 (7,461)
equivalents
Cash and cash equivalents at 1 January 24,825 32,134
Effect of exchange rate fluctuations on cash 134 152
held
______ ______
Cash and cash equivalents at 31 December 27,180 24,825
====== ======
Consolidated Statement of Recognised Income and Expense
For the year ended 31 December 2005
2005 2004
£000 £000
Foreign exchange translation differences 2,190 (1,212)
Actuarial loss in pension scheme (3,452) (5,792)
Movement on deferred tax relating to actuarial loss 2,552 237
Effective portion of changes in fair value of cash flow hedges (487) -
______ ______
Net gain / (loss) recognised directly in equity 803 (6,767)
Net profit for the year 24,614 20,998
______ ______
Total recognised income and expense 25,417 14,231
=====
Reclassification of preference shares (47)
Effective cash flow hedges at 1 January 2005 277
_____
25,647
=====
Notes to the Financial Statements
for the year ended 31 December 2005
Except where indicated, values in these notes are in £'000
Rotork plc is a Company domiciled in England. The consolidated financial
statements of the Company for the year ended 31 December 2005 comprise the
Company and its subsidiaries (together referred to as the Group). The accounting
policies contained below in note 1 and all the notes all relate to the Group
statements.
1. Accounting policies
Basis of preparation
The Group is preparing its consolidated financial statements in accordance with
International Financial Reporting Standards and its interpretation issued by the
International Accounting Standards Board that have been adopted by the EU ('
Adopted IFRS') for the first time and consequently has applied IFRS 1. An
explanation of how the transition to Adopted IFRSs has affected the reported
financial position, financial performance and cash flows of the Group is
provided in the restatement of the 2004 audited accounts issued on 21 June 2005.
In addition to exempting companies from the requirement to restate comparatives
for IAS 32 and IAS 39 (which the Group has taken), IFRS 1 grants certain
exemptions from the full requirements of IFRSs on transition. The following
exemptions have been taken by the Group in the preparation of its consolidated
financial statements for the year ended 31 December 2005:
• Business combinations - Business combinations that took place prior to
1 January 2004 have not been restated.
• Fair value or revaluation as deemed cost - At the date of transition,
fair value has been used as deemed cost for properties previously
measured at fair value.
• Employee benefits - All cumulative actuarial gains and losses on
defined benefit plans have been recognised in equity at 1 January 2004.
• Cumulative translation differences - Cumulative translation differences
for all foreign operations have been set to zero at 1 January 2004.
In preparing the 2004 and 2005 financial information within its consolidated
financial statements under Adopted IFRS, the directors have elected to adopt the
endorsed December 2004 amendment to IAS 19 -Employee Benefits and the April 2005
endorsed amendment to IAS 39 - Cash Flow Hedge Accounting of Intra-group
Forecast Transactions before they were endorsed by the EU.
Basis of accounting
The consolidated financial statements have been prepared under the historical
cost convention with the exception of derivative financial instruments which
have been accounted for in accordance with IAS 32 and IAS 39 from 1 January
2005. The accounting policies set out in the restatement of the 2004 audited
accounts issued on 21 June 2005 have been consistently applied in preparing an
opening IFRS balance sheet at 1 January 2004 for the purposes of transition to
IFRS and for preparing the 2004 and 2005 financial information within its
consolidated financial statements for the year ended 31 December 2005 with the
exception of IAS 32 and IAS 39 which were applied from 1 January 2005. The
accounting policies have been applied consistently in respect of Group entities.
The preparation of consolidated financial statements in conformity with Adopted
IFRSs requires the directors to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods. The key areas where estimates have been used and the assumption
applied are in the impairment testing of goodwill and in assessing the defined
benefit pension scheme liabilities.
Status of this preliminary announcement
The financial information contained in this preliminary announcement does not
constitute the Company's statutory accounts for the years ended 31 December 2005
or 2004. Statutory accounts for 2004, which were prepared under UK GAAP, have
been delivered to the registrar of companies, and those for 2005, prepared under
International Financial Reporting Standards as adopted by the EU, will be
delivered in due course. The auditors have reported on these accounts, their
reports were unqualified and did not contain statements under section 237 (2) or
(3) of the Companies Act 1985. Full financial statements for the year ended 31
December 2005, will shortly be posted to shareholders, and after adoption at the
Annual General Meeting on 21 April 2006 will be delivered to the registrar.
2. Analysis of revenue, profit and net assets
The primary format used for segmental reporting is by business segment as this
reflects the internal management structure and reporting of the Group. Segment
results, assets and liabilities include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis. Unallocated
expenses comprise corporate expenses and unallocated assets and liabilities
comprise cash, borrowings tax assets and liabilities respectively. Inter group
trading is determined on an arm's length basis.
Business segments
The Group comprises the following business segments:
Electrics - the design, manufacture and sale of electric valve actuators
Gears - the design, manufacture and sale of gearboxes, adaption and ancillaries
for the valve industry
Fluid system - the design, manufacture and sale of heavy duty pneumatic and
hydraulic valve actuators
Geographic segments
Rotork has a worldwide presence in all three business 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 operation:
Electrics Gears Fluid system Eliminations Consolidated
2005 2005 2005 2005 2005
Revenue from external customers 128,535 13,983 32,321 - 174,839
Inter-segment revenue - 5,080 - (5,080) -
______ ______ ______ ______ ______
Total revenue 128,535 19,063 32,321 (5,080) 174,839
====== ====== ====== ====== ======
Segment result 30,912 3,825 3,669 - 38,406
====== ====== ====== ======
Unallocated expenses (1,876)
______
Operating profit 36,530
Net financing income 127
Income tax expense (12,043)
______
Net profit for the year 24,614
=====
Electrics Gears Fluid system Eliminations Consolidated
2004 2004 2004 2004 2004
Revenue from external customers 109,345 13,736 23,802 - 146,883
Inter-segment revenue - 4,070 - (4,070) -
______ ______ ______ ______ ______
Total revenue 109,345 17,806 23,802 (4,070) 146,883
====== ====== ====== ====== ======
Segment result 25,719 3,192 2,962 - 31,873
====== ====== ====== ======
Unallocated expenses (1,441)
______
Operating profit 30,432
Net financing income 1,074
Income tax expense (10,508)
______
Net profit for the year 20,998
======
Electrics Gears Fluid system Unallocated Consolidated
2005 2005 2005 2005 2005
Segment assets 63,973 12,964 28,691 39,224 144,852
=====
Segment liabilities 44,666 2,743 8,145 8,733 64,287
=====
Depreciation 2,228 219 696 - 3,143
Non-cash items 527 12 213 32 784
Capital expenditure 1,024 128 480 - 1,632
Electrics Gears Fluid system Unallocated Consolidated
2004 2004 2004 2004 2004
Segment assets 57,862 12,072 22,200 34,463 126,597
=====
Segment liabilities 40,357 2,434 7,624 7,928 58,343
=====
Depreciation 2,203 284 482 - 2,969
Non-cash items 39 9 57 332 437
Capital expenditure 2,628 177 643 - 3,448
Analysis by Geographical segment Europe Americas Rest of the Unallocated Consolidated
World
2005 2005 2005 2005 2005
Revenue from external customers by 73,967 50,544 50,328 - 174,839
location of customer
Segment assets by location of assets 67,102 23,578 14,948 39,224 144,852
Capital expenditure by location of 1,288 168 176 - 1,632
assets
Analysis by Geographical segment Europe Americas Rest of the Unallocated Consolidated
World
2004 2004 2004 2004 2004
Revenue from external customers by 66,036 41,704 39,143 - 146,883
location of customer
Segment assets by location of assets 58,491 20,146 13,497 34,463 126,597
Capital expenditure by location of 2,380 201 867 - 3,448
assets
All of the activities of the Group in the year arise from continuing operations.
The 2004 segment results and assets and liability allocations have been restated
to reflect a more appropriate allocation of share scheme costs and liabilities.
3. Income tax expense recognised in the income statement
2005 2005 2004 2004
Current tax:
UK Corporation tax on profits for the year 8,976 6,258
Double tax relief (5,441) (1,995)
Adjustment in respect of prior years 70 156
______ ______
3,605 4,419
Overseas tax on profits for the year 7,470 5,879
Adjustment in respect of prior years 22 21
______ ______
7,492 5,900
______ ______
Total current tax 11,097 10,319
Deferred tax:
Origination and reversal of other temporary 1,089 129
differences
Adjustment to estimated recoverable amounts of (143) 60
deferred tax assets arising in previous periods
______ ______
Total deferred tax 946 189
_____ _____
Tax charge on profit on ordinary activities 12,043 10,508
===== =====
Effective tax rate (based on profit before tax) 32.9% 33.4%
Profit before tax 36,657 31,506
Profit on ordinary activities multiplied by standard 10,997 9,452
rate of corporation tax in the UK of 30%
Effects of:
Non deductible expenses 577 150
Unrelieved losses (38) 25
Higher tax rates on overseas earnings 558 644
Adjustments to tax charge in respect of prior (51) 237
periods
______ ______
Current tax charge for period 12,043 10,508
====== ======
Deferred tax of £342,000 (2004: £175,000) in respect of share based payments has
been recognised directly in equity in the period.
The Group continues to expect its effective rate of corporation tax to be
slightly higher than the standard UK rate due to higher rates of tax in the US,
Canada, France, Germany, Italy and India.
No deferred tax is recognised on the unremitted earnings of overseas
subsidiaries. As the unremitted earnings are continually reinvested by the
Group, no tax is expected to be payable on them in the foreseeable future.
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. It is not practical to quantify the unrecognised deferred
tax liability as acknowledged within paragraph 40 of IAS 12.
4. Earnings per share
Basic earnings per share
Earnings per share is calculated for both the current and previous years using
the profit attributable to the ordinary shareholders for the year. The earnings
per share calculation is based on 86.1 million shares (2004: 85.8 million
shares) being the weighted average number of ordinary shares in issue for the
year.
2005 2004
Net profit attributable to ordinary shareholders
Profit for the year 24,614 20,998
Dividends on non-redeemable cumulative preference shares - (4)
______ ______
Net profit attributable to ordinary shareholders 24,614 20,994
====== ======
Weighted average number of ordinary shares
Issued ordinary shares at 1 January 85,867 85,832
Effect of own shares held 62 (127)
Effect of shares issued under options 130 96
______ ______
Weighted average number of ordinary shares for the year ended 31 December 86,059 85,801
====== ======
Diluted earnings per share
Diluted earnings per share is based on the profit for the year attributable to
the ordinary shareholders and 86.7 million shares (2004: 86.4 million shares).
The number of shares is equal to the weighted average number of ordinary shares
in issue adjusted to assume conversion of all dilutive potential ordinary
shares. The Company has two categories of dilutive potential ordinary shares:
those share options granted to employees 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.
2005 2004
Net profit attributable to ordinary shareholders (diluted)
Net profit attributable to ordinary shareholders 24,614 20,994
====== ======
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares for the year ended 31 December 86,059 85,801
Effect of share options on issue 108 86
Effect of LTIP shares on issue 545 482
______ ______
Weighted average number of ordinary shares (diluted) for the year ended 31 86,712 86,369
December
====== ======
5. Capital and reserves
Issued Preference Share Translation Capital Hedging Retained Total
equity shares premium reserve redemption reserve earnings
capital reserve
Balance at 1 4,292 50 4,543 - 1,634 - 60,567 71,086
January 2004
Profit for the - - - - - - 20,998 20,998
financial year
Other items in the - - - (1,212) - - (5,555) (6,767)
statement of
recognised income
and expense
Equity settled - - - - - - 228 228
transactions net of
tax
Share options 8 - 450 - - - - 458
exercised by
employees
Own ordinary shares - - - - - - (691) (691)
acquired
Own ordinary shares - - - - - - 702 702
awarded under share
schemes
Own preference - (3) - - 3 - (5) (5)
shares acquired
Dividends to - - - - - - (17,755) (17,755)
shareholders
_____ _____ _____ _____ _____ _____ _____ _____
Balance at 31 4,300 47 4,993 (1,212) 1,637 - 58,489 68,254
December 2004
Adoption of IAS 32 - (47) - - - 277 - 230
& IAS 39
_____ _____ _____ _____ _____ _____ _____ _____
Restated opening 4,300 - 4,993 (1,212) 1,637 277 58,489 68,484
balance
Profit for the - - - - - - 24,614 24,614
financial year
Other items in the - - - 2,190 - (487) (900) 803
statement of
recognised income
and expense
Equity settled - - - - - - 562 562
transactions net of
tax
Share options 10 - 616 - - - - 626
exercised by
employees
Own ordinary shares - - - - - - (2,236) (2,236)
acquired
Own ordinary shares - - - - - - 1,149 1,149
awarded under share
schemes
Dividends to - - - - - - (13,437) (13,437)
shareholders
_____ _____ _____ _____ _____ _____ _____ _____
Balance at 31 4,310 - 5,609 978 1,637 (210) 68,241 80,565
December 2005
===== ===== ===== ===== ===== ===== ===== =====
Share capital and share premium
Number of shares (000) 5p Ordinary 5p Ordinary 5p Ordinary 5p Ordinary £1
shares shares shares shares Non-redeemable
9.5% Preference
Authorised Issued and Authorised Issued and shares
full paid full paid
2005 2005 2004 2004 2004
On issue at 1 January 5,449 4,300 5,449 4,292 50
Purchased for cash and cancelled - - - - (3)
Issued under employee share schemes - 10 - 8 -
_____ _____ _____ _____ _____
On issue at 31 December - fully paid 5,449 4,310 5,449 4,300 47
===== ===== ===== ===== =====
Number of shares 108,990 86,192 108,990 85,944
===== ===== ===== =====
Dividends
The following dividends were paid in the year:
2005 2004
9.7p (2004: 9.5p) per qualifying ordinary share 8,342 8,143
5.9p (2004:5.35p) per qualifying ordinary share 5,095 4,594
2004 additional interim dividend 5.85p per qualifying ordinary share - 5,014
_____ _____
13,437 17,751
===== =====
After the balance sheet date the following dividends were proposed by the
directors. The dividends have not been provided for and there are no corporation
tax consequences.
2005 2004
Final proposed dividend
9.9p per qualifying ordinary share 8,521
=====
9.7p per qualifying ordinary share 8,303
=====
Additional interim dividends proposed for 2006
5.8p per qualifying ordinary share 5,000
5.8p per qualifying ordinary share 5,000
_____
10,000
=====
6. Employee benefits
2005 2004
Recognised liability for defined benefit obligations:
Present value of unfunded obligations 89,501 74,486
Fair value of plan assets (69,125) (54,650)
______ ______
20,376 19,836
Defined contribution scheme liabilities 543 502
Employee bonus and incentive plan 2,113 1,663
Long-term incentive plan 1,542 1,075
Employee indemnity provision 357 356
Liability for long-service leave 147 137
______ ______
25,078 23,569
===== =====
Defined benefit pension liabilities
The Group makes a contribution to three defined benefit plans to provide
benefits for employees upon retirement.
Movements in the present value of defined benefit obligations
2005 2004
Liabilities at 1 January 74,486 64,203
Current service costs 1,378 1,502
Member contributions 506 440
Interest cost 4,048 3,556
Benefits paid (1,339) (1,731)
Actuarial loss 9,930 6,783
Currency losses / (gains) 492 (267)
_____ _____
Liabilities at 31 December 89,501 74,486
===== =====
Movements in fair value of plan assets
2005 2004
Assets at 1 January 54,650 44,700
Expected return on scheme assets 3,770 3,477
Employer contributions 4,568 7,040
Member contributions 506 440
Benefits paid (1,339) (1,731)
Actuarial gains 6,693 884
Currency gains / (losses) 277 (160)
_____ _____
Assets at 31 December 69,125 54,650
===== =====
Expense recognised in the income statement
2005 2004
Current service costs 1,378 1,502
Interest on obligation 4,048 3,556
Expected return on plan assets (3,770) (3,477)
_____ _____
1,656 1,581
===== =====
The expense is recognised in the following line items in the income statement
2005 2004
Cost of sales 351 382
Administrative expenses 1,027 1,120
Net financing income 278 79
_____ _____
1,656 1,581
===== =====
Actuarial gain on plan assets 6,693 884
Actuarial loss from liabilities (9,930) (6,783)
Currency (losses) / gains (215) 107
_____ _____
Net actuarial loss recognised in Consolidated Statement of Recognised Income and (3,452) (5,792)
Expense
===== =====
Cumulative actuarial loss recognised in Consolidated Statement of Recognised (3,452)
Income and Expense
=====
2005 2004 2003 2002 2001
Defined benefit obligation (89,501) (74,486) (64,203) (54,400) (50,300)
Scheme assets 69,125 54,650 44,700 37,800 44,400
_____ _____ _____ _____ _____
Deficit (20,376) (19,836) (19,503) (16,600) (5,900)
Experience adjustments on (9,930) (6,783) (6,750) (1,100)
liabilities
Experience adjustments on assets 6,693 884 3,700 (10,300)
Experience adjustments on currency (215) 107 50 100
Liability for defined benefit obligations
The principal actuarial assumptions at the balance sheet date (expressed as
weighted averages)
UK scheme US scheme Average
(% per annum) (% per annum) (% per annum)
2005 2004 2003 2005 2004 2003 2005 2004 2003
Discount rate 4.70 5.30 5.45 5.40 5.66 6.10 4.74 5.32 5.48
Rate of increase in 4.0 3.9 3.8 4.5 4.5 4.5 4.03 3.93 3.84
salaries
Rate of increase in 3.0 2.9 2.8 0.0 0.0 0.0 2.85 2.78 2.66
pensions (post May
2000)
Rate of increase in 4.5 4.5 4.5 0.0 0.0 0.0 4.27 4.31 4.28
pensions (pre May
2000)
Rate of price 3.0 2.9 2.8 3.5 3.5 3.5 3.03 2.93 2.84
inflation
The expected rates of return were: Expected rate of return
%
2005 2004 2003
Equities 7.40 7.90 8.20
Bonds 4.40 4.90 5.10
Other 4.40 4.90 4.90
US deposit administration contract 6.00 6.00 6.00
The mortality assumption used is PA92 c2004 with an adjustment to the discount
rate of -0.1% per annum to allow for future improvements in mortality.
Defined contribution pension liabilities
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 £519,000 (2004: £533,000).
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